Harley-Davidson's in the midst of a triumphant comeback, but a new tariff fight in Europe could derail it

  • Harley-Davidson has a new CEO and a business strategy that’s starting to pay off.
  • The company recently impressed Wall Street with its late-pandemic comeback.
  • But it’s not all smooth roads ahead — Harley is in a new fight with the EU over tariffs. 
  • See more stories on Insider’s business page.

Harley-Davidson might be the best-known motorcycle maker on planet Earth and one of the USA’s most iconic companies, but for several years, it hasn’t been able to catch a break.

In 2018, then-CEO Matt Levatich unveiled a grand, global strategy to grow sales in new markets and move into the nascent electric market with the exciting — and, at $30,000, expensive — LiveWire. By 2019, the battery-powered bike wasn’t selling, and Harley dealers weren’t happy that the brand was distancing itself from its aging, legacy customer base.

To make matters worse, Levatich was in a pitched battle with Donald Trump. The president wanted the 118-year-old Milwaukee-based symbol of American freedom to scrap its plan to build bikes in Asia for the Far East market rather than assembling them in the US for export.

What was bad then got worse: Trump’s trade war with Europe led to retaliatory tariffs aimed at big-name US firms, including Harley. And this was all happening against a backdrop of falling annual motorcycle sales and Harley’s struggle to replace its older buyers with a younger generation of riders.

A change of strategy for the American icon

By 2020, it had all become too much for the Harley board. Levatich — who, in fairness, had perhaps the most difficult job in corporate America — was out. He was replaced by Jochen Zeitz, one-time CEO of Puma and longtime Harley board member. 

Zeitz immediately reversed course on Levatich’s transformation plan.

“We need to take significant actions and rewire the company now in terms of priorities, execution, operating model, and strategy to drive sustained profit and long-term growth,” he declared. “We’re calling it The Rewire and it is our playbook … leading to a new five-year strategic plan.”

For the record, Harley had run this playbook before, during the Great Recession. Harley was, back then, in a money-losing bind. It was also at the end of a period of diversifying its offerings and brands, moving away from its core business of big, expensive, profitable motorcycles. Then-CEO Keith Wandell got rid of distracting brands such as Buell sport bikes and MV Agusta and doubled down on the proper hogs. It worked and the company prospered again.

Zeitz has basically done the same thing, and Harley recently crushed Wall Street profit expectations for the first quarter and began to surf a robust recovery from the COVID-19 pandemic — a pandemic that cratered 2020 demand. 

In Q1, Harley raked in almost $1.5 billion in revenue, a helpful reminder that selling lots of a very expensive product is a good way to post an impressive topline number. Billion-dollar quarters have been the rule rather than the exception for Harley of late, and Zeitz is counting on that cash machine to make his plan work.

But as has been typical of Harley over the past few years, this victory is fleeting. The European Union announced that it would revoke a tariff deal with the motorcycle maker, increasing by several thousand dollars the sticker prices on every bike made outside Europe.

“The decision taken by the EU is unprecedented, unfair, and is a deliberate attempt to create a competitive disadvantage against our European competitors,” Zeitz said on a conference call with Wall Street analysts in April, and he was speaking truths. The EU wants its own motorcycle brands to capture as large a share as possible of the post-pandemic sales boom.

Harley can’t seem to avoid politics

Harley has been dueling with the Japanese motorcycle brands for decades in its home market, and more recently with the likes of BMW, Ducati, and upstarts such as Triumph and Royal Enfield. So the protectionist maneuver from Brussels is galling to Zeitz.

Emotion aside, the EU tariff is also a threat to the profitability that Harley needs to offset the structural decline in the motorcycle market. Levatich hoped to counter that with innovation and new products that broke with the “old” Harley paradigm, which relied on large cruiser bikes retailing for $20,000 or more. Zeitz went back to basics, but he still needs to take advantage of his lower labor costs outside Europe and the US to bolster his bottom line.

Zeitz didn’t take long to prove that his turnaround agenda would get Harley back on track, and his strategy was solid enough to endure the COVID-19 production shutdowns that rocked the entire transportation sector last year. But Harley can’t seem to avoid politics, either at home or abroad. That, unfortunately, is the price for having profitably wrapped yourself in the stars and stripes since the end of World War II.

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