Harley-Davidson (NYSE:HOG) has global recognition as an iconic manufacturer of heavyweight motorcycles. With the introduction of its Street series, the motorcycle maker ventured into the lightweight motorcycle market after nearly four decades. As the aging core demographic of baby boomers in the U.S. and growing popularity of lighter affordable bikes among millennial customers pose a threat to Harley’s motorcycle sales, the launch of the Street 750 and 500 highlights how the company aims to evolve with shifting market trends. Now the automaker is looking to penetrate the untapped three-wheeler market in Japan, with the introduction of its Tri Glide and will launch the Street series in the country later on. Japan is the second largest international market for the automaker behind Canada, accounting for 10,751 unit sales in 2013.  However, the company’s unit sales rose only 1% year-on-year, while revenues decreased 11% in the country due to unfavorable currency translations last year. The launch of the Tri Glide and the Street series in Japan this year could provide an impetus to Harley-Davidson’s ambitions in the country.
We have a $62.53 price estimate for Harley-Davidson, which is around 4% lower than the current market price.
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The Tri Glide Holds The Fine Line Between Cars And Bikes
As opposed to the 5 million people who own motorcycle licenses in Japan, over 80 million people hold car licenses.  This adds a large potential customer base for the Harley-Davidson Tri Glide trike (three-wheeled bike), as trikes come under automobiles rather than motorcycles in the country. This also means that trikes evade certain laws that are imposed only on motorcycles in Japan. Trike riders do not require a helmet and can travel with a passenger on freeways.  In contrast, heavyweight motorcycle riders are not allowed on freeways with an accompanying passenger. Harley-Davidson aims to attract consumers who prefer the comfort and safety of four wheels but also wish to ride a motorcycle. The Tri Glide is priced at ¥4 million (around $39,000), which makes it one of the most expensive Harleys on sale in Japan. 
Lightweight Motorcycles Could Spur Sales For Harley
Following the launch of the Tri Glide in Japan in February, Harley-Davidson also plans to introduce the Street motorcycles in the country this year. The Street 500 and Street 750, built on the new “Revolution X” platform, will aim to attract customers that prefer cheaper and lighter motorcycles. The Japanese motorcycle market rebounded in 2013 after suffering a decline in the previous year. Unit sales rose by 4.1% year-on-year to nearly 460,000, while unit sales of motorcycles with engine displacements above 250 cc grew by 7.5% to over 65,000.  This means that Harley-Davidson holds around a 16.5% market share in the motorcycles above 250 cc segment at present. Low interest rates on motorcycle loans could further boost motorcycle sales in the country, which underwent a moderate revival in economic activity last year. Sales of bikes above 250 cc are expected to cross 70,000 units this year. The new Street motorcycles might be able to grab a significant portion of this growth, given the strong brand appeal of Harley-Davidson and the cheaper prices of these bikes.
What also works for the company is that the Tri Glide and Street series look to target previous non-owners of Harley-Davidson motorcycles. This means that sales of these bikes will be incremental to the company’s current lineup of heavyweight motorcycles, rather than cannibalizing them. Revenue per motorcycle for the company could increase once sales of the Tri Glide gain traction. However, the introduction of the cheaper Street series later this year could offset this rise. We currently estimate sales of motorcycles in the international markets (non U.S. and Europe) for Harley to increase by 17% year-on-year in 2014 to over $930 million. Assuming the new model roll-outs and the current heavyweight lineup causes a 20% rise in expected unit sales in Japan, there could be a $40 million upside to our estimate of international sales for the company this year.Notes:
- “Harley-Davidson 10-k“ [↩]
- “Harley-Davidson targets car drivers with trikes in Japan push“, February 2014, bloomberg.com [↩]
- “thejapanfaq.com“ [↩]
- “Harley-Davidson aims trikes at Japan’s drivers“, japantimes.co.jp [↩]
- “Forecast for Japan’s motor vehicle demand in calender year 2014“, January 2014, jama-english.jp [↩]