Harley Davidson is taking brand into the future of transportation

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Harley-Davidson’s just-released 2021 types contain the CVO lineup with the firm’s most state-of-the-art audio and infotainment choices, as effectively as its most recent braking, steering and safety characteristics.

Supply: Harley-Davidson

As a custom-minded 118-yr-aged bike maker, Harley-Davidson may well not look preferably positioned to prosper in a fast modifying globe where cars are increasingly electrified, self-driving, and shared. But the legendary enterprise could be much better positioned than quite a few stock marketplace investors betting on transportation suspect.

The firm’s U.S. bike profits peaked at additional than 260,000 way back in 2006, and have considering the fact that dropped about 40%. Demographics are component of the story, and it is a nicely-charted just one, in the inventory rate and broader narrative about Harley’s shopper industry. In 1985, the 12 months prior to Harley went general public, the median bike proprietor was only 27, according to the Bureau of Transportation Data. By 2018, the median age experienced risen to 50. But the legendary “HOG” manufacturer is turning itself close to beneath the leadership of president and CEO Jochen Zeitz, who took the helm past yr just after drawing praise for a turnaround engineered at European buyer manufacturer Puma.

Zeitz, and other new executives pushed the “Rewire” initiative, which has pushed the manufacturer to exit intercontinental markets with reduced opportunity to concentrate on 36 high-development-opportunity parts in North America, Europe and Asia. The firm also laid off 700 workforce to trim expenses. It shut out 2020 by coming into into a distribution settlement with Indian bike maker Hero and spinning off its electric powered bicycle operations to a new business exactly where it holds a minority stake.

“We think they are on the ideal track,” mentioned Garrett Nelson, senior fairness analyst at CFRA Analysis. He praised Harley’s late-October agreement with Hero as effective to both events. “Harley gets access to Hero’s existing distribution community in India and Hero positive aspects from the sale of extra motorcycles at its dealerships,” he stated. “It truly is a trade-off. Harley surrenders some of the margin for obtain to the distribution network in the speedy-rising industry.”

He added that Harley should pursue related alternatives with other established players to widen its exposure in a lot quicker-increasing Asian markets.

Harley in a Tesla earth

With the new financial approach in place, Harley’s is now hunting ahead. On February 2, it will introduce its approach for 2021 to 2025. Named Hardwire, the new strategy is “grounded in desirability,” in accordance to the firm, although it has not introduced particulars.

Up coming month Harley also is unveiling the Pan The united states, a huge journey-fashion motorbike intended to be at house both on- and off-street. It is the firm’s 1st foray into the adventure bike market place in which competition like BMW and Honda currently have a significant existence. The leisure market has become a more extreme target for consumer models as a result of shifts driven by the pandemic.

Nelson also was cautiously optimistic about the manufacturer’s potential clients in an significantly electrified future.

The LiveWire, Harley’s sole current electric motorcycle, reveals promise, but the corporation has been rather gradual bringing it to market place since its release in late 2019, he reported. The LiveWire retails for approximately $30,000, creating it just one of Harley’s extra high priced motorcycle offerings for the 2021 product calendar year, which assortment from $9,500 to $49,000.

“More than time, we are bullish on the possibility, supplied that we imagine lithium-ion battery costs are going to keep on slipping in the coming many years and electrical motor vehicles are heading to be seriously backed by the new administration,” Nelson reported. “We hope the charge of electric vehicles to get to parity with inner combustion engine vehicles by the middle of this 10 years, as battery prices continue to decline.”

Nonetheless, a surge in electrical motor vehicle output could travel up the expense of uncooked components this sort of as lithium and cobalt, which is a significant issue among the brands and is why providers these kinds of as Tesla have expressed interest in securing mining belongings.

Harley-Davidson’s share price is at a 52-week significant — like many corporations in this extended bull market — but stays well beneath its 2006 peak.

