Harley-Davidson: Lowering Moat Rating to Narrow From Wide as Market Share Languishes

We are changing Harley-Davidson's moat to narrow from wide. We still see brand equity rising from a history of successful product innovation, manufacturing prowess, and a dedicated dealer network that has given Harley a dominant position in the US motorcycle market. However, we believe its brand intangible advantage has declined in recent years, lowering our conviction in Harley's ability to maintain market share and withstand operating margin headwinds, resulting in more tempered economic profits in the coming decade. For example, Harley said it held 38% share in the US heavyweight motorcycle market in 2023, signaling robust local brand perception. While this is notable, the company had an even greater leadership position prior to the pandemic, with more than 50% share of the heavyweight market between 2009 and 2019, despite the longtime demand shift to mid- and lighter-weight bikes. The downtrend in shipments that has accompanied share losses over the past decade-plus has weighed on the motorcycle segment operating margin, which is set for 11.5% in 2024 versus 18% in 2014. Meanwhile, Harley's ROIC has dropped to 19% from more than 50% a decade ago.