Polaris (NYSE:PII) has made a significant drive forward in the motorcycle space, and the category is expanding within the company's diverse range of recreational vehicle products, which includes: ATVs, snowmobiles, small vehicles, and parts, garments, & accessories (PG&A). This is a good strategy for the company, since ATVs account for around 67% of overall 2013 sales, while motorcycles only account for 6%. Continued growth in motorcycles will result in greater overall diversification of the product mix.

Victory with Victory
In 1998, the company entered the motorcycle business with their own start-up company "Victory Motorcycles." Despite skepticism about being successful in a head-to-head battle against Harley-Davidson (NYSE:HOG), Victory was well received by critics and motorcycle enthusiasts. The division became profitable in 2002 and has since managed to bite into Harley's market share, becoming the #2 brand in the 1400cc+ "big engine" market.

Indian charges forward
In 2011, Polaris acquired Indian Motorcycle from Stellican Limited, a U.K-based private equity firm that failed to turn around the brand. Over the next two years, Polaris spent approximately $100 million to redevelop and market Indian. In August 2013, Polaris launched the all-new lineup of bikes to the public. The relaunch was successful and once again well received by critics and fans. Sales in Q1 2014 came in at $78.9 million. The number of dealers is expected to grow from around 70 currently to 100 by the end of Q2 2014. These numbers give new meaning to the term "firing on all cylinders."

The challenges in India and China
In recent years, China has discouraged motorcycle ownership in an effort to curb pollution and road congestion. Currently, motorcycles are banned in more than 200 cities, including Beijing and Guangzhou. Despite some of those numbers, here is the straw that breaks the camel's back: Chinese law states that bikes need to be scrapped after 11 years of ownership, discouraging purchase of high-end bikes. Currently, around 80% of the bikes on Chinese roads are under 250cc, while Polaris and Harley-Davidson bikes are generally 1400cc+. As a result, only around 400 Harleys were sold in China in 2013. It will be difficult for Polaris to do much better. Who wants to watch a beautiful $20,000 chrome-polished bike get crushed to a cube? Even tough bikers might shed a tear at the sight.

Despite sharing the same name, Polaris' Indian opportunity in India (confused?) is not much better. There is a hefty 112% import duty tax slapped on motorcycles entering the country, which can result in an Indian motorcycle costing more than $50,000. Last January, the first Indian bikes hit New Delhi showrooms and were prices at between Rs 26.5 lakh and Rs 33 lakh (approximately $44,800 to $55,800) at current exchange rates. Polaris expects to sell only 20-30 Indian brand bikes in 2014, but this can still land Polaris with 10% market share in the "big engine" space.

Polaris will need to stick to its domestic motorcycle sales before expanding into international markets. The opportunity in the U.S. is still significant. Today, the Polaris motorcycle segment (Victory and Indian brands combined) only make up around a 5% share of the "big engine" market, while Harley-Davidson controls roughly 80%. The company should keep pushing to expand the Indian brand and grow the dealer network, while maintaining its commitment to the Victory brand as well. Over time, motorcycle sales will grow and more people will take notice. Investors should take notice too and keep Polaris on their watch list.