Harley Davidson’s manufacturing unit shifted from Missouri to Thailand in order to avoid European tariffs as that market gained importance in its sales volume. Matt Levatich, CEO of Harley Davidson expressed satisfaction with his company’s move to shift production from the United States to Thailand on the company’s first-quarter earnings call.
“During the quarter, we saw proof in the wisdom of our Thailand manufacturing investment … The tariff mitigation we realized allowed more competitive pricing and access to more customers,” said Matt Levatich.
As the current mitigation efforts may not last, Harley Davidson is waiting for the approval from the EU to lower down the import tariff rate to 6% for motorcycles. Levatich said, “that tariff will increase another 25 points in June of 2021 to 56 points total.”
We expect the first quarter will be adversely affected by incremental tariffs, unfavorable mix, lost absorption on lower shipments and unfavorable currency, partially offset by lower year-over-year restructuring costs,” said John Olin, Harley Davidson CFO on the company’s January earnings call.
Executives are more optimistic about the retail environment in the remainder of 2019, but improving consumer trends are cold comfort in a shifting trade environment that seems to get worse for Harley at every turn. The company said in January it expects to pay $100 million in tariffs this year.
Moving production unit from Missouri to Thailand will be a short-term fix for this problem if the EU does not approve the company’s request to lower down the tariff rate. If the EU does not approve Harley’s request and if tariffs rise to 56% for the company, Harley Davidson will consider starting its production in Europe.
“Europe has always been an option as we looked at how to mitigate the EU retaliatory tariffs. It wasn’t our preferred option — Thailand was,” Levatich said. “So we have a number of other alternatives that we have at our disposal, should that approval not come our way.”