Of Lost Market Share, Livewires and Thai Built Bikes
As anticipated, Harley's second quarter fiscals make for depressing reading, with sales down by north of 8 percent during the primary selling period - that said, to be fair to Harley, the results are as anticipated when posting its Q1 results, and only a tad worse than expectations and guidance given in January.
As Matt Levatich pointed out in a results conference call with investors on July 23rd, the fact that the domestic U.S. 601+ cc market was down only 4.9% may mean that there is some hope that the steep decline seen in successive quarters for several years may be flattening out.
That still represents a further decline in market share though, from 48.4% in Q2 2018 to 46.6% in Q2 2019. Given that the hope that the month-on-month trend seen in Q1, which saw an improving picture for Harley sales as the quarter headed towards the end of March, does not appear to have sustained, with the best will in the world, it is still too early for straw clutching.
In which connection, the impossibly high hopes that September Livewire dealer shipments are burdened with still also look unrealistic despite enthusiastic press reaction and claimed (though not specified) pre-orders that are apparently "within expectations." I stand to be proven wrong of course, indeed I hope I am WAY wrong, but given the size of the existing market for electric motorcycles in the USA, and the extraordinarily high price-point for the first Livewire iteration, I fear that it could be more straw clutching.
Matt Levatich admits that it is a deliberately high-spec performance model (actually, by international standards, the spec is quite dated) and that lower price-point "middleweight" equivalent electric motorcycles will come along on the basis that Livewire can trailblaze and establish a market where none exists.
I don't know … at a $30k MRSP? In my experience, brands or product lines earn the right to be spendy by getting into a market and building out from an accessible start point. In the case of the motorcycle industry, the history of the development of market share ownership by the big four Japanese manufacturers kind of gives some context.
Harley has claimed that all its new 'More Roads' initiatives, of which Livewire will be the first to come to market, will be profitable. Am I cynical or realistic to be imagining investor conference calls a year to 18 months from now where Levatich and CFO John Olin are having to point to the launch and ramp-up costs of Livewire as being a drag on profits, rather than the much needed boost they are hoping it will be?
Levatich has pointed to the 'Electrify America' investment program as meaning that riders will soon have easy and convenient access to fast charge points in addition to the ones being installed at some (eventually most) Harley dealerships.
tariff-busting Thailand production
The 'Electrify America' program calls for 2,000 fast chargers at nearly 500 locations across 42 states by the end of 2019. DC Fast EV charging stations will be located along high-traffic corridors in 39 states, including two cross-country routes. Locations will accommodate between four and ten chargers, with charging power levels up to 350 kW available at every station, capable of adding 20 miles of range per minute to a vehicle. Nationally, each planned station site will be located no more than 120 miles apart and on key East and West Coast highways, planned locations average only 70 miles apart.
Well, the real-world range of the Livewire is likely to be in the region of 70 to 100 miles at best. It is going to be at least a decade until those riders looking for the convenience of 'Twist & Go' are able to ride in an equally convenient charging environment.
Harley is to be applauded for being prepared to try something new, something different, something daring - if only that same spirit had informed its decision-making for the past 30 years, then perhaps we wouldn't be looking at a balance sheet that puts the cart of electric motorcycles in front of the horse of ADV, Streetfighter and true, convincing, price-point middleweights.
Harley has now confirmed that the first of either its pre-production ADV or Streetfighter prototypes (or both) are already being test-ridden, doing some hard miles, and that they will be in showrooms in late 2020 as MY2021 models. This is good. But shouldn't they have taken the calculated risk of expanding the brand's meaning where there is already a market to compete in before indulging in the outright gamble of spending as yet unfilled capital coffers on a market that is as yet unproven?
Had Harley already been a decade or more into its internal combustion engine new models, then maybe it would by now have bought itself the wiggle room needed for such risk.
The other big news to come out of the Q2 investor call concerned the progress with its plans for tariff-busting Thailand production. It looks like Harley underestimated just how long it takes the EU to do anything, having expected to have had approval for the lower tariff rates on Thai production in time to have been able to be shipping Sportsters and Softails from Thailand to its EU DC six or more months ago.
Sadly, the EU is a three-toed sloth where its bureaucracy is concerned and the approvals for tariff relief have only recently come through, leaving Harley with a fully tooled factory and workforce sat idle for six or more months.
However, production is now expected to commence in October. Allowing for two months 'on-the-water' and three or so months for the 'units' to filter down through Harley's domestic European logistics, the company says it expects to see Thai made Softails and Sportsters on sale in Europe early in the second quarter of 2020.
Harley is 'eating' the EU tariff hit currently, but once it is able to get back down from the current 31% being applied to York, Pa. produced models, they will be back on the standard WTO 6% and saving around $100m a year. Even more importantly, they will be doing so well in advance of the 50% plus tier-two retaliatory tariff level presently slated for some stage in 2021.