Polaris CEO says new China tariffs could be 'catastrophic' for company

Polaris Chief Executive Scott Wine said new Chinese tariffs could be "catastrophic" to the Medina-based business, with the potential to erase one-third of the company's net income.

Since President Donald Trump tweeted Sunday that the U.S. would raise tariffs on Chinese goods to 25% on Friday, Polaris' shares have lost 10% in value. The announcement has caused havoc in the overall markets as well.

Wine told CNBC that Polaris has filed for an exemption from the tariffs and hopes it will be granted.

The maker of all-terrain vehicles, snowmobiles, motorcycles and boats already expected to pay $90 million in extra costs as a result of existing 10% tariffs on Chinese-made goods. But Wine said if those tariffs rise to 25% as Trump has threatened, Polaris' costs would more than double and could reach $200 million unless action is taken.

Polaris earned $335 million on $6 billion in vehicle sales last year, so a potential hit of $200 million in tariffs would be a hard blow, Wine said.

Polaris sources about 15% of its components from China and assembles them in the United States. Wine told CNBC Tuesday that the company might need to move work to Mexico if Trump's tariff increases go through.

In an e-mail to the Star Tribune Wednesday, Wine noted that new trade tariffs specifically hurt Polaris because, while it has plants in Mexico, Poland, France and China, it has chosen to build the majority of its products in the United States, while some competitors do not.

"The current and proposed tariffs uniquely disadvantage Polaris because of our decision to invest significantly in our U.S. manufacturing footprint and the U.S. worker, compared to our foreign competitors," Wine said. "We believe in the goal of freer and fairer trade, but the tariffs inadvertently provide foreign powersports companies with an unfair competitive advantage, which is counter to the ultimate goal of encouraging U.S. manufacturing."

Trump's proposal would raise tariffs from 10% to 25% on $200 billion worth of Chinese-made goods. It also would add tariffs to another $325 billion worth of goods.

This week's comments echo those Wine previously made in speeches criticizing U.S. trade tariffs for penalizing American producers. In a Chamber of Commerce luncheon in November, Wine pointed to the $142 million plant Polaris built in Huntsville, Ala., in 2016 and the $47 million being spent now to build a new 475,000-square-foot distribution center in Nevada.

Trade tariffs and regulations are two forces that could hamper such growth, he said.

"Scott Wine is a fearless advocate for free markets and the benefits to everyday people," Craig Kennison, a Robert W. Baird research analyst, said Wednesday. "The world could use more voices like his."

Longbow research analyst David MacGregor said many manufacturers have been bracing for the "big hit" of a China tariff hike and Polaris is no exception.

"There is no doubt that [Polaris] is unjustly vulnerable here," MacGregor said in an e-mail. "The fact that they are being penalized for having a Chinese supply channel, while competitors with Mexican supply and assembly operations (that are also not providing the same level of US employment) are not being tariffed doesn't seem very sporting."

The trade group Tariffs Hurt the Heartland includes 3M, Target, Best Buy and Cargill among its members. It recently issued a report saying that new and increased taxes on Chinese imports and retaliatory tariffs could slash the U.S. gross domestic product by 0.37% and cost a family of four $767 in higher prices. The old and new tariffs would also cut U.S. employment by about 934,000 U.S. jobs, the group said.

Even if Polaris raises its product prices, finds new suppliers and takes other moves to soften the impact of the new tariffs, Polaris could still see a third of its profits erased, company officials said.

Wine said the tariff shock could force the company to move production from the United States to Mexico, where Polaris has a factory in Monterrey. The company already started moving some European customer manufacturing from the U.S. to Poland in response to trade tariffs against European imports last year. That move, however was deemed small because it only affected orders for customers in Europe.

Future moves prompted by the new Chinese tariffs could be significantly larger, since so many components are sourced from China and imported to the United States.

Besides the Alabama plant, Polaris has U.S. manufacturing facilities in Roseau, Minn.; Spirit Lake, Iowa, and Osceola, Wis.

The company's stock had been on the rise this year, reaching $131 a share in May 2018. It fell 2% Wednesday to close at $91.24 a share. Polaris' stock has fallen $10 a share since Sunday.

Dee DePass • 612-673-7725