Catering to the heavyweight motorcycle segment will be a challenge for both Harley-Davidson and Polaris due to the declining motorcycle market for the higher-priced bikes, Jaime Katz, an equity analyst at Morningstar Research, told Powersports Finance.
“Both of the companies are looking at massive secular headwinds,” Katz said. “Polaris, we think, is at a little bit of an advantage here because the Indian Motorcycle sale base is a bit smaller and it’s been blended with different models like the scout and FTR bikes and has other segments to offset any downshift in lower profit bikes that can drive more volume.”
Harley-Davidson, on the other hand, has the exact opposite problem of Polaris. The OEM has a significant presence in the heavyweight segment, which produces a high margin of profit, but due to the dwindling bike market, the company takes a bigger hit financially.
“The bikes are the key products of the business so, as Harley ships to new models with a lower profit profile, these bikes can make a wider impact on the total margin profile and profit performance of the enterprise,” Katz explained.
However, while both OEMs share the same challenge, they also share the same advantage: innovation. The two companies have a history of updating their vehicles in response to the market. For example, Harley-Davidson is releasing the Pan America, its first-ever adventure bike. Polaris has also released updates to its models, such as the Slingshot and Ranger NorthStar.
“[Polaris and Harley] have a wide access to a number of different consumer data points that can help them attempt to pivot their products to figure out what the change in consumer demands are,” Katz said. “It’s just whether or not they can do it fast enough. Both Harley and Polaris have been agile at right-sizing the businesses over the last decade. The ability to execute well is there for the taking if the product offerings are right, so the advantage really lies within that product innovation arena for both of those companies.”
To hear more of Katz’s thoughts on Harley and Polaris, listen to her break down their fourth-quarter earnings reports on this month’s episode of “Plug In With Powersports Finance.”