Optimus Ride Deepens Partnership with Polaris for Autonomous Vehicles

GEM e6 modified by Optimus Ride for self-driving.
Optimus Ride currently modifies stock GEM LSVs like the GEM e6 for their self-driving service.

Optimus Ride – Polaris Partnership

Polaris is expanding their partnership with Boston-based Optimus Ride to manufacturer autonomous vehicles. Optimus Ride has been slowly rolling out autonomous low-speed vehicle services based on the Polaris Gem. Previously, Optimus modified the GEMs, about 30 in total. Under the expanded partnership, a GEM specifically designed for driverless, autonomous driving will be developed with Polaris and be ready for the second half of 2023 according to Optimus management. The GEM vehicles fall under the Polaris Commercial business division.

Optimus Ride Autonomous Vehicle Background

Optimus Rider Brooklyn Navy Yard Route
The Optimus Ride autonomous vehicle service route in at the Brooklyn Navy Yard.

Optimus Ride started in 2015 and has been proving its’ autonomous vehicle technology since then. Their service has been operating in a number of environments with routes that are relatively short and predictable. The routes are typically 1 to 3 miles with either fixed-route or on-demand services. The vehicles are all low speed vehicles and to date have also featured a safety driver. For example, the company operates a fixed-route autonomous vehicle service at the Brooklyn Navy Yard. In February, 2021 they announced a new service at TheYards waterfront development in Washington DC. Residents and tenants will use the Opti Ride app to schedule on-demand rides. These localized trips in developments, downtown areas and college and corporate campuses overlap significantly with the existing target market for the Polaris GEM product line.

SVR’s Take

This is another sign of Polaris moving towards electrification as well as positioning the company in the micro mobility space. It is also a great way to protect their existing GEM market position in places like college and corporate campuses. These markets are likely to be at the forefront of these limited scope, autonomous vehicle use cases. Now Polaris, through Optimus Ride, will be able to offer their existing customers the next generation of vehicle technology. At the same time, the partnership will likely open up new commercial markets for Polaris.

Marc Cesare, Smallvehicleresource.com

2021: A Turning Point for Electrifying UTV?

Polaris Ranger electric UTV developed in partnership with Zero Motorcycles
An electric Ranger is the first product from the Polaris partnership with Zero Motorcycles.

Polaris’ New Push to Electrify UTVs

Polaris’ announcement that they will be producing a new electric Ranger in collaboration with Zero Motorcycles is a strong indication that 2021 may be a turning point for the electrifying UTVs. They are the leading UTV manufacturer and already produces an electric Ranger but with traditional lead acid battery technology. There was a lithium ion battery equipped option at one time, but the model was prohibitively priced. The Ranger EV with a lithium battery pack cost approximately $10,000 higher than the lead acid version. This new Ranger EV is another step by Polaris as they increase investment towards electrifying UTVs and other powersports products.

At the end of 2019 the company created a new position, senior vice president of Electrification Strategy. Signaling the initiative’s importance, they filled it with the then president of Off Road, the company’s largest business division. In September, 2020 they announced a 10-year partnership with Zero Motorcycles as a cornerstone to their electrification strategy. Named rEV’d up, the strategy aims to offer electric vehicle options within each of its core product segments by 2025. Zero Motorcycles is one of the leading electric powertrain technology companies.

Polaris Has Extensive EV Experience

Polaris actually has quite a bit of experience in electric vehicles, but mostly outside of their powersports segments. Through the years the company has acquired GEM, Goupil, Brammo Electric Motorcycles and Taylor-Dunn, all manufacturers of electric vehicles. However, these companies are primarily active in markets that are more tangential to powersports. Polaris used the Brammo technology in the Ranger EV but not a motorcycle. Goupil produces light-duty commercial vehicles for the European market, GEM produces light-duty utility vehicles and transporters for college/corporate campuses and such, and Taylor-Dunn produces industrial utility vehicles. While these acquisitions were for commercial markets not powersports, Polaris gained a wealth of experience with electric vehicles. 

Volcon is a startup looking to electrify powersports.

