Harley Davidson (HOG) finds itself in a familiar position as the European Union (EU) prepares to impose tariffs on a range of products, including “boats, bourbon, and motorbikes,” in retaliation to U.S. tariffs on steel and aluminum. The 27-member bloc has announced countermeasures targeting U.S. goods valued at €26 billion ($28.3 billion), which will be partially implemented on April 1st and fully enacted by April 13th. This action will reignite “rebalancing measures” initially introduced in 2018 and 2020 against the first series of Trump steel tariffs that affected items such as motorcycles and whiskey.
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This situation is reminiscent for motorcycle manufacturer Harley Davidson, which experienced a drop in its stock value back in 2018 when the EU responded to Trump’s earliest trade actions with tariffs. During that time, the EU raised tariffs on Harley-Davidson motorcycles from 6% to 31%, prompting the company to caution that an average Harley bike exported from the U.S. to the EU would cost around $2,200 more, resulting in a loss of $90 million to $100 million annually.
Familiar Circumstances for HOG
In a recent report, HOG acknowledged the looming challenges it faces once again. Based on the history of incremental rebalancing tariffs the EU enacted in 2018, the company stated in its annual report dated February 26th that it anticipated foreign countries, including the EU, to introduce rebalancing tariffs in response to the steel and aluminum tariffs already disclosed by the U.S.
If the EU decides to reinstate previously suspended tariffs, it will mean HOG motorcycles imported into the EU could face a 56% tariff, significantly elevating costs.
Harley-Davidson’s response previously was straightforward: shift production overseas. “To mitigate the significant cost of this tariff burden long-term, Harley-Davidson plans to relocate motorcycle production for EU markets from the U.S. to its international facilities to circumvent the tariff burden,” the company stated in June 2018.
However, the escalation of the trade conflict complicates this process. Additionally, the upcoming tariffs will inflate the costs of components and materials used in the manufacture of the company’s motorcycles and other products, further squeezing margins.
Back in 2018, the U.S. implemented tariffs on steel and aluminum imports from the EU. In response, the EU applied incremental rebalancing tariffs of 25% on selected U.S. goods, including non-electric motorcycles. In April 2021, these tariffs began to affect motorcycles imported from the company’s manufacturing sites in the U.S. and Thailand. On October 21, 2021, the U.S. and EU temporarily suspended these tariffs, with the EU’s suspension set to expire by the end of March this year.
Is HOG a Worthwhile Investment?
Wall Street currently holds a Moderate Buy consensus rating for HOG stock, based on four Buys, five Holds, and one Sell. The average price target for HOG stands at $30.13, suggesting a potential upside of about 16% from current levels.
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