It's bad enough Harley-Davidson (HOG -2.24%) is in the midst of a two-year slide in U.S. motorcycle sales, but it may have a new headache to contend with. India-based motorcycle maker Royal Enfield is introducing a new big motorcycle to the Indian market, a move that could lead to Harley-Davidson losing its dominance overseas. It could also create headaches here at home.

A royal lineage

It's possible you've never heard of Royal Enfield, or only associated it with the famed rifle of the British army, but it is today the world's largest motorcycle manufacturer located in the world's biggest motorcycle market. It has a largely negligible presence in the U.S., and its bikes typically have small engines compared to the big bore bikes Harley produces, but it was founded in 1901, giving it a lineage older than Harley-Davidson (and as old as Indian Motorcycle), and now it looks like it wants to take on Harley-Davidson wherever it does business.

Royal Enfield Continental GT 650 motorcycle

Image source: Royal Enfield.

Earlier this month, Royal Enfield introduced in India its first big twin-engine motorcycle -- two of them, actually -- the Interceptor INT 650 and the Continental GT 650, bikes that will compete head-to-head with Harley's Street 750.

Right now, India only accounts for around 2% of Harley-Davidson's total sales, but it owns 60% of the big bike market there and a local player with a vastly larger distribution network could create problems.

A vastly larger rival

Royal Enfield is owned by Indian car manufacturer Eicher Motors and completely owns the mid-size 250 cc to 750 cc bike market with a 95% share. In fiscal 2017, which ended last March, it sold some 666,000 motorcycles, but wants to produce some 950,000 next year.

Harley-Davidson quarterly sales growth

Data source: Harley-Davidson quarterly SEC filings. Chart by author.

To put that in context, Harley-Davidson sold 260,000 bikes last year and is expected to sell at most 250,000 units worldwide this year. In fact, Royal Enfield's sales are equivalent to the global sales of Harley-Davidson, KTM, BMW, Triumph, and Ducati -- combined.

According to reports, the new Enfield motorcycles will be priced at around 300,000 rupees (about $4,600) versus the 500,000 rupees a Street 750 goes for. While that alone would make it a competitive alternative, Enfield has about 700 dealerships in India whereas Harley has just 30, meaning it would take very few Enfield sales at each of the dealerships to outstrip Harley sales.

Battle on two fronts

Soon, Royal Enfield may also make a play for the U.S. market. The dealer situation here is the reverse, with Harley-Davidson having around 700 dealerships and Enfield having just a few dozen in the U.S. and Canada. That said, Enfield's bikes could strike a chord with the emerging domestic motorcycle buyer.

It's a well-publicized fact Harley-Davidson's core customer has become something of a dying breed. The middle-aged male just isn't buying the same number of bikes as he used to. Instead, young, urban riders, many of whom are women, are the key demographic to motorcycle growth. Although the Street 750 (and the 500) are targeted toward this new rider, Enfield's strength here is in the 500cc bike and at an attractive price point. Now it is introducing its new Himalayan 410cc bike aimed at those who want to ride trails and dirt tracks.

Royal Enfield Himalayan motorcycle

Image source: Royal Enfield.

When arguing recently that Harley-Davidson should make the bold move of acquiring ATK Motorcycles, the only U.S. manufacturer of dirt bikes, I noted that it's from this market where young riders get their first taste of motorcycling and it is they who will eventually be upgrading to the street bikes Harley sells.

Harley-Davidson has said it wants to cultivate young riders, and it wants to bring 2 million new riders to the Harley brand, but now with Royal Enfield entering the market, it seems to make it more imperative that the iconic bike maker move soon.

The U.S. heavyweight motorcycle market has been declining for several years now. As the industry leader, Harley-Davidson has felt the impact most. With the Indian market set to explode even further over the next few years, Harley may have a committed competitor in more places than just at home.