Dive Brief:
- Harley-Davidson Softail and Sportster bikes will not be subject to a 31% EU import tariff after the company successfully petitioned the EU to stick to the previous rate of 6% on motorcycles imported from Thailand, where the company manufactures for the European market. A few other models are still awaiting approval, but CFO John Olin said on the company's second-quarter earnings call Tuesday he expects the outstanding approvals later this year.
- "The approval process took longer than we expected and delayed our ability to achieve expected savings this year and activating contingencies drove higher costs as well," said CEO Matt Levatich. The company is unlikely to feel the lower tariff rate until Q2 of fiscal year 2020, said Olin, since it has inventory to sell through before bringing in more.
- The regulatory victory offers a bit of relief but did not come soon enough to protect the company's profitability this year. The Thailand plant has been idle while waiting for the approvals, adding to costs, causing the company to adjust its margin projections down from 8-9% to 6-7% for 2019.
Dive Insight:
Things are finally looking up for Harley-Davidson after EU and U.S. tariffs posed a serious threat to the company for more than a year.
The Thailand facility was supposed to inoculate Harley from any U.S. or China trade dust-ups, but had the EU import tariff stuck at 31% and then increased to 56% in 2021 as planned, it could have been a poison pill. Now that the tariff rate to import bikes from Thailand to the EU will stay in the single digits, the move looks wise once again.
"We look forward to putting the burden and uncertainty of the European incremental tariffs behind us and we look forward to restoring roughly a $100 million of annualized margin which we expect to begin early in the second quarter of 2020," said Olin.
The CFO said despite the good news, the company will still pay $100 million in tariffs this year, as it announced in January.
Correction: A previous version misstated the location of Harley's new factory.
