Harley-Davidson’s just-introduced 2021 fashions embody the CVO lineup with the corporate’s most superior audio and infotainment choices, in addition to its newest braking, steering and security options.
As a tradition-minded 118-year-old motorcycle producer, Harley-Davidson might not appear ideally located to prosper in a quickly altering world the place automobiles are more and more electrified, self-driving, and shared. But the iconic firm may very well be higher positioned than many inventory market buyers betting on transportation suspect.
The firm’s U.S. bike gross sales peaked at greater than 260,000 method again in 2006, and have since dropped about 40%. Demographics are a part of the story, and it’s a well-charted one, within the inventory worth and broader narrative about Harley’s shopper market. In 1985, the yr earlier than Harley went public, the median motorcycle proprietor was solely 27, in accordance to the Bureau of Transportation Statistics. By 2018, the median age had risen to 50. But the iconic “HOG” brand is popping itself round beneath the management of president and CEO Jochen Zeitz, who took the helm final yr after drawing reward for a turnaround engineered at European shopper brand Puma.
Zeitz, and different new executives pushed the “Rewire” initiative, which has pushed the producer to exit worldwide markets with low potential to give attention to 36 high-growth-potential areas in North America, Europe and Asia. The firm additionally laid off 700 workers to trim prices. It closed out 2020 by coming into into a distribution settlement with Indian motorcycle maker Hero and spinning off its electrical bicycle operations to a brand new agency the place it holds a minority stake.
“We think they are on the right track,” famous Garrett Nelson, senior fairness analyst at CFRA Research. He praised Harley’s late-October settlement with Hero as useful to each events. “Harley gets access to Hero’s existing distribution network in India and Hero benefits from the sale of additional motorcycles at its dealerships,” he stated. “It’s a trade-off. Harley surrenders some of the margin for access to the distribution network in the fast-growing market.”
He added that Harley ought to pursue related alternatives with different established gamers to widen its publicity in faster-growing Asian markets.
With the brand new monetary technique in place, Harley’s is now wanting forward. On February 2, it can introduce its plan for 2021 to 2025. Called Hardwire, the brand new plan is “grounded in desirability,” in accordance to the corporate, although it has not launched particulars.
Next month Harley is also unveiling the Pan America, a big adventure-style motorcycle meant to be at house each on- and off-road. It is the corporate’s first foray into the journey bike market during which opponents like BMW and Honda have already got a big presence. The leisure market has grow to be a extra intense focus for shopper manufacturers on account of shifts pushed by the pandemic.
Nelson additionally was cautiously optimistic in regards to the producer’s prospects in an more and more electrified future.
The LiveWire, Harley’s sole present electrical motorcycle, exhibits promise, however the firm has been considerably gradual bringing it to market since its launch in late 2019, he stated. The LiveWire retails for practically $30,000, making it one among Harley’s dearer motorcycle choices for the 2021 mannequin yr, which vary from $9,500 to $49,000.
“Over time, we are bullish on the opportunity, given that we think lithium-ion battery costs are going to continue falling in the coming years and electric vehicles are going to be heavily subsidized by the new administration,” Nelson stated. “We expect the cost of electric vehicles to reach parity with internal combustion engine vehicles by the middle of this decade, as battery costs continue to decline.”
However, a surge in electrical automobile manufacturing may drive up the price of uncooked supplies comparable to lithium and cobalt, which is a serious concern amongst producers and is why corporations comparable to Tesla have expressed curiosity in securing mining property.
Harley-Davidson’s share worth is at a 52-week excessive — like many corporations on this prolonged bull market — however stays effectively under its 2006 peak.
The firm’s iconic brand stays engaging, whilst its monetary fortunes have fluctuated.
“Harley-Davidson is the most valuable motorcycle brand on the planet,” wrote Craig Kennison, a senior analysis analyst and director of analysis operations at Baird, in a current analysis be aware. Harley’s robust brand, scale, and constant prospects give it a bonus over opponents, in his view. Meanwhile, Harley’s new management has put in place operational adjustments that ought to drive development in 2021, Kennison stated, together with streamlining its product portfolio, decreasing supplier stock 30%, and instituting ongoing annual prices financial savings of $115 million. “We increasingly like the investment case for Harley-Davidson,” he wrote.