The company’s legendary manufacturer remains eye-catching, even as its financial fortunes have fluctuated.

“Harley-Davidson is the most valuable motorbike brand name on the planet,” wrote Craig Kennison, a senior analysis analyst and director of investigate operations at Baird, in a recent investigation notice. Harley’s robust brand, scale, and loyal buyers give it an gain around competitors, in his watch. In the meantime, Harley’s new management has set in area operational alterations that ought to push expansion in 2021, Kennison claimed, which include streamlining its item portfolio, cutting down dealer inventory 30%, and instituting ongoing yearly fees discounts of $115 million. “We progressively like the investment case for Harley-Davidson,” he wrote.

There may well be more price tag-cutting to occur, in accordance to Nelson. He claimed Harley should really seem to more shrink its international footprint to emphasis on marketplaces that are the most financially rewarding with the best very long-phrase development likely. But shrinking the total footprint does not imply much less aim on abroad individuals.

Revving up profits

“Correct now, they are distribute as well huge,” Nelson mentioned. “Involving 2006-2019, the enterprise grew its non-U.S. exposure from 22% of whole device gross sales volumes to 42%. We think they need to go on developing this share out of requirement simply because we believe its North American market is in secular decline.”

The Harley-Davidson Sportster 1200 Custom.

Source: Harley-Davidson

1 way Harley-Davidson is responding to a additional difficult customer market is by shifting its emphasis from expanding sector share on an absolute basis to increasing model exclusivity. The Rewire program was an acknowledgment from administration that blanketing the globe in a lookup for new product sales wasn’t the way to go.

“As an alternative of attempting to increase its revenue quantity, Harley-Davidson is now hoping to make a lot more income from each individual sale, even if it signifies advertising much less bikes,” Chung reported.

Harley-Davidson a short while ago reported a 39% maximize in internet earnings in the third quarter of 2020, when compared to the similar time period in 2019, even even though its world wide retail motorcycle product sales in the third quarter of 2020 had been down 8% when compared to the prior yr.

The final decision to lower its product or service line by about 30% would seem like a clever and required shift, mainly because of overlap. “A great deal of Harley’s solutions are quite related. Doing away with some of the reduced-carrying out merchandise generates a more streamlined solution portfolio, which helps cut down fees,” Chung stated. He mentioned it’s wise for the company to present much less versions, but then market a variety of extras and customization choices. This way, prospective buyers can individualize their bikes in specifics this kind of as paint, luggage, seats, stereo systems, brake updates, and other spots.

Wall Street sees price in Harley-Davidson. Citi analyst Shawn Collins a short while ago pegged as a lot as 15% upside in Harley’s inventory forward of subsequent month’s earnings and investor working day, composing in a observe to investors that he carries on to be inspired by new management’s choice-creating.

It truly is okay to be in a shrinking industry, if you happen to be improving upon the profitability of the products and solutions you provide.

Jaime Katz, Morningstar analyst

The company dropped a handful of products from its 2021 U.S. lineup – the FXDR 114, Minimal Rider, Breakout, Street Bob 107, Deluxe, Road 750, Street Rod, and Roadster.

Even with a trimmed portfolio, the company nonetheless provides two dozen distinct motorcycles, mostly concentrated in the cruiser and touring industry segments, as effectively as a trio of three-wheeled bikes.

“We believe Covid-19 has supplied Harley the chance to press the reset button on its technique and refocus work back again on its main consumer, a single which we think retains the key to bigger income margins,” stated Morningstar senior fairness analyst Jaime Katz in her November report on the manufacturer. She praised the Rewire initiative as a suggests of balancing restoration of the firm’s main business enterprise and entry into new marketplaces. “Prioritizing profitability about scale should really also refocus Harley on the accomplishment of large-margin sections and add-ons and standard items segments,” she added.

“It’s ok to be in a shrinking sector, if you are improving upon the profitability of the products you provide,” Katz told CNBC.

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