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Harley (HOG) to Shift Production to Escape EU Tariff Hike

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Harley-Davidson, Inc. (HOG - Free Report) reported its plan to shift the manufacturing of its motorcycles in the United States — which are sold in European Union (EU) — to international facilities. The decision has been taken after EU hiked import tariffs to 31% for products manufactured in the United States, effective Jun 22, 2018.

The hike in import tariffs has been levied by EU as a counter strike for raising tariffs on steel and aluminum, exported from the EU to the United States.

Harley-Davidson expects the increased tariffs to increase costs of up to $2,200 per average motorcycle if the company continues to ship motorcycles from the United States to the EU countries. Further, it has no plans to transfer the increased costs to wholesale or retail customers. Per the company, passing on the costs to dealers and retail customers might have a long-term negative impact on its business in the European region.

Harley-Davidson will have to bear the rise in costs due to increased tariffs, which will result in incremental costs of roughly $30-$45 million for the rest of 2018. Moreover, as the company has to ramp up production at its international facilities, it has to make investments to upgrade facilities, which are expected to take at least 9-18 months to be fully ready.

Harley-Davidson, Inc. Price and Consensus

 

Except for the United States, the company has three assembly plants in Brazil, India and Thailand.

In first-quarter 2018, Harley-Davidson’s international sales gained 0.2% to 21,777 motorcycles from 21,733 in the prior-year quarter, primarily driven by European sales.  Moreover, in full-year 2017, European countries were the second-highest contributor to the company’s revenues. Further, the company considers Europe as one of its critical markets. In order to overcome its declining demand in the U.S. markets, Harley-Davidson aims to improve its international reach and expects a boost of 50% in yearly volume by 2027.

Price Performance

Over a month, Harley-Davidson’s stock has moved down 1.8%, underperforming 6.5% increase of the industry it belongs to.

 

 

Zacks Rank & Stocks to Consider

Currently, Harley-Davidson has a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are Visteon Corporation (VC - Free Report) , Toyota Motor Corporation (TM - Free Report) and Ferrari N.V. (RACE - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Visteon has an expected long-term growth rate of 15%. Shares of the company have risen 33.2% over the past year.

Toyota has an expected long-term growth rate of 5.7%. Shares of the company have risen 23% over the past year.

Ferrari has an expected long-term growth rate of 17.3%. Shares of the company have risen 56.8% over the past year.

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