Motorcycle giant Harley-Davidson (HOG 0.50%) completed the spinoff of its electric motorcycle business this week following LiveWire Group's (LVWR -0.67%) reverse merger with special purpose acquisition company (SPAC) AEA-Bridges Impact Corp.
For investors interested in the EV market, LiveWire represents a unique way to invest in the space in that it's the first publicly traded electric motorcycle company. While there is a lot of potential for electrified bikes, LiveWire is going to be a tough sell no matter what. For all the reservations analysts have about Tesla (TSLA -1.46%) it may still be a better bet than LiveWire, which has little possibility of becoming the next EV market darling.
Image source: Harley-Davidson.
Not the best of times
The biggest problem for LiveWire Group is the same one that has plagued it since Harley-Davidson first introduced the high-performance motorcycle in 2019, namely its price: The LiveWire One starts at $22,800 while the S2 Del Mar starts at $17,000.
While that's significantly cheaper than the near-$30,000 Harley tried to sell the original LiveWire for, and to its credit the two models are now very competitive with other EV bikes from manufacturers like Zero Motorcycle, it's still going to be an expensive proposition for consumers in a worsening economy with inflation running north of 8%.
There hasn't been very much demand for these types of high-end bikes, a market that Harley effectively created. Most of the demand for electric two-wheelers has been in the moped and scooter segment and Harley has sold more of its kid-oriented electric bikes, the StaCyc brand, than it has its LiveWire motorcycles.
Harley said in May that over 100,000 StaCyc units have been sold since 2016 (Harley acquired StaCyc in 2019 and has transferred it to LiveWire), while LiveWire Group's prospectus says a little over 1,800 LiveWire motorcycles have been cumulatively sold globally over the last three years.
Seeing unlimited growth
That doesn't mean LiveWire doesn't have high hopes for growth. It forecasts sales will grow from around 1,000 units this year to over 7,200 EV bikes in 2023 and nearly 101,000 by the end of 2026 for a compound annual growth rate of 194%!
Yet there is little reason to expect there to be this massive adoption of electric motorcycles. Zero, which is the industry leader in EV bike sales, sells an estimated 3,500 units or so annually. To put a finer point on it, Harley-Davidson sold 134,000 gas-powered motorcycles in the U.S. in 2021, and 194,000 worldwide, so the likelihood LiveWire will more than double Zero's sales next year or eventually approach Harley's sales numbers by 2030 seems extremely doubtful.
Bracing for impact
That also leaves LiveWire's revenue estimates as speculative at best. It says it expects $36 million in sales in 2021 will grow to more than $1.7 billion in five years time while losses will do a 180-degree U-turn and go from $68 million loss last year to a $64 million profit in 2026. By 2030, LiveWire thinks it can be pushing 190,000 e-bikes out the showroom door and generating $3 billion in revenue.
In comparison, Tesla generated $47 billion in total auto revenue at the end of last year and $5.5 billion in profits. Sure, Tesla was producing losses for years before it ever turned a profit, but electric cars have a more utilitarian component unavailable to motorcycles. Inclement weather, for example, is not optimal for riding a motorcycle, meaning Tesla just has a greater potential to make far more sales than LiveWire.
It's also just a fact that motorcycle riders are a much, much smaller subset of the overall vehicle-driving population -- and e-bike riders an even smaller one of that cohort. So to expect the market to suddenly ramp up demand is just fanciful thinking. Not even on a long-enough timeline does it seem possible LiveWire can replicate Harley's success, let alone Tesla's, either in the marketplace or on the stock market.
Not in the race
I've felt since the beginning that Harley-Davidson should have created a wholly separate company for LiveWire, but now that it has, it doesn't mean I think the EV bike maker is necessarily a worthy investment successor to Tesla or other fast-growing EV stocks.
There is a market for electric motorcycles, but not enough to turn this company currently worth around $1.5 billion into a growth vehicle. LiveWire's projections for future sales seem extremely optimistic, which calls into question its ability to achieve profitability in the timeframe it suggests -- or for a long time thereafter.
With an economy wobbling on the threat of a recession, rising interests, and high inflation, even LiveWire's more competitively priced electric bikes may find it difficult to move off the showroom floor. LiveWire might become the next Zero Motorcycle by selling a few thousand e-bikes a year, but it won't be the next Tesla or a worthwhile investment.