There could also be extra cost-cutting to come, in accordance to Nelson. He stated Harley ought to look to additional shrink its international footprint to give attention to markets which are probably the most worthwhile with the best long-term development potential. But shrinking the general footprint doesn’t imply much less give attention to abroad customers.
“Right now, they are spread too wide,” Nelson stated. “Between 2006-2019, the company grew its non-U.S. exposure from 22% of total unit sales volumes to 42%. We think they need to continue growing this percentage out of necessity because we believe its North American market is in secular decline.”
The greatest downside for Harley is well-known: the brand has had hassle interesting to youthful riders for years. “Younger consumers have shown an aversion to purchasing motorcycles for safety reasons, and vehicles in general due to the rise of ridesharing, as well as financial and urbanization trends,” Nelson stated. He famous that Harley’s home demand has been waning for effectively over a decade.
“Harley-Davidson has known for a while that it needs to reach younger customers,” stated Dennis Chung, the manufacturing editor at Motorcycle.com. “The problem is that demographic doesn’t necessarily want the same things in a motorcycle that Harley-Davidson’s older base values.”
Loads will hinge on the following technology of Harley-Davidson’s in style Sportster lineup of mid-sized cruisers, in accordance to Chung.
“There is definitely value in the classic Harley styling, but it needs to be balanced with modern design and modern technology,” he stated.
The Sportster lineup has been in steady manufacturing since 1957, and is one among Harley’s oldest mannequin traces.
The Harley-Davidson Sportster 1200 Custom.
One method Harley-Davidson is responding to a extra tough shopper market is by shifting its focus from rising market share on an absolute foundation to growing brand exclusivity. The Rewire plan was an acknowledgment from administration that blanketing the globe in a seek for new gross sales wasn’t the best way to go.
“Instead of trying to increase its sales volume, Harley-Davidson is now trying to earn more profit from each sale, even if it means selling fewer bikes,” Chung stated.
Harley-Davidson lately reported a 39% improve in web revenue within the third quarter of 2020, in contrast to the identical interval in 2019, although its international retail motorcycle gross sales within the third quarter of 2020 have been down 8% in contrast to the prior yr.
The determination to cut back its product line by roughly 30% looks like a sensible and crucial transfer, due to overlap. “A lot of Harley’s products are very similar. Eliminating some of the lower-performing products creates a more streamlined product portfolio, which helps reduce costs,” Chung stated. He stated it is smart for the corporate to supply fewer fashions, however then promote a variety of equipment and customization choices. This method, patrons can individualize their bikes in particulars comparable to paint, baggage, seats, stereo methods, brake upgrades, and different areas.
Wall Street sees worth in Harley-Davidson. Citi analyst Shawn Collins lately pegged as a lot as 15% upside in Harley’s inventory forward of subsequent month’s earnings and investor day, writing in a be aware to buyers that he continues to be inspired by new administration’s decision-making.
The firm dropped a handful of fashions from its 2021 U.S. lineup – the FXDR 114, Low Rider, Breakout, Street Bob 107, Deluxe, Street 750, Street Rod, and Roadster.
Even with a trimmed portfolio, the producer nonetheless provides two dozen completely different bikes, largely concentrated within the cruiser and touring market segments, in addition to a trio of three-wheeled bikes.
“We believe Covid-19 has given Harley the opportunity to press the reset button on its strategy and refocus effort back on its core consumer, one which we believe holds the key to higher profit margins,” said Morningstar senior fairness analyst Jaime Katz in her November report on the producer. She praised the Rewire initiative as a method of balancing restoration of the agency’s core enterprise and entry into new markets. “Prioritizing profitability over scale should also refocus Harley on the success of high-margin parts and accessories and general merchandise segments,” she added.
“It’s okay to be in a shrinking market, if you’re improving the profitability of the products you sell,” Katz instructed CNBC.