Polaris Q3 2017 Earnings Report

2018 Polaris Ranger XP 1000 EPS

The new 2018 Polaris Ranger XP 1000 EPS helped drive sales in the third quarter for Polaris.

Polaris Industries reported third quarter 2017 sales of $1,478.7 million, up 25 percent from $1,185.1 million for the third quarter of 2016. Off-Road/Snowmobile segment reported sales of $1.01 billion up 12% and Global Adjacent Markets, which includes GEM, Taylor-Dunn and Aixam among other brands, increased 17% to $91.5 million.

It was a strong quarter for Polaris, in part, because it is being compared to a weak third quarter in 2016 and aided by higher promotional spending. On the other hand, management reports that the quarter also compared favorably to their 2015 third quarter, which was the last quarter before recall issues hit them hard. Looking behind the numbers a more accurate description may be a solid quarter that shows Polaris has stemmed the tide and gaining momentum again in the side-by-side and ATV markets. The following are highlights from the earnings call related to side-by-sides and other small, task-oriented vehicles.

  • Side-by-side wholesale sales were strong worldwide
  • ORV retail sales in North America were up mid-teens percent with both side-by-sides and ATVs up mid-teens
  • Management reports gaining market share in RZR, Ranger and ATV segments
  • ORV industry sales in North America increased high single digits percent for the quarter
  • The oil & gas and farm markets improved but are neither a drag or driving industry growth
  • ORV retail was up double digits in September as momentum carried through the quarter
  • RZR retail sales were very strong in the quarter as well as ATV sales
  • The Ranger XP 1000 was launched during the quarter
  • Strong promotional spending helped drive sales during the quarter but Polaris performed well relative to other manufacturers with similar spending.
  • Promotional spending was also used to help clear out inventory before new model year arrivals.
  • Management reports strong dealer orders for the Ranger XP 1000 and the RZR Dynamics products
  • In Europe Aixam quadricycles and Goupil light utility vehicles grew 17% for the quarter at the wholesale level
  • Guidance:
    • Total company sales are expected to be up in the range of 18% to 19% with increased guidance for ORV/Snowmobile sales, which are now expected to increase in the mid-single digit range year-over-year
    • Global Adjacent Markets guidance is increased to low double digits due to strong sales across the portfolio
    • Lower promotional spending is expected in the 4th quarter compared to previous year and quarter

Learn more:  Seekingalpha.com (Earnings call transcript)

Marc Cesare, Smallvehicleresource.com

More STOV Self-Driving Tech

Polaris MRZR X autonomous vehicle

The self-driving MRZR X developed by Polaris, ARA and Neya Systems for the Army’s SMET program.

A recent post highlighted current self-driving tech in the STOV market and commented on the potential in the future. In the past week I came across a couple of additional examples of self-driving tech in the market.

The first is a collaboration between Polaris Industries, Applied Research Associates (ARA) and Neya Systems to provide a platform for the US Army’s Squad Multipurpose Equipment Transport (SMET) program. Polaris brings their MRZR vehicle platform, currently sold to US and allied military organizations around the world, to the collaboration, Neya Systems is providing advanced unmanned systems technology and ARA brings experience in bringing computer and other technical expertise to national security issues. The SMET program’s goal is to develop a ground robotic vehicle to carry a squad’s worth of life support and combat gear. An Army squad typically consists of nine soldiers. (Learn more:  Businesswire.com)

A self-driving shuttle from Auro which was recently acquired by Ridecell.

The second example is California based Ridecell that is developing self-driving, low-speed vehicles for use on private property such as colleges, theme parks, business parks, retirement communities, and basically any campus like setting that can set it’s own traffic rules. Ridecell recently acquired autonomous shuttle maker Auro Robotics. Ridecell will also be providing fleet-management software and services which they already provide for BMW’s and Volkswagen’s car sharing services.The battery-electric shuttle has a top speed of 25 mph and a 90-mile range. Auro currently builds three different configurations to suit various transportation needs and is using GEMs as their base vehicle platform. They provide 2, 6 or 12 seat shuttles depending on customer need. Learn more:  Greencarreports.com

