‘Electrification Is a Given,' Says Harley-Davidson CEO Jochen Zeitz, But HOG's Success in EVs Is Less Certain

Source: Harley-Davidson
  • HOG's new LiveWire electric bike business is geared to an urban consumer and new demographic for the iconic motorcycle maker, but Harley Davidson CEO Jochen Zeitz tells CNBC's Evolve Global Summit it fits the "freedom" in Harley's brand.
  • EV technology is not ready to take over the touring bike market where Harley's core consumer remains due to limitations on battery range, but EVs are a big part of the new Harley CEO's vision of consumer desirability.
  • Wall Street has cheered changes made by Zeitz with a rallying share price, but analysts are divided on the EV outlook.

It's been a typical market view in recent history that when a European oil major invests in renewable energy, like wind or solar, while ExxonMobil stays away, the decision is as much about being a European company as it is about being a fossil fuels one. But for the new European CEO of iconic American motorcycle maker Harley-Davidson, the push into electric bikes is simply an undeniable part of the motorcycle's future.

"Electrification is a given," Jochen Zeitz, Harley-Davidson CEO, said last week at the CNBC Evolve Global Summit. "The future will be electrified also in motorcycling."

Electric bikes bring a focus on a new urban consumer, and also play into the bigger consumer idea that Zeitz — who took over as CEO last February — is pinning the motorcycle maker's success to: "desirability."

After having shored up the company's financial situation — a strategic plan called Rewire that included cutting back on the company's geographic focus to key global markets, and which the stock market has rewarded Harley for since Zeitz took over — its shares are up 20% this year alone and even more in the one-year period — the CEO and his team are selecting the categories where it can become one of the leaders, or in the least, forge a path to profitability. 

Electric bikes are a big part of the plan.

"We want to lead in electric," Zeitz said at the CNBC Evolve event.

The company recently announced that its electric bike business will be a stand-alone brand, LiveWire, though manufactured at Harley's existing facilities. The name is a reference to the first electric motorcycle Harley launched a few years back, which hasn't been the biggest sales success, and is not cheap (at roughly $30,000), but was the first step in an urban market that Zeitz sees as part of Harley's own energy transition plan.

The first new LiveWire-branded bike is scheduled to launch on July 8, at industry event Progressive IMS Outdoors (formerly the International Motorcycle Show), and while details have not been provided, some are starting to leak out.

In the traditional Harley-Davidson segment, Zeitz said the technology is not there yet in terms of range and longevity of ride for EVs to be a hit with its classic touring bike customer. Zeitz sees the LiveWire business a "huge opportunity" to build a bridge for the company into a long-term electric future.

"All the values that made Harley great in terms of adventure, in terms of freedom, you know, freedom for the soul, as we say, are also values that very much translate into LiveWire, although, you know, translated towards a different, more urban customer," he said.

The electric bike market is growing, both in the lightest weight classes including scooters and e-bikes, and bigger direct competitors to Harley like Zero. But EVs remain a long way from making or breaking Harley's top or bottom line.

"EV cycles are a rounding error at the moment," Citi analyst Shawn Collins told CNBC earlier this year.

Wall Street thinks EVs are the future, but maybe not Harley's any time soon

Analysts are divided on the EV plan, at least in the short-term, and whether Harley's stock price has shot up too much as a result of belief it can succeed.

"Harley is an iconic brand but that means certain things to certain people and those things are hard to change, so if you want to give the electric bike room to breathe on its own, separating it from the legacy, from Harley, can be a good thing," said Craig Kennison, senior research analyst of consumer and automotive at Robert W. Baird & Company, who remains positive on the company with a $50 price target (shares had hit a peak in the Zeitz era of $50 earlier this year, a doubling in the stock, and are trading at $43 currently).

The structure of the channel, from how electric bikes are sold to the servicing, will get harder to change down the road, and given the potential in the EV market, Kennison said getting it right for corporate and franchise dealerships should be a goal. But he said it is unreasonable to expect much from any new bike introduced this year since the team running the stand-alone EV business is still so new and the product development cycle barely begun.