Moving forward, these product lines can provide manufacturing volume and a broad product development base to further spread the cost of developing new electric powertrain technology. This could become a distinct advantage for Polaris that most of their competitors do not have. Can-Am, their leading powersports rival, is also moving into electrification, but is not active in other electric vehicle segments. Others, like Textron and Yamaha are major players in the golf car market. More interesting and potentially tougher competitors may be new entrants into the market like Texas-based Volcon Motors. This electric vehicle start-up has plans to introduce an all-terrain electric motorcycle in the Spring of 2021, a two-seat electric UTV later in 2021 and a four-seat UTV in 2022. Start-ups lack the financial resources, manufacturing expertise and distribution networks of established players but aren’t burdened by cultural legacies and management incentives tied to ICE based vehicles.

Electrifying UTVs is Challenging

Electrifying UTVs poses a unique challenge because of their size, performance requirements and usage profile. They need both power and range but still must remain reasonably priced. They need the power because, well, its powersports after all and a vehicle’s horsepower is a defining characteristic. Work oriented UTVs, especially for heavy duty work applications, need plenty of horsepower as well. Users want to make long trail rides without being stranded in the middle of nowhere, or be productive work throughout the work day. 

There is limited space for a battery pack in these very compact vehicles. In addition, a large sized battery pack will make the vehicles prohibitively expensive. It’s not surprising that they are starting with the lower priced Ranger. A small but efficient motor and small battery pack could keep prices low enough while still delivering better performance than the existing ICE engine in the Ranger. The new Ranger EV could also fit in nicely on college and corporate campuses or smaller farms/ranches where the range and work requirements would be not as demanding. 

High-end, off-road performance vehicles might be the next step. Already a premium market, they may be able to more readily absorb the additional expense of a large battery pack. These higher-end models could also serve to demonstrate the unique performance characteristics of an electric powertrain as well as gauge the interest of a customer base that likes the sound of ICE engines. An interesting aspect is that the performance customer is likely to wear out the rest of the vehicle before the advanced battery pack. Selling or leasing the battery pack separately from the rest of the vehicle may become an option. Approaching the UTV market from both ends may be the most likely strategy. Moving up the lower priced work-oriented UTVs and moving down from the highest priced, off-road performance UTVs, as electric powertrain technology improves and becomes more affordable. 

Marc Cesare, Smallvehicleresource.com

Optimus Ride Expands Autonomous Shuttle Service

Optimus Ride autonomous vehicle
An Optimus Ride self-driving LSV based on a GEM e4.

New York & California Locations Added

Optimus Ride, a self-driving startup company with roots in MIT, will be expanding their autonomous shuttle service next quarter to New York and Northern California. In both cases the service will be operating in a more controlled environment than public roads. In New York, Optimus Ride will operate their shuttle service on private roads in the 300-acre Brooklyn Navy Yard. The private development features light and heavy manufacturing and is home to about 8,500 workers. In Fairfield, CA the autonomous shuttle service will be deployed at Paradise Valley Estates. The Estates are a private, 80-acre, retirement community.

Optimus Ride NEVs

Optimus Ride uses GEM e4 and e6 models for their vehicles which are LSVs and therefore limited to a 25 mph top speed. They were first deployed in Weymouth, MA by the Boston-based company. Last year another 15 cities in the state announced an agreement to serve as a test bed for the autonomous shuttle service. Learn more: Theverge.com

SVR’s Take

The use of NEVs in a controlled environment as a testbed for autonomous vehicles is not surprising. SVR has previously discussed the advantages of using LSVs in gated communities for self-driving technology. These environments are more controlled than public roads with a limited, clearly defined set of low speed roadways. In addition, the older populations who may not be able to or want to drive can potentially find the greatest value in the service. At the same time, the gated community offers a challenging environment for testing the technology. Similar to public roads, there is a mix of pedestrians, cyclists and vehicles, albeit on a smaller scale. The low-speed roadways offers a cost advantage as well, since an electric LSV costs far less than a highway capable EV.

