Harley-Davidson’s Tariff Avoidance Strategy Hits a Dead End in Europe
Harley-Davidson’s attempt to sidestep EU tariffs by shifting production overseas has hit a major roadblock. The European Union’s Court of Justice (CJEU) has ruled against the motorcycle giant’s cost-cutting efforts, further straining the company’s ability to compete in the European market.
Earlier, Harley-Davidson announced the temporary relocation of production for its Revolution Max powertrain models (including the Sportster lineup and Pan America adventure bikes) to Thailand. This move sparked controversy, not least because CEO Jochen Zeitz had previously pledged that all motorcycles sold in America would also be built in America. The decision drew the ire of unions and raised questions about the true motivation behind the overseas shift.
Cutting Costs or Dodging Tariffs?
On the surface, Harley’s offshore production shift was aimed at reducing costs and boosting profits, a standard business strategy. However, in the case of motorcycles destined for European markets, the move appeared more calculated. By producing bikes in Thailand, Harley hoped to skirt the EU’s 25% tariff on American-made motorcycles with engine capacities over 500cc.
This intent was confirmed by Harley’s own SEC filings. A 2018 Form 8-K explicitly stated the company’s goal of moving production to “avoid the tariff burden.” Harley acknowledged that while the relocation was not its preferred choice, it was deemed essential to maintain market viability in Europe.
EU Court Blocks the Plan
The CJEU, however, ruled that Harley’s relocation efforts were primarily driven by an attempt to circumvent tariffs rather than genuine economic motives. The court noted that any determination of intent must rely on objective evidence. Harley’s public statements in its investor filings provided exactly that.
Key excerpts from the 8-K filing undermined Harley’s case:
- Harley-Davidson acknowledged that the move was to “alleviate the EU tariff burden.”
- It emphasized Europe’s importance as its second-largest market after the U.S., with nearly 40,000 units sold in 2017.
Based on this evidence, the court concluded that Harley’s motivation was not to increase efficiency or profitability but to sidestep trade rules.
A Major Setback for Harley
This ruling delivers a significant blow to Harley-Davidson at a time when the company is already grappling with declining sales and rising unsold inventory. In its latest third-quarter results, Harley’s retail sales in the Europe, Middle East, and Africa (EMEA) region plunged 23% year-over-year, making it the company’s worst-performing sector.
The EU tariffs further erode Harley’s ability to price competitively in Europe. Known for their premium pricing, Harley motorcycles now face an additional 25% tariff, making them even less accessible to European customers.
What’s Next for Harley?
With its “most desirable motorcycle brand in the world” strategy and high-end pricing, Harley-Davidson needs to reassess its approach. The EU’s tariff decision highlights a critical flaw in its current model: relying on premium pricing while facing steep international trade barriers.
The company has pointed to high interest rates as a factor in declining sales, but the challenges run deeper. To regain its footing in the European market, Harley may need to explore alternative strategies, such as:
- Localized production in Europe: Building motorcycles directly within the EU to avoid tariffs.
- Broader product diversification: Introducing more affordable models tailored to European tastes.
- Revised pricing strategies: Finding a balance between premium branding and accessibility.
As Harley-Davidson faces one of its toughest periods in recent history, it must decide whether its traditional business model still aligns with today’s global market dynamics. Will the iconic American brand adapt or fall further behind?
Let us know your thoughts in the comments below.