American Icon rides across the pond

The latest victim of the endless saga that is now a trade war is none other than the iconic
American symbol, Harley-Davidson ($HOG). Waving the white flag based on recent tariff
announcements from the US and EU, Harley is faced with a tough decision: force customers to pay more, reduce sales, and hurt the brand image, or eat the tariffs like a gas station sandwich left out on a hot day. They are choosing to eat the tariffs, and here’s what we know so far:

  • $30-45 million cost for the rest of the calendar year 2018 (That’s equivalent to
    21,582,733 McDoubles on the low end of the scale, another American icon)
  • In the ballpark of $100 million cost for a full calendar year (11,000,000+ pairs of hot dogs at Yankee Stadium)
  • Average tariff impact will be ~$2,200 per bike, or 88 apple pies (Do you see where we
    are going with this?)

Harley-Davidson has a brand to protect, consumers to look out for, and a fiduciary duty to
stockholders. So what do they do? They use a loophole.

In good ol’ American fashion, they are planning on exploiting a loophole on the tariffs, and they will begin a 9 month(ish) process to move manufacturing overseas, not making all the bikes in the US, and therefore avoiding the tariff on “American imports.” Sounds reasonable right? Not so fast.

Decreased production and sell through will hurt American jobs and HOG will most likely look at factory layoffs, THE EXACT OPPOSITE EFFECT.

Keeping this in mind, and of course as an investor, you are looking for ways to make money. A good short in this case could be warranted, so SHORT HOG, but you can also look at peers, such as Polaris ($PII), short them, or Thor Industries ($THO) because what small family wouldn’t love a 36’ RV.

Keep an eye on $HOG as it rides off into the sunset waiving the white flag.

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