Urban Mobility Market for STOV OEMs

fuel cell powered urban mobility vehicle
Yamaha’s fuel cell powered urban mobility vehicle for a new ride sharing service.

Recent vehicle news from Asia spurred some thoughts on the opportunity urban mobility presents to small, task-oriented vehicle (STOV) manufacturers.

Urban Mobility Changing

Battery Swapping Autorickshaws

The first article reports on the use of battery swapping to power electric autorickshaws in India. Battery swapping removes the very expensive battery component from the upfront purchase price and reduces long term operating costs. In addition, the electric part moves toward a more climate friendly and less polluting transportation system.

The current thinking by some is that smaller two and three-wheeled vehicles provide the best economic case for battery swapping. In contrast, larger vehicles require larger batteries. This means more expensive and complicated swapping stations, and higher up front investment costs for the battery supplier. While this an India based example, the advent of e-scooters, e-bikes and startups offering three wheelers indicate market potential in the US.

Fuel Cell Powered Small Vehicle

This week Yamaha Motor announced the public testing of a prototype fuel cell vehicle for a vehicle sharing service. The vehicle looks like less than a typical automobile but more than a golf car. The technology advances new concepts in urban mobility as well as initiatives in Japan to promote hydrogen based fueling. Though the fuel cell provides greater range and less refueling needs, the more important part of this test for STOV OEMs is the vehicle form. The vehicle size and level of complexity should be a good fit for their capabilities.

Is Urban Mobility Too Small for Traditional Auto OEMs?

These transportation technologies represent a new opportunity for STOV manufacturers to leverage their existing manufacturing and technology expertise into new vehicle markets. The traditional automobile manufacturers are less likely to view these markets as an opportunity. Although, in the long term they could represent a threat to their dominance or at least reduce their addressable market. They are already pouring billions of dollars to enter the highway capable EV market. However, they must balance investment between highly profitable and traditionally popular ICE vehicles and lower margin and riskier EVs. Smaller, alternative energy vehicles are even farther down the list. In addition, their work force arguably did not join their companies to produce small, urban vehicles.

Urban Mobility Attracts Diverse Providers

Entrants in the urban mobility space include startups like Arcimoto and traditional small vehicle manufacturers serving Asian and to a lesser degree European markets. Startups have the advantage of creating purpose-built vehicles specifically for new mobility markets. However, they lack the manufacturing expertise, financial resources and distribution networks. Traditional foreign small vehicle manufacturers know their home markets, and have the distribution, financing and manufacturing assets. However, they do not have a strong presence in the US market.

Other potential entrants include the likes of bike sharing companies as well as Lyft and Uber that have moved into ride sharing with e-scooters and e-bikes. However, these company’s expertise is not in manufacturing. They provide the platform for people to access mobility. One can argue that the platform itself does not provide as a wide moat as the manufacturing and technology assets. The strengths and weaknesses of these potential providers and the dynamics of the urban mobility market suggest an opening for existing US STOV manufacturers.

Best Positioned US STOV Market Leaders

Among the current leading UTV, golf car and LSV manufacturers companies Polaris, Textron and Yamaha appear to be best positioned to pursue this new opportunity. Polaris owns Aixam, the leading European quadricycle brand as well as the GEM, Goupil and Taylor-Dunn electric vehicle brands. These brands provide them with electric vehicle technology as well as a range of distribution networks. On the other hand, the DNA and profit driver of Polaris is off-road motorsports. They may see relatively greater returns on investment in their traditional markets.

After the acquisition of Arctic Cat, Textron is similar to Polaris and now has an expansive small vehicle portfolio. Their DNA is more golf car and PTV, and therefore likely better suited towards urban mobility. However, the integration of Arctic Cat has been bumpy and they were slow to recognize the original UTV opportunity. As a piece of a larger conglomerate, their Textron Specialized Vehicle division may not be entrepreneurial enough or have the freedom to pursue this opportunity.

Yamaha has both off-road and golf car type offerings as well as e-bikes, but are not well coordinated. These businesses are in separate business units. In addition, their golf car portfolio has been emphasizing gas powered technology rather than electric technology. Yamaha’s existing mobility concept testing along with having one foot in the Asian market and another in the US should be an advantage. However, their slow re-entry into the UTV market after problems with the Rhino side-by-side speaks to a more cautious corporate approach.

