Could Delaying The Launch Of Project LiveWire Cost Harley-Davidson?

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It might be two to three years before Harley-Davidson (NYSE:HOG) launches its own plug-in motorcycle, code-named Project LiveWire. There are two ways in which this could play out– it could either give Harley enough time to upgrade its technology, and come out with a more solid, and potentially winning product, or it could give the company’s competition a head-start in the electric motorcycle space.

Our current price estimate for Harley-Davidson stands at $60, which is above the current market price.

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The iconic American maker of heavyweight motorcycles has been struggling in recent times, mainly due to the shifting customer preferences and an aging core customer base comprising Baby Boomers. Harley carried its weak form from the previous three quarters into Q1 this year. Revenues from sales of motorcycles and related products were down 3.9% year-over-year to $1.51 billion in Q1, due to a 1.4% fall in wholesale shipments and the impact of negative currency translations. Lower guidance and less-than-expected demand sent Harley’s stock tumbling last year. The stock is down 22% since the end of June last year, after rising 316% in the five-year period before that.

What has hurt Harley the most is lower volume sales in the U.S., which forms approximately two-thirds its net wholesale motorcycle shipments. Millennial customers prefer lighter weight motorcycles, and are more price conscious, especially after the recession. Despite improving economic conditions in the U.S., Harley hasn’t been able to gain much from the higher demand in the country’s heavyweight motorcycle market (the market size for 601+ cc bikes in the U.S. grew 2.5% in 2014, and another 9% in Q1 this year). This is also due to increased competitive price discounting by the competition, especially Japanese and European manufacturers who scaled down their product prices in the U.S., as the dollar continued to strengthen against other currencies. Harley needs a potential winner in the domestic market to boost its volume sales. The lighter weight Street 500 and 750 reflect Harley’s efforts to remain more in-tune with current trends, and the plug-in electric motorcycle is another step in this direction. So could the delayed launch of Project LiveWire hurt Harley-Davidson?

Why The Launch Of Project LiveWire Couldn’t Come Sooner For Harley

The new electric motorcycle dubbed LiveWire will help Harley attract outreach customers, comprising young adults, women, Hispanics, and African-Americans, as well as improve sales in international markets. For the third consecutive year in 2014, Harley grew sales to outreach customers by more than twice the sales-growth to core customers, which, however, still form a bulk of the company’s U.S. sales. The environmentally-viable and lighter electric motorcycle, LiveWire, could be more suited to the tastes and preferences of the outreach customers, helping Harley further expand its customer base.

 

The groundwork for this potential model launch is already in full flow. The company handed the LiveWire motorcycles to customers for test-drives or provided the riding experience in simulators last year in the U.S., in order to gauge their response to the new Harley model. The tour in the domestic market included more than 6,800 demo rides, and the company is now mock testing the LiveWire in Europe,  Canada, and Asia-Pacific this year. Initial demos in the domestic market gathered encouraging positive customer responses at large, and with the demos moving to international markets this year, the company will aim to attract more customer attention. The new plug-in electric motorcycle could be what Harley-Davidson needs, and soon, especially in the U.S., where the company’s volume sales are slowing.

The delayed launch of Project LiveWire could also play into the hands of Harley’s competitors. There could be large potential in the electrical motorcycle market, especially if a major player with an already established brand name competes in this space. Presently, Zero Motorcycles is the highest seller of high-power full-sized electric bikes, and reported record sales in 2014 (around 2,500 motorcycles), and is expected to further cash-in on growing demand in North America and Europe. In addition, Polaris, the maker of Victory and Indian motorcycles, could come out with its own plug-in electric motorcycle as soon as next year, after completing the acquisition of the electric motorcycle business of Brammo Inc. (the closest competitor of Zero). Polaris will use the acquired assets to develop and manufacture electric motorcycles, which could go into production by the end of this year. The early entry of Polaris into the plug-in electric motorcycle space might not bode well for Harley-Davidson, which could lose out on the initial surge in demand.

The Other Side Of The Coin

Delaying the launch of Project LiveWire could also give Harley-Davidson enough time to improve its battery technology, remove certain operational bottlenecks, which could make producing this motorcycle even more profitable. The present LiveWire prototypes that were demoed in the U.S. have an electric range of roughly 50 miles, and the company is working to push the electric range of the bike to at least 100 miles. The high performance Zero SR can go up to 185 miles (298 km) on a single charge from its 15.3 kWh battery bank, if the additional power tank is plugged in. [1] Waiting longer could give Harley the additional time to develop a more competitive product.

 

The high-performance electric motorcycle market is still relatively nascent in North America and Europe, where the demand is expected to rise rapidly going forward. According to Navigant Research, worldwide sales of electric motorcycles could reach 1.5 million units in 2024, from a projected 1.2 million this year. [2] Fuel prices have remained low in recent times, making the cost of ownership of regular motorcycles cheaper, also making the option of purchasing an electric motorcycle slightly less attractive. Oil prices are expected to return to more normalized levels in the next couple of years (maybe even sooner), which could then stimulate more demand for electric motorcycles–right about the time when Harley’s Project LiveWire could go into production. Harley will look to improve its battery technology, and launch a more competitive model, and given the market muscle and global reach of the company, it could, in fact, stimulate more demand for high-power electric motorcycles going forward.

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Notes:
  1. Geeking out on electric motorcycles- a trip to the Zero factory []
  2. Harley bides its time on electric motorcycles, wsj.com []