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Could This Inevitable Shift Damage Harley-Davidson's Reputation?

I have good news for you if you're a Harley-Davidson (NYSE: HOG  ) fan: the hog is experiencing quite the resurgence!

Like most big-ticket retailers, Harley-Davidson wiped out during the recession, seeing its annual production fall from 349,196 units in 2006 to as low as 210,494 in 2010. Some had questioned the company's ability to rediscover its previous glory following a four-year downtrend in sales, but after a three-year period where sales have surged, including a 4.4% unit sale increase to more than 260,000 units in 2013, we can say with some level of certainty that Harley-Davidson still has what it takes to attract riders.

Source: Pedro Ribeiro Simoes, Flickr.

To some extent it's not difficult for Harley-Davidson to draw in repeat customers. Unlike the auto market, competition among motorcycle builders isn't nearly as crowded. Buyers also tend to be considerably more loyal to a single brand. The Harley-Davidson brand name is practically synonymous with motorcycle riding culture, and it's a primary reason why it currently holds nearly half of all young adult (ages 18-34) market share in the U.S., and a whopping 63% of all market share for Caucasian men aged 35 years and up. By comparison, the next closest competitor holds just 6.5% market share. 

Harley-Davidson makes history again
Harley-Davidson is known as a pioneer and trend-setter in the motorcycle industry, but a natural evolution currently underway within the auto sector could adversely affect the brand image it's been working more than 110 years to build.

This unstoppable evolution is the introduction of all-electric vehicles. While Tesla Motors (NASDAQ: TSLA  ) wasn't the first to introduce an electric vehicle, or EV, to market, it is the first to successfully introduce a new car brand in 50 years as well as mass-produce an EV, the Tesla Model S. With an electric range that dwarfs its closest competitors and the prospect of having a vast Supercharger network up and running within a few years, the allure of Tesla's vehicles has spread to both young and old consumers.

Harley-Davidson LiveWire, Source: Harley-Davidson.

This past week, the all-electric trend made its debut in a Harley with the company introducing its first all-electric motorcycle, known as the LiveWire. LiveWire can take a rider from 0-60 mph in just four seconds and has an electric range of 53 miles.

While not available for sale yet, Harley-Davidson plans to visit more than 30 dealerships all over the U.S. in an effort to drum up interest for the LiveWire, as well as suss out what sort of demand the company should expect from consumers. Consumers will either get a chance to ride LiveWire and provide feedback or participate in a LiveWire simulation. Next year, Harley-Davidson will expand its "Project LiveWire" tour beyond just the U.S. borders and push into Canada and Europe as well. 

The evolution of an electric bike is necessary for Harley-Davidson
The reasoning behind the move to make an all-electric motorcycle now does make sense for Harley-Davidson for a number of reasons.

First, consider the toughening standards from the Environmental Protection Agency. The EPA imposed lofty mpg goals on the auto sector in 2012, which has pushed automakers toward researching more fuel-efficient and low-emission vehicles. This is one of the primary reasons a company like Tesla has been able to zoom to the forefront. By the same token, the EPA will continue to clamp down on emission and mpg standards for gas-powered motorcycles, pushing companies like Harley-Davidson to continue to innovate, including the development of electric-powered bikes.

Second, not to say that older generations of adults don't care about the environment, but the best way to attract Millennials and other young adults is to show a genuine interest in caring for the environment. Going green isn't just an exception to the rule any longer, but is instead becoming the expectation of a burgeoning class of new consumers. By introducing an electric bike, Harley-Davidson is demonstrating to a new generation of potential buyers that it cares about the environment. In addition, it also introduces the brand to a class of riders that perhaps was too intimidated to purchase a Harley previously.

Finally, LiveWire gives Harley a way of diversifying its revenue stream. Although electric bikes make up a minuscule 1.5% of total motorcycle market share at the moment, their growth in future years is undeniable. Given the fickle buying habits of consumers, being able to offer an eco-friendly and quieter Harley could juice up its sales over the long term.

Source: HiEtec, Flickr.

Could this move destroy Harley's reputation?
The fear does exist that the introduction of an electric motorcycle could undermine everything that Harley stands for. As NBC News reported last week, while the company has been very encouraged by the response to LiveWire thus far, an outpouring of criticism concerning the bike has also been aired. As one California Harley owner told NBC News, "When I ride a motorcycle, it's that engine vibration, the sound, the kind of visceral experience you get that you can't get with an electric motorcycle. If I'm going to buy an electric motorcycle, I might as well buy a scooter or something like that."

Harley's image is built on being tough and edgy, all the way down to the throaty roar of its engine. The introduction of an eco-friendly bike with a considerably muted electric sound could threaten to alienate its core customer and undermine everything Harley-Davidson is perceived to stand for. Harley-Davidson is still trying to reclaim its pre-recession glory, so alienating its core customer now would be a very bad idea.

Source: Michael Hooper, Flickr.

Aesthetically LiveWire is a good-looking bike, but its electric range of just 53 miles and its full charge time of three-and-a-half hours could leave a lot to be desired. Can you imagine how long it would take to get from any U.S. coastal city to the annual motorcycle rally in Sturgis, S.D., in August with a motorcycle that only had a 53-mile range and needed to be plugged in for more than three hours at a time to fully charge? Battery size constraints and infrastructure challenges could present an insurmountable challenge for LiveWire. Harley owners love the freedom of simply getting on their bikes and traversing the country. With its limited battery capacity, that may not be possible for quite some time with an electric bike.