The STOV OEMs appear to have many of the necessary requirements to pursue the urban mobility opportunity. The question remains whether they believe in the opportunity and if they are willing to take the risk.

Marc Cesare, Smallvehicleresource.com

Should Polaris Acquire Club Car?

Club Car Tempo
The Tempo, Club Car’s fleet golf car introduced in 2018.

A recent article speculated that Ingersoll-Rand’s acquisition of Precision Flow Systems could pave the way breaking up the conglomerate. Club Car is one of the pieces that seems a poor fit with the rest of Ingersoll-Rand. If this is the case, then Polaris Industries might be a good suitor.

The Pros for Acquiring Club Car

A strong international brand

Club Car has a number of characteristics that match previous Polaris acquisitions. First, Club Car is a leading brand, if not, the leading brand of the three major golf car manufacturers. Second, it is an international brand. Third, Club Car participates, in part, in a fragmented industry. Therefore, Polaris would have an opportunity to use their resources to establish a more dominate market position. While the golf car fleet market is primarily a three company affair, Club Car, E-Z-GO and Yamaha, the non-fleet personal transportation vehicle (PTV) and light utility vehicle markets are more fragmented markets. Fourth, a large installed base of vehicles forms the basis for a substantial parts and accessories business. This was a key reason for the Polaris purchase of Taylor-Dunn.

Club Car complements Polaris vehicle portfolio

A large portion of Club Car vehicles sold are electric and would fit well with the Polaris EV portfolio. Other EVs in the Polaris portfolio include GEM, Goupil, Taylor-Dunn and Aixam. Polaris could spread their battery and EV powertrain development costs over a larger number of vehicles. In addition, Club Car’s end markets and distribution network would complement current efforts by Polaris. Their PTVs would complement the street legal GEM vehicles and their light utility vehicles would complement the more heavy-duty Rangers.

In addition, the golf manufacturer’s dealer network would expand Polaris’ footprint. While there is some overlap with the GEM and Taylor-Dunn dealer networks, there would also be a large number of additional dealer locations in the US and internationally. Furthermore, these dealers could be used to expand the GEM and Taylor-Dunn distribution. Club Car end markets such as golf courses, resorts, colleges, airports and other institutions would also take Polaris into new markets or broaden their vehicle offerings where they overlap.

The Cons for Acquiring Club Car

Is there enough growth?

Polaris looks for acquisitions in growing markets and/or traditionally strong but neglected brands that they can leverage. In the case of Club Car, the fleet golf car market has been declining for a number of years. The PTV and light UTV markets are growing but not at really high rates and are a smaller part of the business. Club Car isn’t necessarily a neglected brand but is somewhat lost among much larger Ingersoll-Rand businesses. In contrast, Polaris might be able to focus more attention and resources and make a strong brand even stronger.

Another acquisition to swallow

Polaris has already made a number of acquisitions in the past year, adding Boat Holdings and the Marquis-Larson Boat Group to start a new boating business. Acquiring Club Car would require more management time and focus to successfully integrate the business into Polaris. In addition, the purchase would likely add additional debt to their balance sheet. Polaris management might want to finish integrating their recent acquisitions before adding another piece and avoid increasing their debt.

What Will Polaris Do?

A strong argument could be made that Polaris should acquire Club Car if it’s for sale. The key questions are whether the management perceives if there is enough growth in the market, and do they think they can use their resources to drive more growth. The combination of the PTV and light UTV markets along with the parts and accessories business may offer enough potential. Timing may also be an issue. Any down turn in the economy, which some are predicting, would hurt Polaris. Discretionary income drives a significant portion of their sales.

Marc Cesare, Smallvehicleresource.com

Lithium Battery Powered Golf Cars on the Rise

Trojan Trillium lithium battery

A lithium battery from Trojan’s new Trillium product line.

