Struggling with fallen demand for motorcycles and a steep tariff on its bikes sold in the European Union, Harley-Davidson Inc. on Tuesday reported a 26% drop in quarterly profit and said it would consider assembling bikes in Europe.
Meanwhile, President Donald Trump threatened to step up the trade war with the European Union over tariffs imposed on Harley and other American companies.
“So unfair to U.S. We will reciprocate!,” Trump tweeted after Harley said its net income for the recent quarter fell to $127.9 million, or 80 cents a share, from $174.6 million, or $1.03 a year earlier.
The president did not provide any detail on what actions he would take against the EU, but it’s not the first time he has weighed in on Harley-Davidson, the world’s largest manufacturer of heavyweight motorcycles.
Last summer he chastised Harley after it announced plans to move production of motorcycles destined for the European Union to Thailand, in response to the EU raising the tariff on American-built bikes from 6% to 31%.
“Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag. I fought hard for them and ultimately they will not pay tariffs selling into the E.U., which has hurt us badly on trade, down $151 Billion. Taxes just a Harley excuse — be patient,” Trump tweeted in June.
The president also encouraged people to boycott the company and threatened to impose higher taxes on it.
“A Harley-Davidson should never be built in another country — never! Their employees and customers are already very angry at them. If they move, watch it, it will be the beginning of the end — they surrendered, they quit! The Aura will be gone and they will be taxed like never before!,” Trump tweeted June 26.
Tuesday, rather than attack Harley, Trump focused his anger on the European Union for its tariffs that came in retaliation after the president placed tariffs on foreign steel and aluminum.
And with the EU’s tariff, essentially an import tax on Harley that’s scheduled to climb to 56% in June 2021, the company said it was reviewing all options including setting up a motorcycle factory in Europe.
“Europe has always been an option as we looked at how to mitigate the EU retaliatory tariffs,” CEO Matt Levatich said in a conference call with analysts.
About 16% of all new Harley-Davidson motorcycles are sold in Europe, a figure that’s been steady and is second in revenue only to the U.S. market. About 43% of the company’s bikes are sold outside the U.S., and Harley has set a goal of raising that to 50%.
Harley is awaiting approval from the European Union to have a 6% tariff placed on its bikes assembled in Thailand, not 31% or higher. But should that be denied, Levatich said, the company has contingency plans that could include assembling bikes in Europe.
The growth potential there, especially as Harley includes smaller bikes and an electric motorcyle in its lineup, is too important to be “hamstrung” by tariffs, Levatich said.
“Clearly this is an imperative for us as a business,” he added.
Harley says it expects to incur between $100 million and $120 million in incremental tariff costs this year, though Levatich said the majority of those costs could be mitigated by the end of the year through production in Thailand.
Harley said its revenue from motorcycles and related products fell 12% in the recent quarter, which ended March 31, to $1.2 billion. Worldwide retail sales fell 3.8%, while international sales fell 3.3%.
Sales in Europe and Asia fell 0.6% and 4%, respectively, with business in the United Kingdom suffering from continued uncertainty surrounding Brexit. Asian sales were hurt by a recall of Harley’s Street motorcycles, the smallest bikes in the company’s lineup.
U.S. sales fell 4.2%, the ninth consecutive quarterly drop, but it was the smallest decline for the company since the end of 2016.
Levatich attributed the progress to customer and dealer incentives and more money spent on marketing through the company’s More Roads to Harley-Davidson program.
“We’ve got a plan in place, and the plan is working,” he said.
Even as it expands abroad, earlier Harley said it has committed to investing $65 million in its manufacturing plants in Menomonee Falls and Tomahawk. Earlier this month, the United Steelworkers and Association of Machinists and Aerospace Workers ratified a five-year contract with the company at its Wisconsin plants.
The quarterly net income of $127.9 million, or 80 cents per share, topped Wall Street expectations of 67 cents a share.