Harley signs up with Chinese ally; India partnership on radar

US President Donald Trump could be hopping mad but it is clearly business first for Matt Levatich.

The President and CEO of Harley Davidson has sent out a strong message through Wednesday’s announcement of the tie-up with Zhejiang Qianjiang Motorcycle Co. This comes even as Trump has been spearheading the trade war against China which, in turn, has been sending shockwaves across the global community. To that extent, it is the ultimate irony that Harley goes ahead and joins hands with a Chinese two-wheeler maker.

It is also no secret that Trump has constantly been batting for Harley Davidson as one of America’s iconic brands. In fact, he has consistently brought its name up when the subject veers around to the so-called high tariffs India imposes on imported bikes from the US (never mind that Harley’s business in India is little to write home about anyway).

As for Qianjiang, it is no lightweight. The Chinese company is a subsidiary of Geely, the brand which made a super success story of its acquisition of Volvo Cars a decade ago. It is also the single largest shareholder in Volvo Trucks and Daimler AG with other brands like Proton and London Black Cabs in its portfolio.

There will be more coming from Geely in the new future especially with the automobile industry in a state of disruption thanks to new challenges like electrification and autonomous driving. Today, the name of the game is consolidation and car-makers are joining hands to share competencies and costs. This is where companies like Geely will be on the prowl to snap up brands and grow bigger.

Qianjiang also owns Italian bike brand Benelli, which has had its share of ups and down in India but is now determined to get things back on track with a new local partner. Harley’s alliance, though, will be confined to China and it is still on the lookout for a partner in India.

Hero partnership?

Logically, the ideal candidate right now will be Hero MotoCorp since the other prominent brands already have sewn up alliances with big global players. TVS has an ally in BMW Motorrad while Bajaj Auto, which is already in a successful partnership with KTM of Austria, has also entered into an alliance with Triumph of the UK.

Royal Enfield is the other successful Indian brand but it is unlikely if teaming up with Harley makes sense since they are in the same product space. Hero does not have an ally yet, which makes it a comfortable fit but there is no telling what surprises could be thrown up in the future. All indications are that Harley is on the lookout and a decision could be made soon.

“The important message is that the Chinese partnership is only intended for China. There will be an exclusive arrangement for India,” says an industry source familiar with the pace of developments. It will also be interesting to see if there are some synergies likely with Benelli in India, by virtue of being in the same Qianjiang ecosystem, but this seems a long shot as of now.

Harley has made it amply clear that global business should account for a large chunk of the revenue pie in the coming years. After all, markets in the West have saturated and it is only in emerging markets like India and ASEAN where all the action is happening.

This explains why the company has set up a manufacturing base in Thailand (which caters to Europe and China) while the more recent announcement on the Qianjiang alliance will focus on 350 cc motorcycles intended for sale in China and perhaps other parts of the ASEAN region.

In its elaborate investor presentation (More Roads to Harley-Davidson: Accelerated Strategy) of July 2018, Harley had indicated that consumer spending on discretionary, premium products was “reaching critical mass in China, India and Southeast Asia”. While China’s motorcycle volumes were “expected to grow rapidly”, India’s 250-500 cc motorcycle segment was expected to grow at around 25 per cent annually through 2021.

Motorcycle for India?

The company said it intended to enter into a strategic alliance in Asia to launch a 250-500 cc motorcycle within two years in India (hence 2020), and into other emerging markets in Asia over time. The idea was to “expedite market entry and increase brand access and volume” while leveraging its “world-class” partner’s manufacturing scale and retail footprint. Eventually, the goal was to enable an accessible price point for its premium, small displacement market-entry motorcycles.

As for China, Harley said it would invest to grow and drive volumes/market share in this “rapidly growing market”. The action plan spelt out in the presentation included leveraging the expanded product portfolio as well as the Thailand manufacturing plant; establish a China Distribution Centre; dealer expansion and improvement; and increase marketing investment. It was also during this presentation that the company said that urbanisation and sustainability trends were “creating opportunity for new technology and products”. The world’s urban population had “grown rapidly” from 751 million in 1950 to 4.2 billion in 2018 with over 2.5 billion more expected by 2050.

All this meant that there would be greater need for mobility solutions especially in the mid-capacity range across emerging markets.

Harley indicated its plans to launch a middleweight platform, lead the electrification of motorcycles and launch small displacement motorcycles for emerging markets. The presentation made a specific reference to India, which is characterised by a growing middle class. Product introductions by domestic manufacturers are also “providing stimulus in India” where competitors have entered into various alliances and partnerships to “accelerate the pace of market entry” especially in the 250-500 cc range.

Electric will also be a big play for Harley and industry observers believe that the tie-up with China’s Qianjiang will pave the way for a host of exciting developments.

Electric push

It is an established fact today that China is heading the rest of the world in electrification and Harley could well use the costing competencies of the Geely group in this direction. If things go according to plan, this could also service the e-mobility needs in Europe, US, India and the ASEAN region.

The company has hinted in its presentation that the objective is to “aggressively enter attractive segments with a broad portfolio of electric products and a transformer customer launch approach”. As part of the effort to bring electric products to market in new ways, Harley plans to “launch with impact to inspire new riders ahead of product availability and seed demand”.

It will also “meet customers where they are and how they want to engage” while enhancing traditional channels with new urban points. Harley also plans to open 25-35 new full-line dealer points per year based on market potential through 2022, primarily in emerging markets.

While the China alliance has been sewn up, Harley will doubtless be keen to get going quickly in India too. There are some big changes happening with the new Bharat Stage VI emission norms imminent in April 2020. Likewise, the Centre is keen on going ahead with an electric mobility roadmap though there are a host of infrastructural issues to deal with.

In this changing mobility scenario, Harley will be keen to make an impact though this is easier said than done. India is a hugely competitive market where local brands dominate the landscape along with Japanese counterparts led by Honda. Harley will also need to catch up with other multinationals like Triumph that are on the move with their product plans. It is not going to be a walk in the park for sure.

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