#ducati

Why winning matters

In a world that is sliding down the slippery slope of participation prizes and everyone is a winner, Ducati MotoGP rider Andrea Dovisioso proved why winning isn’t a bad thing (watch the video) and why competition breeds success and overwhelming joy to the victor. Since joining the MotoGP class in 2011, Dovi had only won 2 races til last season. This year he has won 5. He had been in positions to win in the past but misfortune (usually being wiped out by other riders) has stifled any shot at the title.

Today he was up against championship leader Marc Marquez who is without a doubt the toughest rider to face on a last lap. The word “give 150%” doesn’t even begin to describe his riding style.He rides that bike like he stole it.  Even in the pouring rain with no real safety aids in braking or traction control, Dovi managed to outbrake Marquez in a risky move that (literally) stuck.

Now these bikes way 157kg and have 270hp. These two riders are 1&2. Dovi is smelling the championship that he’s not attained (Marquez already 3) and had to risk it to stay in the hunt. So under intense pressure he produced a diamond and spoke of utter grit. No knees taken. No politics. Just a win that defied the odds. The satisfaction that came with his win could be felt by the crowd and even those who support others congratulated him.

So whenever I hear of read of participation medals given to all these kids in sports events I wonder what lessons are we teaching them about the real world which is nothing like this. Wrapping kids in cotton wool is pointless. The daughter of a friend said she was told after winning three races in a row would she mind not winning again in the following races to give the other kids a chance. Is it any wonder we have a generation of self entitled kids who expect to get a good paying job without having to “earn it”. Dovi if you manage to beat the best over the final three races then we’ll know you earned it and deservedly so.

Warned to be mild

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Steppenwolf coined the “born to be wild” moniker which became synonymous with Harley-Davidson. Harley is all about conspicuous consumption. It has generally been a good indicator of discretionary income. Harley is not so much about transport but lifestyle. Harley-Davidson’s sales fell 9.3% in the U.S. and 6.7% globally in Q2 2017, ending June 25th. Harley also stated it had lost ground in the big-bike market (601cc and above), dropping from 49.5% market share to 48.5%. Matt Levatich, President and CEO, Harley-Davidson. “Given U.S. industry challenges in the second quarter and the importance of the supply and demand balance for our premium brand, we are lowering our full-year shipment and margin guidance.” Q3 shipments are expected to be down c.20% (39,000-44,000 units).

Harley-Davidson sold 262,221 motorcycles last year and forecast a flat market this year but has downgraded those numbers to a forecast of 241,000 to 246,000 units (-7~8%). US shipments were well below expectations in the US.

Harley-Davidson is suffering from divine franchise syndrome. It has failed to modernize its line up until very recently. While it has plans to put 2mn new bikers on the road over the next 10 years, its competitors do not seem to be suffering with BMW, KTM and Triumph hitting new shipment records. The European makes have much broader product line-ups which adds to the rumours that Harley may wish to bid for Italian sportsbike maker Ducati from Audi to plug the segment gaps in its line up. Harley has had a failed attempt in the sports category via Buell but the Italian maker brings a proper platform to the party vs an in-house employee wanting to rev up Harley products out of a barn.

 

The changing face of the global motorbike market

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Earlier in the week we touched on the 1,800,000 fall in the number of Japanese who possess a large capacity motorcycle license. The status of the Japanese motorcycle companies makes for some interesting comparisons. Honda remains the largest global manufacturer with over 17.7 million units produced annually. Yamaha has seen a c.1mn unit decline over the last 5 years but a jump in the average profitability of its bikes. Suzuki has cut production by almost 50% as it continues to rack up losses and Kawasaki has stuck to a large bike bias which has stabilised profitability. Here is a look at the state of revenue growth over the last 5 years among major listed motorcycle manufacturers.

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Profitability is a different picture among the global makers. Suzuki has been struggling to make a profit, Kawasaki has drifted down but remained in the black. Honda has been outpaced by Yamaha and among the foreign makers BMW Motorrad and KTM have beaten Harley-Davidson’s performance.

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The foreign makers are all much smaller scale than the Japanese and tend to focus in the larger engine size segments. Harley-Davidson has suffered the most among the 5 big players in terms of unit growth. KTM, followed by BMW Motorrad have made the biggest relative gains.

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Looking at average EBIT/unit produced yields starkly different results. Harley nets around $3,000 per motorcycle in EBIT with BMW around half of that amount at €1,285 ($1,430) with KTM half of that. Kawasaki makes the most per motorcycle among the Japanese on a unit basis. Honda has remained relatively stable at $103 (although we should note that this is closer to $170 as the consolidated production number is about 10m units and the global number including equity method companies is the 17.7m) and Yamaha at $64.  These are ridiculously low numbers and of course identifying mix within that would yield far more healthy results for certain models and losses on others.

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One thing it points out is that focused strategies appear to be paying off for the Europeans and to some extent Kawasaki which has moved away from a me too approach. Efficiency and brand seems to be paying off for BMW’s continued rise and a broad range of product unlike Harley which seems to be stuck in a divine franchise scenario. Profitable but struggling to break out of cruisers. It has had a stab at sports bikes through Buell (business was spun off and EBR has since closed) and the Porsche designed V-Rod (now out of production). Now that Ducati is potentially being sold by Audi, does Harley look to use a proper sports brand with no clash in its line up to fuel (no pun intended) its growth?

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Ducati has changed hands more times than Hugh Hefner has switched bunnies at the Playboy Mansion

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It seems that Ducati is already up for sale, around 5 years after VW Group’s Audi bought it for 1.12bn euro. The question is who will buy it? Ducati has changed hands more than Hugh Hefner has switched bunnies at the Playboy Mansion. In September 2000, when I initiated a stock report on Ducati the company had around 40,000 unit sales per annum. In 2017 it is around 60,000. 50% growth in 17 years is hardly an achievement but at the very least it is consistently profitable. I suggested to Harley-Davidson that they buy the brand when it was in its troubled years and inject its marketing magic. Ducati has decent product and apparel but it lacks the pure steam roller marketing muscle of Harley.

Harley has dabbled in sports via the Buell brand but it failed due to the minuscule unit sales. Ducati makes sense in that it provides a brand that clashes with none of its models and runs the opportunity for some platform and parts sharing.

VW-Audi is not selling Ducati to fill a gaping hole left by Dieselgate, rather it is a brand which they have got pricing massively wrong. My local Ducati dealer said things changed dramatically when Audi took over. What they are doing is pricing the products (especially the parts) at such ridiculous levels that it would cause many buyers to back down. It was confirmed by another Ducati dealer in my recent trip to Tohoku that despite the new products he doesn’t think Ducati will do as well as BMW.

While we might see the likes of the Chinese or Indians (note Bajaj owns 49% of Europe’s largest motorcycle brand, KTM) it would make sense for a Suzuki Motor which has been struggling desperately in the motorcycle market. Suzuki needs mojo in its products and getting some diversity of thought might be just the ticket after decades in the wilderness.