Trillium Lithium Battery Line from Trojan

Trojan Battery, a major player in the golf car and small task-oriented vehicle market, recently introduced their new Trillium line of Trojan Intelligent Lithium batteries. The line is targeting the aftermarket segment and is designed to be a replacement for existing lead acid batteries. According to Trojan the switch can be made “without the need for expertise in Li-ion technology or system integration.” Likewise OEMs can use the new battery line “…without significant investments in custom pack design and development.”

Sign of More Market Penetration

Trojan’s new product line is another indication of the growing use of lithium batteries in the golf car market. For a number of years there has been a lithium battery aftermarket that has largely consisted of smaller companies packaging together the various components. They either sell directly to golf car owners and/or through dealers who can install the components. However, this has been a niche market. In 2015 LiV Golf Cars tried to sell a lithium powered fleet golf car but were undercut by the big players too many times and retreated from that market. There are also smaller volume OEMs like GEM and luxury golf car maker Garia that offer lithium powered vehicles.

E-Z-GO Entry a Gamechanger

The most significant move towards lithium batteries came in 2017 when E-Z-GO, one of the major golf car manufacturers, launched their ELiTE line of lithium powered fleet golf cars. They also offer the option on some of their personal transportation vehicles. Financial reports show that E-Z-GO sold over 20,000 ELiTE vehicles in 2017. Samsung SDI is the lithium battery supplier for E-Z-GO. Rival golf car manufacturer Club Car has been linked to battery manufacturer LG Chem but has not yet introduced any lithium powered vehicles.

What Lies Ahead

The entry of a brand name such as Trojan should boost the aftermarket segment. Customers will likely have more trust in a Trojan backed product. In addition, if it is as easy to use as advertised, then this niche market should expand. The E-Z-GO product appears to have launched fairly successfully. Continued success will likely force Club Car and Yamaha to introduce their own lithium powered vehicles. Perhaps as soon as the upcoming PGA Show early in 2019. Once that happens, the move towards lithium batteries could accelerate quickly.

Marc Cesare, SVR

Tariff Questions Dominate Polaris Earnings Call

Polaris 2019 Ranger XP 1000 EPS 20th anniversary

The 2019 Ranger XP 1000 EPS 20th Anniversary edition helped drive sales despite tariff concerns.

Financial Results Overview

Tariff questions dominated the Polaris Industries earnings call to discuss their Q3 financial results for fiscal year 2018. The manufacturer of the RZR, Ranger and General side-by-sides reported adjusted revenue of $1,653 million, an increase of 12% from $1,480 million from third quarter 2017. Net income increased 21% from $98 million to $118 million. (Financial figures are compared to Q3 2017 unless noted)

STOV Segments Perform Solidly

Overall ORV/Snow segment revenue increased 3% from $1,007 million to $1,036 million. Lower snowmobile revenue was more than offset by a 12% increase in ORV revenue. ORV includes UTVs and ATVs. North American (NA) retail sales, driven by side-by-side sales, increased 1% in the quarter against a tough comparable. In comparison, management estimated that industry wide NA ORV sales improved low single digits for the quarter. Polaris side-by-side market share for the quarter remained the same.

The average selling price of ORVs overall increased 5%. Management reports that the initial launch of the 2019 model year was successful with good response from consumers and dealers. In particular, the new Ranger XP 1000 variants drove sales. Furthermore, the company’s inventory management system, RFM, is producing results with the best side-by-side delivery performance to date. In addition, lower promotional costs accompanied the stronger sales. Comments on individual markets indicated that the oil and gas customer segment improved while agriculture decreased some.

Global Adjacent Markets Gain

The Global Adjacent Markets (GAM) segment made solid gains as well. Sales increased 5% from $92 to $98 million. This segment includes vehicle sales to commercial, government and defense clients in addition to Aixam quadricycle sales in Europe. In addition, the GAM segment includes vehicles like Ranger and Brutus UTVs, military RZRs, GEM electric vehicles, Taylor-Dunn industrial vehicles and Goupil electric vehicles based in France. Management reported solid sales for  Goupil vehicles and strong orders from fire and police departments, and other government agencies.