Ridecell is targeting exactly the markets I mentioned in my previous post. The college campus market in particular is already a major market for GEM. However, local GEM dealers could find themselves in competition with Ridecell and indirectly with Polaris who manufactures GEM vehicles, if they end up selling directly to Ridecell. It may be useful for Ridecell, Polaris corporate and local GEM dealers to collaborate in marketing self-driving vehicles. Ridecell could significantly expand their distribution and service channel and enhance their marketing efforts, Polaris could sell more GEMs without alienating their dealer base while establishing the GEM brand in the self-driving space, and GEM dealers could provide a value-added, next generation product to their customers while adding a differentiating and potentially higher margin product to their vehicle lineup.

For GEM dealers this could also be an opportunity to grab a greater share of the gated community market. Traditionally this has been a harder sell for LSVs because of the price of LSVs in comparison to used, refurbished, new and customized golf cars. The Ridecell product however would more likely be marketed to the organization operating the community rather than individual owners, since it would be a shuttle service shared by the community. The economics would be different as well, as the shuttle service would likely need to start with a brand new vehicle. Over the long term, a self-driving shuttle service could very well significantly erode the individual vehicle market in gated communities.

Marc Cesare, Smallvehicleresource.com

STOV Self-driving Tech

Yamaha Viking VI autonomous driving

Yamaha Viking VI with autonomous driving technology.

Driverless technology and autonomous driving have been garnering plenty of attention and press lately. The vast majority of the focus has been on highway capable vehicles, but the small, task-oriented vehicle market (STOV) is active in this new area of innovation as well.

One recent example is Yamaha’s development of a fully autonomous Viking VI utility vehicle using their Autonomous System X1 technology. The screenshots from a video of the vehicle in action provides an idea of the technology at work.

Yamaha Viking VI

No driver but some additional screens.

Yamaha Viking VI

Some of the imagery tech the autonomous Viking VI uses.

Yamaha Viking VI

The autonomous Viking VI maneuvering around an obstacle on the trail.

The system combines GPS, LIDAR (light detection and ranging) and an IMU (Inertial Measurement Unit). Publicly available aerial imagery and digital elevation maps are used to plan the trip, and simulations from a terrain model are used to find the best local path. In addition, camera images are used to detect traversable ares in an off-road environment. The video of the Viking VI in autonomous action is impressive.

May Mobility self-driving GEM

GEM configured by MAy Mobility for self-driving.

Another example are two GEM vehicles being used by May Mobility to test self-driving technology in the city of Detroit. The testing will be conducted from Oct. 9 to 13 in conjunction with Bedrock, LLC, a real estate firm. The six seater GEMs are configured with May Mobility’s software and sensors and be used to transport Bedrock workers to and from various company locations. The vehicles will operate for three hours a day, travel only on roads with a speed limit of 35 mph or less, and have a driver on board to take control in emergency situations if necessary. Learn more:  Startribune.com

In our recently released STOV market study, SVR argues that self-driving technology could produce a significant boost to the STOV market in the coming years. The lower speed environments may provide a safer environment to initially implement self-driving technology. A number of self-driving test vehicles are being used as shuttles along readily defined loops with limited variation. Gated communities are another low speed environment with limited variability that could provide an easier entry point. The largest potential though resides in a large scale movement towards new urban mobility platforms. In congested urban areas the speed limitations of LSVs are less critical as is the lower vehicle range. On the plus side is the smaller size, zero emissions and lower noise of the vehicles. Self-driving technology has the potential to facilitate large scale deployment of low speed vehicles in urban environments.

 

New SVR Market Study Predicts Solid Growth For STOVs

In a new market study on the small task-oriented vehicle (STOV) market in the US and Canada, Small Vehicle Resource (SVR), LLC predicts growth over the 2017-2021 period. The market research reveals four trends coming together that will result in market gains of mid to high single digits in the forecast period and an industry value in the range of $15.8 billion at retail including parts and accessories.

