Harley-Davidson Inc. (HOG) is hitting the brakes on some of its U.S. production.
The Milwaukee-based company announced Monday that it will shift production of some of its Europe-bound motorcycles to international facilities as a result of trade tariffs that have increased the cost of producing bikes stateside for export to the European Union.
In a filing with the Securities and Exchange Commission, Harley said EU tariffs on its motorcycles exported from the U.S. have increased to 31% from 6%. The company added that the tariffs will result in an incremental cost of about $2,200 per average bike exported to the EU from the U.S.
The company said it has no plans to increase its manufacturers suggested retail prices or wholesale prices to account for the increased cost, and plans instead to shift production outside of the U.S.
"Harley-Davidson believes the tremendous cost increase, if passed onto its dealers and retail customer, would have an immediate and lasting detrimental impact to its business in the region, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers' businesses," the company wrote.
In the near term, Harley will instead shift production of EU-bound bikes to international facilities. Ramping up production at international facilities could require incremental investment, Harley said, and may take nine to 18 months to be completed.
"Harley-Davidson maintains a strong commitment to U.S.-based manufacturing which is valued by riders globally. Increasing international production to alleviate the EU tariff burden is not 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," the company added.
Europe is Harley's second-largest market by revenue, topped only by the U.S. It sold nearly 40,000 new motorcycles in Europe in 2017.
"The production shift outside the U.S. would be an ironic response to the Trump administration's trade policies given its desire to increase U.S. manufacturing activity and jobs," said CFRA analyst Efraim Levy in a note.
Harley stock sputtered lower by 7.03% on Monday. Shares are lower 19.2% year to date.
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