ORV and GAM Drive International Growth

Sales to international markets jumped 10% with a strong showing from the ORV/Snow segment, up 9%, and the GAM segment, up 6%. Looking at sales by region, the Europe and Middle East drove overall international sales while Latin America increased only slightly and the Asia Pacific region decreased.

Full Year Guidance Improves

Polaris increased their guidance for the ORV/Snow segment. They now expect a low double digit increase in sales.The GAM segment should increase sales by low double digits, which is unchanged from previous guidance.

Tariff Impacts

Tariff impacts raised expenses by $8 million for the quarter and are expected to total $40 million for the year. The renegotiated NAFTA deal, the USMCA, is expected to have a neutral effect. However, the 301 tariffs, especially the upcoming List 3 tariffs could have more severe repercussions. Currently, the company is dealing with List 1 and List 2 tariff impacts. Polaris is at a disadvantage related to 301 List tariffs because their main competitors produce their vehicles in Mexico or assemble them in the US using Japanese parts. Therefore, these companies are not subject to the same tariffs.

Tariff Mitigation Plans

Management laid out a three pronged approach to mitigating the potential List 301 tariffs. First, they will try to negotiate with their suppliers to share some of the increased costs. Second, they may increase prices. Thirdly, they hope to lobby the current administration to obtain an exemption from the tariffs. Polaris argues that the tariffs are primarily hurting them, but they are the only US based manufacturer among the major players in the market. Furthermore, the company has been increasing their US based manufacturing. At this time, Polaris is not providing any specific quantitative guidance for tariff impacts for 2019.

Other Future Factors

For the powersports market in general, management expects that there will be a need to increase pricing to offset inflation, tariff impacts and increasing commodity and logistics costs. Furthermore, management stated, “As the industry leader, we’re not afraid to lead on price.”

The newly launched Factory Choice program, which gives the customers and dealers an opportunity to make differentiated vehicles from the factory and has been popular, gives Polaris optimism. The program should help drive sales in the future.

The dealer inventory profiles produced under the RFM program this year for side-by-sides significantly improved product availability. The increased availability bolstered sales, raising similar expectations moving forward.

Learn more:  Polaris Earnings Call Transcript (Seekingalpha.com)

SVR’s Take

This was another solid quarter for Polaris. The sales increases for side-by-sides were not gangbusters at first glance, but they are being compared to a really strong third quarter in 2017. The new 2019 vehicle lineup should drive sales more fully in the fourth quarter. The GAM segment is slowly growing into a significant business and could become a $500 billion business in about two years. On a cautionary note, the tariff impacts could slow progress for Polaris, especially in contrast to fast growing and Canadian based Can-Am. Increased pricing could potentially hurt sales, although as a premium brand Polaris can pass on some pricing. The other alternative is that they will take hit to their margins and generate less income.

 

 

Polaris Industries Reports Q2 2018 Results

2019 Polaris Ranger Crew XP 1000 EPS

New models like the 2019 Polaris Ranger Crew XP 1000 EPS helped drive side-by-side revenue for the quarter.

Polaris Industries reported their financial results for the second quarter of 2018. Second quarter 2018 revenue increased 10% year over year to $1.503 billion with the ORV/Snowmobile segment jumping 17% to $993 million and off-road vehicles, excluding PG&A, increased 19%. Some of the gains in ORV were because of the need to boost dealer inventory levels to match retail demand.

Earnings Call Highlights

The following are highlights from the earnings call related to the small, task-oriented vehicle market.

