Harley-Davidson, the quintessentially all-American motorcycle producer, announced plans this week, in the wake of blow-back from international markets on Trump’s tariffs on imports, to open production facilities in Europe and possibly Thailand.
According to Market Insider, “Shares of Harley-Davidson already sank 8 percent this week after the motorcycle maker announced new tariffs from the European Union will cause a “tremendous cost increase,” and Morgan Stanley says the company’s problems go far beyond any import taxes.
In a note to clients Friday, the bank said Harley’s decision to move some production of Europe-bound choppers overseas seemed unlikely.
“Will HOG really move production to Thailand or India to make its bikes for the EU market? We are not convinced,” Adam Jonas, the bank’s automotive analyst, said. “While manufacturers have long justified producing near end markets to mitigate taxes, logistics costs, and FX volatility… we don’t see Harley-Davidson deploying significant capital to produce significant volume of products in Asia for import into the EU as a medium-term or long-term solution.”
“Morgan Stanley remains overweight on the stock, with a price target of $53 — $1 lower than its previous target, but still 28% above where the stock was trading Friday.
“Still, Jonas worries the company ‘is engaging in a rather risky PR strategy’ by calling out President Donald Trump, who triggered the European tariffs by levying a tax on imported steel and aluminum earlier this summer.
“’Even before the tariff developments, estimates are depressed for company specific reasons that are very well known,’” Jonas said. “We believe that these serious issues (e.g. negative demographic trends) are rather long-lived and overshadowing powerful economic forces that should work in HOG’s favor.”
“Harley is in the midst of a decade-long turnaround plan that’s aimed at finding new, younger riders to convert to the Harley brand, hopefully resulting in higher sales. The company saw a 12 percent slump in U.S. sales in its most recent earnings report.
“Morgan Stanley says that while international sales are an important element of the company’s growth plan — Europe accounted for 38% of the brand’s sales in 2017 — it’s the U.S. fan base that will keep Harley in business.
“’We see the company’s reaction to the tariff underscores a few risks to this strategy beyond potential global trade conflicts. Investors must appreciate that international expansion will likely be driven by lower mix products, hitting incremental margins,’ Jonas said.
“Harley-Davidson is down 18.8% this year.”
Harleys are hefty bikes that come with a hefty price tag. While they do produce a line of lighter, lower bikes for female riders, Harley-Davidson’s bikes require some muscle to handle. If a rider goes down, they have to be able to lift it up again. You have to be young enough and strong enough to handle, but old enough and mature enough to afford and know how to ride it.
Harley may be seeking younger riders, and that’s okay, as long as they’re not too young. Your average 18 year-old would just love to straddle a hog and roar off into the sunset. However, teenage riders also have a tendency to lose their heads because they don’t know how to handle a bike as big and powerful as a Harley.
Middle-aged riders face the same dilemma. Once their kids are grown enough that their wives will let them out the door, they want to feel that big bike under them. But if they’ve never ridden before, they’ll be in the same situation as the novice teenager. Taking corners on a motorcycle requires skill and experience. Here in our North Jersey area, many a novice motorcyclist usually about age 45 – taken his first and last ride on Route 23’s notorious northbound curves.
Today’s would-be riders are also daunted by the traffic congestion on our highways (which are usually not the place to be riding a motorcycle, anyway). Even if they have the money, snowflake Millennials aren’t exactly Marlon Brando or Evel Knievel. Heck, they’re not even Harrison Ford or George Clooney.
If Harley-Davidson really wants to appeal to the risk-conscious snowflake set, they’re going to have to market snowflake bikes – smaller, lighter (and less expensive) motorcycles that can be ridden on secondary roads.
The age has long passed when every young kid wanted a minibike and eventually a street motorcycle. Marriage suspends that yearning until after the kids are in school, and by the time the guy wants a manlier bike, he either doesn’t know how to ride one or can’t afford to buy it.
Motorcycling is a great pastime. The few times I rode with my guy, before my inner chicken took over and I had to tell him no more (he wasn’t very happy), I did enjoy the freedom and the camaraderie of the bikers. My happiest memory of riding with him was as we were motoring through a town and he would wave to a passing motorcycle and they’d wave back.
I forget which bike we were on (he had something like seven or eight), but it wasn’t a Harley. He had one when he was young slip of a guy. But his mother made him sell it. He regretted selling it the rest of his days; it was one of those classic year bikes – 1947 or ’48?
Having ridden since he was a teen, he was a responsible rider. He had rules for riding. He didn’t take his bikes out until after the Springs rain had washed away the salt and other detritus from the road. He never rode the ruts or center of a lane (a rule I’d already learned from my brother) which is where the oil spills. And he knew how to take corners properly, probably the biggest cause of accidents for bikers.
He loved riding the back lanes of northern New Jersey. Once, I showed him a map of Switzerland, with some of the curviest roads in the world. I asked him how he’d like to take one of those roads. His eyes widened in appreciative pleasure. He’d love to, he said; he just didn’t know how he’d be able to ship his bike over to Europe.
As we rode along once, I noticed that he didn’t wave to the Harley riders and they didn’t wave to him.
“Harley riders only recognize other Harley riders,” he said.