  • Growing appreciation in a highly diverse market for the effectiveness of STOVs specifically designed to meet individual segment needs;
  • Increasing competition that will drive new product development as manufacturers seek to strengthen current market strongholds and stake out additional market segments with new and/or expanded product lines;
  • Continuing focus on accessories and attachments to enhance the versatility and value of STOVs, boost revenues and supplant other vehicle types such as pick-ups and tractors for work and full-size vehicles for transportation;
  • Golf manufacturers emphasizing non-fleet markets over the continuing slow/negative growth golf car fleet market.

Steve Metzger, SVR Managing Director, states that, “While the fleet market remains in a downsizing mode, it is a marginal decline. It will remain a significant component of the golf car-type vehicle market. On the other hand, SVR forecasts continued sizable gains in the non-fleet market, including light utility and transporter vehicles and personal transportation vehicles.” Metzger also notes, “SVR anticipates that important new opportunities lie ahead, including self-driving technology applications, as well as potential for a much broader market on a global basis.”

Marc Cesare, SVR Managing Director adds, “The off-road utility vehicle market continues to be a competitive vortex for golf car manufacturers seeking new markets, the powersports industry, and traditional manufacturers of work related utility vehicles. While market growth will be slower than the recent high growth years, it remains solid,” Cesare notes, “ and competition will drive product innovation in both base vehicles as well as options and attachments that improve vehicle performance and versatility.

Approximately a third of the market value is from electric powered STOVs, primarily in the form of golf cars or golf car derived utility vehicles and personal transportation vehicles (PTVs). PTVs are golf cars modified for gated community or low speed public road use and include low speed vehicles (LSVs). Key trends and projections for the market include:

  • In total, demand for electric powered STOVs will increase to over 300,000 vehicles in 2021.
  • The demand for non-fleet golf car type vehicles will more than offset the slight decline in the fleet golf car market, moving from under 50% of the total demand to over 50%.
  • Light utility vehicles produced by golf car and other manufacturers are expected to grow approximately 10% annually to 2021.
  • PTVs will continue to grow low single digits during the trend period and electric powered PTVs will slowly increase to represent nearly 75% of the market by 2021. LSVs will account for about one-fifth of the PTVmarket.

Metzger, states that, “The potential for even greater electric powered STOV growth is there. In the PTV market the combination of market forces and emerging technologies could greatly increase the applicability of PTVs. Increasing urbanization is expected to create congestion and pollution issues, and the search for new transportation solutions. The advent of self-driving vehicle technology along with improved battery technology creates the potential for mobility platforms that can in part be based on small PTVs.” He further notes, “Gated communities with their more controlled environments could prove to be excellent testing grounds and the concepts could then migrate to urban environments that are well suited to low speed vehicle operations.”

The new study, the eighth in the series of studies produced by SVR since 2000, covers utility, off-road, and personal transportation vehicles, and fleet golf cars.

The study is entitled, 2017 Market Report on the Small, Task-Oriented Vehicle Industry: Transition and Growth –Trends from 2012; Forecasts to 2021. 

For additional, detailed information on study content a brochure is available with a table of contents ( Small Task-Oriented Vehicle Study – Analysis & Forecast (PDF)) or contact:

Steve Metzger,  smetzger@smallvehicleresource.com

(914) 293-7577

GEM Recalls Certain 2016-17 Models

The 2016 GEM e2.

Polaris Industries recently announced a recall of certain model year 2016 and 2017 GEM electric vehicles because lug nuts on the front wheels can loosen and the front wheels potentially detach. The recall pertains to certain GEM E2, E4, E6 and ELXD models with steel wheels. As many as 1,254 vehicles may be affected. GEM will notify owners and is currently finalizing a remedy.

Given their recall troubles in the side-by-side market, this is unwelcome news for Polaris. While the number of vehicles affected pales in comparison to the massive RZR and Ranger recalls, it is a sizable chunk of their total annual sales of GEMs. Only a few thousand GEMs are sold annually. The 2016 model year GEMs represented a major relaunching of the line. Earlier this year there was another recall for these vehicles related to the drive mode switch.

Marc Cesare, Smallvehicleresource.com

The following information is from the National Highway Traffic Safety Administration (NHTSA)

April 26, 2017 NHTSA CAMPAIGN NUMBER: 17V279000

Front Steel Wheel Lug Nuts may Loosen
If a wheel separates from the vehicle, it can increase the risk of a crash.

