Shares of Harley-Davidson (NYSE:HOG), the iconic manufacturer of premium motorcycles, have surged by ~22% in the last six months and by over 32% last year. Despite the saturating heavyweight motorcycle industry in the U.S. and weak economic conditions in Europe, the automaker’s revenue increased by 7.4% year-on-year to reach nearly $4.3 billion in the nine months ending September 2013. India and China lead the charge for Harley Davidson in the Asia-Pacific region where sales rose by 10% during this period. As the company unveils its new Street 750 bike in India this month, we take a look at opportunities for the automaker in the country’s motorcycle market.
We have a $59 price estimate for Harley-Davidson, which is around 13% lower than the current market price.
Harley’s Street 750 Hits The Indian Roads
The Street 500 and Street 750, built on the new “Revolution X” platform, are the first lightweight motorcycles for Harley-Davidson since the 350 cc Sprint, which was discontinued in 1974. With these entry-level bikes, the company attempts to attract a wider customer base, especially in the emerging markets. India is the second largest motorcycle market in the world behind China with over 10 million motorcycles sold in a year and has a great appetite for mid-range motorcycles. Hero MotoCorp, Bajaj Auto and Honda Motors, which offer cheaper 100 to 150 cc bikes, dominate the Indian motorcycle market. On the other hand, the premium bikes division (>250 cc) constitutes only 17% of this market. 
However, the premium motorcycle segment has grown at a CAGR of 25% from 2009 to 2012 and is expected to continue growing at a rapid pace in the next few years. In addition, sales of midsize and large motorbikes have also surged by 60% in the seven months ending October 2013. The Indian consumer base offers a large pool of potential customers for premium bikes, with increasing disposable incomes and a rising proportion of high income groups in the country. According to a report released by Credit Suisse, India has around 182,000 millionaires, which is 15% greater than the corresponding figure in 2012. 
The relatively affordable Street series has been planned for the stop-and-go traffic with higher ground clearance, narrower chassis and a new suspension system, which suits the Indian roads. Harley will launch the Street 750 for now and plans to introduce the Street 500 later on to further its reach in the lightweight motorcycle market. The price for the Street 750 in India will be close to $8,000.
Competition In The Premium Segment In India
Harley-Davidson faces competition from companies such as Suzuki, Ducati, Yamaha and Honda in the Indian motorcycle market. Suzuki, which has a 40% market share in superbikes, is relatively cheaper compared to Harley’s previous offerings. With the Street series, Harley will now compete with Suzuki on a pricing front as well. What also works for Harley is that the new motorcycles will be assembled in India itself, in a completely-knocked-down unit at Bawal in Haryana. Production within the country will allow the company to circumvent high import tariffs and consequently compete at affordable prices.
Triumph Motorcycles also introduced its range of ten motorcycles in India in November last year, eyeing the growth potential of the country’s motorcycle market. Another company set to enter India by the first half of this year is Indian Motorcycles, owned by Polaris Industries. Polaris Industries looks to focus on cheaper and affordable heavyweight motorcycles and thus could challenge Harley-Davidson. Apart from these companies, Harley also faces a stiff competition from large domestic automakers such as Hero, Bajaj Auto and TVS Motor. Hero has a 49% stake in Erik Buell Racing LLC, a U.S. company run by a former Harley engineer that makes heavyweight motorcycles. On the other hand, Bajaj Auto already sells Kawasaki bikes in India and has partnered with Austria’s KTM Sports AG to sell two of its motorcycles in the country. TVS Motor also looks to develop premium motorcycles with engines up to 500 cc in collaboration with BMW AG for the Indian as well as international markets.
Even though Harley-Davidson faces strong competition in the Indian market, it will look to leverage its strong brand appeal. By designing marketing campaigns in India centered around the brand image, the company might be able to capture a fair share of the premium bike segment, given that it is now available at cheaper prices.Notes:
- “Harley-Davidson in the world’s second largest motorcycle market“ [↩]
- “High-end motorcycles rev up sales in India“, December 2013, wsj.com [↩]