"Ultimately, in the next 100 years, it will really matter to get this right," Kennison said.

Garrett Nelson, senior equity research analyst at CFRA, has a sell rating on Harley for reasons not limited to, but including, too much enthusiasm around the EV plan.

"The tech isn't there yet," Nelson said. "They are being given some credit falsely, more than they should be given, for sales success of electric motorcycles."

Targeting the urban market makes sense since the battery range on the existing LiveWire electric bike is double in the city (146 miles, according to the EPA) what it is on the highway (70 miles).

Nelson, who also covers Tesla, says the biggest lesson from the EV market has been how critically important range anxiety is to the consumer, and that's why he remains skeptical. "The LiveWire touring range isn't even close to where consumers buy it in volume," he said.

The urban market, meanwhile, is already very competitive and much more developed overseas, especially in Asia, where Harley is not as strong and big players like Yamaha and Kawasaki have a larger presence and are making the transition, and EV bike start-ups are also entering the space.

"It's a realization it is the future, and they are right to be innovating in electric motorcycles," Nelson said. "It's just not there today, and probably not in a few years."

HOG CEO won't use secular decline as excuse

Harley sales had suffered in recent years, and the market pinned its woes on a secular decline in its market and an aging demographic, but Zeitz won't ever use that as an excuse.

"Every business you're in that has a consumer, you need to constantly innovate and excite your consumer about your brand, about your product, and I don't take it as an answer that, you know, you are on a secular decline," he said. "Of course your existing customer gets older, but you have to make sure as a brand that you're bringing new people into the sport, into riding, into the experience."

A mechanic works on a motorcycle at a Harley-Davidson showroom and repair shop in Lindon, Utah, U.S., on Monday, April 19, 2021.
George Frey | Bloomberg | Getty Images
A mechanic works on a motorcycle at a Harley-Davidson showroom and repair shop in Lindon, Utah, U.S., on Monday, April 19, 2021.

"It's all about desirability," Zeitz said. "It's not about market share ... We've got to make sure that the brand is desirable wherever we decide to compete."

His team is now looking at measures such as the price points at which dealers are able to sell relative to MSRP, and pricing in the used bike market, to make sure desirability is high.

In the past, he says, the company's management didn't look at profitability first, but was primarily focused on market share, and that required a lot of promotional pricing of bikes.

"That was unsustainable," he said. "Desirability is the overarching goal."

In addition to electric bikes, Harley took its first bike into the adventure touring market this year, the Pan America, which has been well received by the market.

The 118-year-old company has never ventured into adventure bikes, which have been dominated by European and Asia competitors like BMW and Honda.

"They're really flying out of the stores and our dealerships," Zeitz claims. "The early results are very encouraging."

Harley Davidson Pan American
Source: Harley Davidson
Harley Davidson Pan American

In a sense, Zeitz joined at the worst possible moment, just as a global pandemic was hitting and shutting down the U.S. economy. But Covid has been good for Harley, with the outdoors market, including recreational vehicles sold by it and competitors like Polaris, booming.

Zeitz wants to make that short-term boost last and the core customer has not changed for Harley: "grand American touring."

"It's a customer that's been very loyal to the brand," Zeitz said.

He drew praise when he took over as CEO for the job he had done previously turning around the European sneaker brand Puma, but he said "experience" is relatively useless as way to measure his ability to take Harley into the future.

"I'm always a little careful when using the word 'experience,'" he told CNBC. "You can do the same thing wrong for 20 years."

He became CEO of Puma at 29 and at the time said he had literally no experience. He inherited a "pretty much bankrupt company on paper that had no product, that was totally undesirable as a brand."

Puma did give him the confidence to make decisions, but he said there's very little resemblance between Puma as it was in the early days and Harley as it is today. 

"Harley is a truly global icon that's been around for 118 years. Puma was an underdog that was barely on the radar screen," he said.

But he allowed that one commonality does exist across both CEO experiences.

"Both are in sport and lifestyle today. You know, it is not just riding, it is about a lifestyle, and just like sneakers are as much about sport as they are about lifestyle today." 

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