NHTSA Campaign Number: 17V279000

Manufacturer Polaris Industries, Inc.

Components WHEELS

Potential Number of Units Affected 1,254

Summary

Polaris Industries, Inc. (Polaris) is recalling certain 2016-2017 GEM E2, E4, E6, and ELXD electric vehicles, equipped with steel wheels. The lug nuts on the front wheels may loosen, potentially resulting in a front wheel detaching from the vehicle.

Remedy

GEM will notify owners. The manufacturer has not yet finalized a remedy plan, nor provided a notification schedule. Owners may contact GEM Consumer Service Department at 1-855-743-3436. Polaris’ number for this recall is L-17-01.

Notes

Owners may also contact the National Highway Traffic Safety Administration Vehicle Safety Hotline at 1-888-327-4236 (TTY 1-800-424-9153), or go to www.safercar.gov.

8 Affected Products
Vehicles

MAKE MODEL YEAR

GEM E2 2016-2017
GEM E4 2016-2017
GEM E6 2016-2017
GEM ELXD 2016-2017

Self-Driving Vehicles = Growth For STOVs?

Google Prototype self-driving low-speed vehicle.

My colleague recently penned an article exploring the nexus of self-driving cars and golf car-type vehicles. Some of the key takeaways:

  • Hardware costs are dropping precipitously and may soon be within striking distance of being affordable for golf car type vehicles.
  • Golf car manufacturers are already exploring the technology and in some cases conducting testing.
  • Other companies are using GEM vehicles as self-driving test vehicles.
  • Gated communities with low speed vehicles provide a lower complexity environment that is more conducive to self-driving solutions.
  • Self-driving technology could expand potential growth avenues in non-golf car markets, an area of focus for golf car manufacturers

The article points to gated communities and urban fleets as potential market segments for deployment of self-driving technology. There are also other potential market impacts not addressed in the article that this technology can have.

For one, self-driving technology could provide an impetus for LSVs sales in the personal transportation sector. Purpose made LSVs have not quite reached their potential in this segment due to the relative cost of LSVs compared to the available market alternatives such as used golf cars, golf cars modified to be LSV compliant, customized golf cars and new golf cars. Put simply, not enough customers have found the additional price of LSVs to be worth the additional benefits. LSVs for personal transportation have done best where local regulations have favored them such as where golf cars or modified golf cars are not allowed on public roads but LSVs are, or where night time driving or other driving restrictions require LSV compliant technology.

Self-driving technology could be a differentiator for personal transportation LSVs. Since they are higher priced, LSVs are likely to feature self-driving technology before traditional golf cars. While it is possible existing golf cars could be retrofitted with self-driving technology, it may prove cost prohibitive and, more importantly, likely to encounter regulatory issues. It’s one thing to slap on some lights and an auto-style windshield, it’s quite another to install the software and hardware components necessary to create a self-driving vehicle, not to mention supporting the system with updates moving forward.

Regulatory issues brings to mind another consideration in regard to self-driving technology, medium speed vehicles (MSVs). While a few states in the US allow medium speed vehicles, at the Federal level NHTSA has never created a MSV classification and, in fact, has strongly opposed the idea on safety grounds. A MSV would require prohibitively expensive safety features akin to a highway capable vehicle.

Can self-driving change this dynamic? It is a possibility worth considering. In January, 2017 NHTSA completed their investigation (PDF file) of Tesla’s Autopilot and Automatic Emergency Braking (AEB) system, which was initiated following a fatal crash of a Tesla with a tractor trailer in Florida. Their conclusion was that, “A safety-related defect trend has not been identified at this time and further examination of this issue does not appear to be warranted.” However, for the purposes of this discussion, the most important finding of the report was related to Tesla vehicles before and after they had Tesla’s Autopilot Technology Package (ATP) installed at purchase or through updates. “The data show that the Tesla vehicles crash rate dropped by almost 40 percent after Autosteer installation.”

