DMLRY Mercedes Benz Group AG (PK)

By Bob Tita and Allison Prang 

Harley-Davidson Inc. plans to shift production overseas to avoid European Union tariffs on its iconic motorcycles, the latest manufacturer to reconfigure operations amid a widening global trade fight.

Harley has argued that its made-in-the-USA label was central to its appeal to customers all over the world. Overseas sales customers have become increasingly important to Harley as the company's loyal customers in the U.S. age. In some other markets, including Thailand, Harley has opened local factories to avoid tariffs and hold down prices.

Harley said in a security filing on Monday that tariffs of 31% the EU enacted last week on its motorcycles would raise the cost of each motorcycle it ships there from the U.S. by about $2,200. Rather than raise prices, Harley said it will shift production of the motorcycles it sells in the EU outside of the U.S. over the next 18 months.

"Increasing international production to alleviate the EU tariff burden isn't the company's preference, but represents the only sustainable option to make its motorcycles accessible to customers in the EU and maintain a viable business in Europe," Harley-Davidson said.

Harley's shares fell more than 3% in heavy pre-market trading on Monday.

Harley's Chief Executive Matt Levatich has made a priority of boosting overseas sales as ridership in the U.S. stalls. Harley's international sales rose 12% in the company's first quarter while U.S. sales declined 0.2%.

EU officials have said the EU'S tariffs are a response to the U.S. tariffs on steel and aluminum.

The company's announcement shows how countries' responses to President Donald Trump's tariffs stand to affect companies that do business abroad. Last week, luxury German car manufacturer Daimler AG warned that tariffs from China placed on vehicles manufactured in the U.S. would hurt revenue and profit from its Alabama factory that makes SUVs.

Harley-Davidson said it expects costs related to the tariffs to come out to about $30 million to $45 million for the rest of 2018 and about $90 million to $100 million annually.

Nearly 40,000 people bought the company's motorcycles in Europe in 2017, Harley-Davidson said. Europe is the company's second-largest source of revenue, behind the U.S.

While most of the company's motorcycles are made in the U.S., Harley-Davidson also has facilities in India, Brazil and Australia.

Shares of Harley-Davidson fell 2.7% premarket.

Write to Bob Tita at robert.tita@wsj.com and Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

June 25, 2018 09:23 ET (13:23 GMT)

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