2018 ANNUAL REPORT

Fumbling towards the future.

Words and data compiled by Michael Uhlarik

After years of strong growth in most major global markets since the great recession, reality is beginning to bite the luxury motorcycle industry.  The sales slide of global icon Harley-Davidson, and the stall of Ducati despite a slew of on-trend new models point to a realignment of consumer priorities.

In China, demand for western luxury fashion goods and especially cars has made it the world’s largest luxury market. While the US market contracted to just over 1% of world market share, it is worth remembering that it still accounts for more than 20% of world motorcycle industry revenue.

But sales of high cost, high margin motorcycles are in decline in proportion to the total even as global motorcycle sales pushed past 60 million units in 2018. In China this is due in part due to municipal restrictions on motorcycle licensing, but also because the aspiration of the wealthy, or performance oriented consumers is a car, not a bike. In Europe, austerity economic doctrine and political instability has dampened ostentatious spending among the middle class demographic that accounts for the bulk of motorcycle consumer market. In America, Harley-Davidson’s decades-long definition of the luxury motorcycle as a large cruiser has turned against them, as it’s brand and image fall out of the zeitgeist.

An economic shock in the US and Europe in 2019, even a mild cyclical recession, will severely stress an already overstretched auto finance industry and collapse what is left of the luxury motorcycle market.

Sub prime auto loans and loan delinquency rates already exceed the peak during the financial crisis in 2008-9. When consumers run out of money they default first on luxuries like big motorcycles.

The big brands saw all these challenges and used 2018 to lay down their strategies for dealing with them. For most European legacy brands, they continued to lean on joint-ventures in India and China, or expanding branch plants in those markets. The legacy push down market started a few years earlier. Now nearly every major western P2W has strategic partnerships with Asian OEMs.

The Japanese were always present throughout the developing world and spent their time reinforcing low cost successes in Indonesia, Vietnam and the Philippines, where the Honda continues it’s absolute domination with marketshare typically over 70%, and Yamaha, Suzuki and Kawasaki take most of the rest. Their fundamental businesses thus grounded in these high growth markets, Honda and Yamaha continued to focus on 21st century technological innovations like self-riding A.I., self balancing, and advanced electric drive systems. Clearly, the plan is to pincer the market with the highest quality commodity motorcycles on the bottom of the market, and the most advanced bikes at the top.

All of which leaves those legacy brands without either the resources to compete in technology or the scale to compete in the mass market. Triumph, Ducati, and Harley-Davidson face this situation, and all scrambled to put contingencies in place in 2018. Triumph promised to finally deliver a range of affordable small capacity bikes first talked about in 2012, while Ducati waffled about introducing electric models and possibly a JV with India’s Hero Motors for small bikes of their own.

Harley-Davidson promised everything from electric bicycles, to modern liquid-cooled sport models, to an adventure motorcycle, in addition to a concrete 2019 launch date for the long awaited all-electric Livewire. Ambitious isn’t the word…

Can these relatively small companies deliver all this innovation before their operating budgets brought in from the high value models disappears? Ducati is part of the VW auto group, but twice in five years the management have signalled intensions to sell the motorcycle brand then retracted, indicating a lack of confidence in Ducati’s future. Triumph and Harley-Davidson have no big brother to fall back on, and will have to chose between borrowing vast amounts of money to continue alone, scale back, or become acquisition targets. What they cannot do is business as usual.

2018 was the watershed year. It was when the dies were cast and the old establishment motorcycle brands committed themselves to their futures. It was also the year that India finally, definitively and unquestioningly, became the centre of the motorcycle universe. 2019 will reveal who chose wisely.

Not just a shift to Asia, but a shift in expectations.

The year gone by saw an amazing acceleration of the trends developing since 2015. Starting with a dramatic rise in motorcycle sales across Asia, the expansion westward of Indian brands, and the steady decline of US motorcycle sales.

What stood out in 2018 was how quickly these trends expanded.

Royal Enfield, who’s year end is in March, is on target to exceed 1 million unit sales for FY18, an unprecended ten fold increase since 2013, and totally unprecedented since the glory days of Honda in the 1960’s.

Bajaj, TVS and Mahindra leveraged acquisitions of western brands and JV’s to not only for sales growth but increase their in-house technical capability.

Few observers in the western motorcycle media understand just what kind of influence these Indian companies have on the future success of KTM, BMW and Peugeot.

Meanwhile the US, still the biggest luxury motorcycle market in the world, shrank to half it’s size (by revenue) in the same 5 year period.

Long dominated by the baby boomers, the American motorcycle market is characterized by excess in performance, luxury and premium pricing. This long cycle is finally at the end as younger buyers take over.

Motorcycle registrations in America are up, but this is driven by used vehicles which are fantastically cheap compared to new models thanks to a flooded market and low resale value. This has created a booming millennial motorcycle culture that, although not financially significant yet, is forming the basis of a new generation of motorcycle users in that market.

The motorcycle is being redefined around the world: less ostentatious, but more usable and accessible to a larger pool of younger riders.

Sales surge in Europe, ASEAN and Brazil as China shrinks.

According to data from ACEM, the EU governing body for the motorcycle industry, growth was consistent across all of the blocs main markets, with Italy regaining it’s historic position as volume leader.

The overall 9.9% sales bump across the board was carried by mostly naked roadster type models in the mid classes (500cc - 900cc), dominated by Japanese brands, and adventure models from 650cc and up, largely from BMW and Honda.

Electric motorcycle registrations nearly doubled to 7478 units, a small figure but an indication of growing demand. Electric mopeds shot up by 41% to 39,701, in contrast to conventional gasoline fuelled mopeds which continued their ten year sales slide, falling by 31% to below 300,000 units. The demise of the gas moped is largely due to strict EU emission standards.

Indonesia continues to be the heavyweight in the ASEAN market with 6.4 million units sold, a nearly 8.4% increase over 2017. Vietnam reversed a small sales decline in 2017 by reaching a record 3.4m unit sales in 2018, a change of 3.5% carried largely on strong overall national economic stability. The Philippines grew a steady 9% to 1.4 million units, but Thailand shrank lightly to 1.8 million units.

Brazil rebounded by an astonishing 17% to almost 1 million new units sold, making it the fastest growing P2W market in the world and arresting a collapse that started five years ago.

Notable under performers were China, the second largest market globally, which contracted 9% to 15.5 million units despite the continued economic growth of the economy overall and large amount of state support.

Global Motorcycle sales (Millions)

Reducing atmospheric pollution in India and Europe will reshape the P2W industry.

As with China a decade before, India is tackling atmospheric pollution in its cities at the manufacturer level

Unspoken in the pages of the mainstream motorcycle media is the enormous effect of government emission control mandates on the new product pipeline.

Forthcoming EU6/Bharat VI standards that take effect in 2020 are already dictating the design, pricing and engineering of new P2Ws made for India and Europe.

What this means for the luxury motorcycle market? Most models available in the US today are non-compliant, and many are based on powertrain technology too old to upgrade, including most air and air/oil cooled motors.

Nearly all of Harley-Davidson’s V-twin lineup, and many iconic legacy engines such as Ducati and Triumph twin cylinder models, or Royal Enfield’s single, will disappear completely or require significant exhaust redesign.

Brands like Harley, Triumph, Ducati and Royal Enfield have built their iconic status partly on the sound and character of those engines. Most of them have long ago began contingency planning and announced replacement power plants to meet the challenge. The fact remains, these emission standards will affect global P2W model design for the next decade,