This is an astonishing drop, and even more so considering it does not take into account whether Autopilot was in use. Therefore, this improvement is likely a conservative finding. The question is straightforward. Can MSVs use self-driving technology to make them safe enough to pass NHTSA’s regulatory rigor? Why rely on a package of older and likely more expensive safety technology to improve MSV safety when a potentially cheaper and possibly more effective solution is on the horizon. It may soon be time to revisit the possibility of creating an MSV classification, which could open up a range of potential growth markets.

Marc Cesare, Smallvehicleresource.com

Polaris GEM Issues Recall

Marc Cesare, Smallvehicleresource.com

Polaris GEM e2

The 2016 GEM e2 is part of the recall.

GEM, owned by Polaris, has issued a recall for 2016-2017 e2, e4, e6, and eL XD models because the drive mode switch can send an incorrect signal, causing the vehicle to go in the opposite direction than intended. This is a fairly large recall for GEM in relation to their annual sales. It seems few Polaris brands can escape recall issues of late.

The following information is from NHTSA.

Campaign Number: 16V884000

Manufacturer Polaris Industries, Inc.

Components ELECTRICAL SYSTEM

Potential Number of Units Affected 1,644

Summary

Polaris Industries, Inc. (Polaris) is recalling certain 2016-2017 GEM e2, e4, e6, and eL XD electric vehicles manufactured May 29, 2015, to November 18, 2016. The drive mode switch can send an incorrect signal, causing the vehicle to go in the opposite direction than intended.

Remedy

Polaris will notify owners, and dealers will replace the drive switch, free of charge. The recall is expected to begin in December 2016. Owners may contact GEM Consumer Service Department at 1-855-743-3436. Polaris’ number for this recall is L-16-01.

Notes

Owners may also contact the National Highway Traffic Safety Administration Vehicle Safety Hotline at 1-888-327-4236 (TTY 1-800-424-9153), or go to www.safercar.gov.

Polaris Reports 2016 2nd Quarter Earnings

2015-RZR-XP-4-1000-eps

The very large recall of RZR vehicles impacted Polaris 2nd quarter side-by-side revenue.

Polaris Industries reported fiscal year 2016 second quarter earnings with sales increasing 1% from the same quarter last year to reach $1,130.8 million. Net income was down 29% to $71.2 million, reflecting approximately $25 million in warranty, legal and recall costs. Here are some of the highlights of the earnings callrelated to small, task-oriented vehicles.

  • ORV (ATV and UTV) sales decreased 6% in the quarter with Ranger shipments flat and RZR/ATV shipments down
  • RZR retail was down significantly more than RANGER and that was anticipated given the impact from the recall
  • North American (NA) ORV inventory was down 8%
  • Demand for the new General line of UTVs is exceeding company expectations
  • The Huntsville, AL plant is ramping up Ranger and Slingshot production
  • NA retail market for side-by-sides was flat and declining for ATVs
  • Management reports losing a few points of side-by-side market share attributable more to their product lineup in the utility segment in a competitive environment
  • NA retail market for side-by-sides was flat and declining for ATVs
  • Polaris NA retail was down double digits for ORV for the quarter impacted by the large product recall as well as weakness in the oil  and ag markets with side-by-side retail down high single digits
  • Product recall costs have been approximately $27 million for the first half of the year. The company has had a 30% response rate so far and the Consumer Product Safety Commission is targeting a response rate close to 80%
  • Global adjacent market sales increased 14% in the second quarter to $91 million including PG&A, driven by market share gains in Aixam and the added sales from the Taylor-Dunn acquisition.
  • Management reports that Taylor-Dunn’s “performance out of the gate, it’s been one of our best acquisitions yet” and they like what is essentially a made to order model along with synergies for the people mover segment with other global adjacent brands
  • The defense business was up over 30% and our PG&A related sales for the global adjacent division increased 21%.
  • Defense sales were up with the DAGOR vehicle gaining traction
  • Multix early sales have been disappointing but transmission issues were fixed during the 2nd quarter and the distribution network is expanding
  • Polaris will begin transitioning their RZR and Ranger lines to their retail flow management system to improve lead times and inventory management
  • ORV and Snowmobile sales are expected to decrease mid-single digits
  • Global Adjacent markets which includes GEM, Aixam, Goupil, etc. is expected to be up mid teens for the year with strength across brands

Learn more:  Seekingalpha.com (Earnings call transcript)

Polaris Reports Q1 2016 Earnings

2015-RZR-XP-4-1000-eps

One of the Polaris RZR models involved in the large first quarter vehicle recall.

