Harley-Davidson, Inc.’s HOG shares scaled a three-year high on Monday after the company managed to avoid a massive import tariff of 56% imposed by the European Union (EU), to be paid for entry of the company’s motorcycles in the European market.
Post the news release, Harley-Davidson’s shares rallied more than 8% on Monday and ended the trading session at $51.96. The shares edged down to close at $50.19 in yesterday’s trading session.
Backdrop of the Situation
In 2018, the EU had hiked import tariffs on Harley-Davidson motorcycles from 6% to 31% in retaliation to erstwhile U.S. President Donald Trump’s tariffs on imported European aluminum and steel.
Post this announcement, Harley-Davidson decided to move its production overseas form the Unites States in order to escape the punitive taxes. In 2019, Harley received approval from EU regulators to import bikes from a newly-constructed facility in Thailand. This allowed it to import its motorbikes made outside of the United States into Europe via Belgium at a much lower 6% tariff.
However, this April, the EU revoked the approval and said that bikes produced in Thailand would be treated as U.S.-made.
Moreover, the EU threatened to slam a 56% import tariff on Harley-Davidson motorcycles effective Jun 1, 2021. The new tariffs, if implemented, would apply to Harley-Davidson’s entire line-up — regardless of origin. These increased tariffs would create a competitive disadvantage for the company’s products in Europe and pose to be a significant headwind for its future in Europe.
Thus, the iconic American motorcycle maker had decided to mount a legal challenge to this ruling.
Nevertheless, to Harley-Davidson’s relief, the EU stated on Monday that it would suspend the planned hike of retaliatory tariffs to 56% for up to six months as part of a trade truce reached with the United States.
Resultantly, the Milwaukee-based motorcycle maker’s bikes are now subject to a 25% retaliatory duty, hiking the overall duty on its bikes imported to the EU to 31%.
The company whole-heartedly embraced the truce as it would prevent tariffs from escalating to 56% from 31%. Nonetheless, Harley-Davidson is committed to legally challenge the EU ruling that revoked the concession, allowing it to ship bikes from facilities outside the United States at a tariff rate of 6%.
For Harley-Davidson, Europe is its second largest market after the United States, which will help drive the company’s turnaround strategy. However, higher tariffs would make its products expensive for customers, thus giving rivals a competitive edge. Hence, it is imperative for the company to be able to sell its products in Europe at an import duty of 6% to be able to maintain the market share.
–Zacks Equity Research
Yahoo Finance