Plenty of questions remain
The truth is that we just don't know yet how well LiveWire will be received because there are simply more questions than answers after last week's New York unveiling.

We know nothing about how Harley-Davidson plans to price LiveWire, whether a more range-efficient battery can be introduced, when (or even if) it plans to take LiveWire from prototype model to production bike, or how a diverse range of consumers will ultimately react to its introduction.

Source: Joe Bielawa, Flickr.

My personal hunch is that, similar to the EV auto market, it's going to take a few generations of product, as well as some trial and error, to really make an impact on consumers. None of the existing electric bike producers, such as Zero and Brammo, have the capital or true motorcycle know-how to take their production to the next level. Harley-Davidson is therefore the company that will, by default, have to advance a mass-produced electric bike.

But, Harley-Davidson has to be very careful how it eases into eventual electric moto production. Throughout the remainder of the decade Harley's core buyer is likely to remain the 35 and up crowd. Beyond that, however, we're probably going to see a shift to a younger generation of buyers which could necessitate Harley altering its product platform to include electrics. Therefore, it's imperative that Harley prepares for the future now, but that it doesn't overshoot this transition and alienate diehard Harley fans. It's a balancing act that only a company on two wheels is capable of successfully performing.

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Read/Post Comments (11) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2014, at 11:46 AM, Ustauber wrote:

    Boycott Seeking Alpha .

    Their are shorting Tesla stock with the negative articles.

    The are trying to control the squeeze cover coming up.

    Just don't read their articles .


  • Report this Comment On June 29, 2014, at 12:46 PM, FoolforBerky wrote:

    Why even mention how long it would take to ride to Sturgis? The livewire bike is meant as an urban bike and just like an electric car you don't buy it to travel on vacation. I really want to buy an electric bike but would really hope that they could get the mileage up to a minimum range of 100 miles. I have gas powered bikes for the trips. What I'm really wanting is the ability to stay away from gas stations and the quiet nature of the ride. Harley Davidson is doing the right thing to not wait and have to play catch up with these electric bikes. Way to go Harley!

  • Report this Comment On June 29, 2014, at 2:01 PM, vet212 wrote:

    Now and for the foreseeable future electrics are city vehicles and of no use on the highway. cross country trips with Tesla's aside ,being mere stunts, many improvements in power storage are needed BEFORE electrics are useful

  • Report this Comment On June 29, 2014, at 2:16 PM, Albertico wrote:

    The LiveWire is a prototype intended for testing and seeing how people react to it to make improvements for the a future release.

    Everyone acting like this is a real motorcycle with real stats you should be basing your judgment over is barking at the wrong tree.

    Since they made the announcement they have repeatedly said, many times that this is just a test. The specs are pointless because they don't reflect anything close to production and all speculations and articles that use this current prototype bike to make any assumption about Harley's future is all but pointless.

    It will be another 2-3 years before Harley makes a true production electric motorcycle. Until then, hold on to your comments and baseless speculations

  • Report this Comment On June 29, 2014, at 2:47 PM, JohanStrauss wrote:

    H-D: over-priced and over-rated. Speaking from experience.

  • Report this Comment On June 29, 2014, at 4:30 PM, redman2003 wrote:

    I think as long as you have a pickup or trailer it won,t matter if you have a gasoline or electric bike since they will both end up there anyway.Dependablity is not there or fore coming.

  • Report this Comment On June 29, 2014, at 4:37 PM, phillipzx3 wrote:

    "Harley-Davidson makes history again"

    Sure....after a half dozen other companies beat them to it. KTM, MotoCzysz, Zero, Mission, Lightning...

    Just off the top of my head.

  • Report this Comment On June 29, 2014, at 5:39 PM, yoshii wrote:

    This article is neither here nor there. I agree it's possibly a purposefully negative article. There are NO plans as yet to offer the Livewire for sale. One other thing to not is that electric motorcycle sales are hardly anything for the forseeable future, let alone 260,000 units combined.

  • Report this Comment On June 30, 2014, at 1:20 AM, jswap1 wrote:

    Ustauber, it might be better to boycott you for being a permabull

  • Report this Comment On June 30, 2014, at 1:04 PM, SeaDog wrote:

    This is all HOGwash!

  • Report this Comment On July 01, 2014, at 1:09 AM, Taz wrote:

    "Harley-Davidson is known as a pioneer and trend-setter in the motorcycle industry".

    BWA HAAAA HAAAAAAA!!!!! I guess that could be true if we're talking about 1933. It is certainly not true any time after that. It took Hardley 90 years to come out with their first water cooled bike and most of what they produce are nothing more than styling exercises on the same basic frame. Nice chrome and paint but that's about it. Their dealer network is good and service is excellent but the bikes are under-engineered and vastly over-priced.

    If your manhood is too short and you can't afford a Corvette then Hardley is Plan B.

    Hardley-Davidson - turning gasoline into noise for over 100 years.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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