Polaris reported earnings for the first quarter 2016 fiscal year with sales and earning declining for the second consecutive quarter. Revenue was down 5% to $983 million driven by inventory management and currency impacts. Earnings per share was down a significant 45% with currency, volume and mix and considerable legal and warranty costs more than offsetting leaner operations. The following are some of the highlights related to the small, task-oriented vehicle market.

  • Polaris is recalling more than 160,000 RZR vehicles to address fire and other thermal risks. This figure appears to include vehicles outside the US as the CPSC reported a figure of 133,000.
  • Management expects to “…address all of the recalled vehicles within the quarter…” and emphasized their commitment to resolving the issue quickly.
  • Side-by-side dealer inventory declined upper single digit percent in the quarter.
  • Year-over-year (YOY) North American side-by-side retail decreased slightly in an industry up mid to high single digits, so some market share was lost.
  • Management is positive about the performance of the new GENERAL product line and reports cannibalization of Ranger and RZR lines is not significant.
  • Side-by-side market remains weak in oil producing states but overall management is optimistic about the ORV (ATV & side-b-side) industry.
  • Management reports higher variability from month to month and regionally in the ORV market.
  • The Global Adjacent Markets business unit saw a 8% decrease in revenue with strength in Aixam, national accounts and GEM offset by weakness in Bobcat and Brutus. Defense business (MRZR and Dagor) declined “significantly” due to tough comparables but the order backlog is up.
  • The European ORV industry grew low single digits in the first quarter, with Polaris retail outperforming, up mid-single digits.
  • Multix retail and distribution, while still relatively small, are on plan through the first quarter. Multix is a small multi-purpose vehicle for the Indian market.
  • Ranger production will begin in the second quarter at the new Huntsville, AL plant, which should provide significantly better operating efficiencies and better inventory and retail flow management.
  • Management expects  Global Adjacent Markets to be up in the high single digits percent range, reflecting the recent acquisition of Taylor-Dunn and ORV/Snowmobile sales to be down low to mid single digits.

Learn more:  Seekingalpha.com (earnings call transcript)

$230 Million for California’s Clean Vehicle Rebate Program (CVRP)

CVRP NEV Rebates

Source: SVR based on CVRP data.

The California Air Resources Board (ARB) is proposing $230 million in funding for the California Clean Vehicle Rebate Program (CVRP) for fiscal year 2016-2017.

CVRP offers vehicle rebates on a first-come, first-served basis for light-duty ZEVs, plug-in hybrid electric vehicles (PHEVs), zero-emission motorcycles, and neighborhood electric vehicles. Rebate amounts are $2,500 for battery electric vehicles (BEVs); $1,500 for PHEVs; $5,000 for fuel cell electric vehicles; and $900 for zero-emission motorcycles and neighborhood electric vehicles. As of February 1, 2016, the CVRP has rebated over $291 million, covering 137,000 vehicles.

NEVs have been a small portion of these vehicles, totaling only 147 vehicles and just over $151,000 in rebates from 2010 to 2016, according to the CVRP statistics. One issue is that there have been only four brands that have been eligible for the rebates including GEM, Miles, Vantage and EVI eMega. By far GEM has been the most prevalent NEV in the program, accounting for 111 of the 147 vehicles. However, the model year 2014 and 2015 vehicles have not been eligible because the do not meet CVRP performance requirements. According to the CVRP website there are no current model year NEVs eligible for the rebate. As the above chart shows, there has been a significant drop-off in NEV rebates since 2013.

Source:  SVR based on CVRP data.

Source: SVR based on CVRP data.

Only 35% of the NEV rebates went to businesses, 34% to federal, state or local governments and 22% to individuals with the remainder to non-profits. These figures are not that surprising as GEM sells mostly to commercial customers.  Learn more:  Cleanvehiclerebate.org