  • The powersports market in North America is essentially flat to up slightly with Polaris ORV flat
  • ORV retail is growing in every region of the US
  • Ag markets have not slowed down at all at this point
  • ORV/Snowmobile segment sales were up 17% in Q2
  • Improved ORV demand for side-by-sides worldwide, and availability and sale of new models accelerated during the quarter helped drive sales
  • Polaris side-by-side North American retail sales up mid-single digits driven by new products and improved oil/gas and agriculture markets
  • Average selling prices for ORV increased 3% and promotional spending per unit decreased
  • Polaris gained market share in side-by-sides and ATV for the quarter
  • Production costs are increasing due to higher logistical and commodity costs
  • ORV helped drive international growth, particularly in Europe
  • Global Adjacent Markets sales increased 17% in the second quarter to $113 million, due to growth in Commercial, Government, and Defense businesses

Guidance for Full Year 2018

  • Management increased guidance for the Global Adjacents and ORV businesses with Global Adjacents expected to be up low-double digits % for the year and ORV/Snowmobiles up high-single digits %
  • ORV sales are expected to be up high single-digits percent from international results and pricing actions and slightly higher volumes

Learn more:  Seekingalpha.com (Earnings call transcript)

Does Future Mobility Include LSVs?

GEM has been the market leader in LSVs for many years.

The falling cost of batteries and rise of autonomous driving technology has launched a new stage in the development of mobility technologies. These advances may be bad news for LSVs. For decades small-task oriented vehicles, and in particular by golf cars, have dominated the EV market in terms of production volume. Long before Tesla, golf car manufacturers produced hundreds of thousands of electric golf cars annually. Primarily for these vehicles were for golf courses, but for personal transportation as well. In addition, the large volume of used electric golf cars coming off of golf courses each year were finding their way into the personal transportation and utility markets. In smaller volumes they produced electric powered burden carriers and general utility vehicles for use in enclosed spaces such as factories and warehouses.

Speed and pricing hurt LSV adoption

Federal regulations in the late nineties lead to the development of Low Speed Vehicles (LSVs), originally referred to as Neighborhood Electric Vehicles (NEVs). The LSV classification created the opportunity to move small EVs out of gated and golf communities and relatively confined driving environments and onto public roads in large numbers. Unfortunately, for LSV manufacturers, the widespread adoption of LSVs for personal transportation has never occurred. In theory, LSVs would be a good choice as a second vehicle. They are relatively inexpensive to purchase and operate and suitable for the short trips typical of many drivers. In practice, they are relatively expensive for their limited functionality, and to many they look like a glorified golf car.

With a 25 mph top speed, LSVs are too slow for real life driving where speeds are often 30-45 mph. Federal authorities, already concerned about LSV safety, are unwilling to compromise on safety requirements for higher speed Medium Speed Vehicles. The additional safety requirements for MSVs would make these vehicles relatively expensive compared to fully highway capable vehicles.

Pricing has always been an issue with LSVs, which typically cost around $10,000 on the low end. They find themselves competing against new, used and refurbished golf cars that can cost thousands of dollars less or comparably priced, but heavily customized golf cars. On the other end of the spectrum, the lowest priced highway capable vehicles available do not cost that much more and offer far greater functionality. As a result, the LSV market has never “taken off”. SVR’s research has shown that LSVs for personal use have only gained traction where local laws restrict the use of golf cars on public roads. The trend has been for local governments to allow more golf cars, modified golf cars and even UTVs on local roads.

Where LSV have found some success is on college and corporate campuses. In these environments the LSV safety features are worth the additional expense in the context of insurance and liability. The slower speed is another plus where administrators do not want employees speeding across pedestrian filled campus grounds. The utility LSV has proven to provide plenty of functionality and mobility in these confined environments at a reduced cost compared to pick-up trucks which they often replace. In addition, electric LSVs fit well into sustainability and green initiatives on these campuses.

Electric bikes and scooters offer an alternative

New battery and autonomous driving technologies are unlikely to change the fate of LSVs, and likely will make it worse. Batteries are becoming small enough, powerful enough and cheap enough to create new competitors to LSVs. Namely, a rash of electric bicycles and electric scooters have been entering the market. While costing thousands of dollars, electric bicycles have the potential to chip away at some of the LSV market. Have a short commute on local roads and don’t need to carry much with you. Why not use an electric bike? Need a quick way around urban areas and don’t want to worry about parking? How about an electric scooter.

There are electric bike and scooter sharing programs either already operating or in pilot programs in major cities. These options aren’t ideal in bad weather or for multiple passengers, but they can potentially reduce LSV usage. In fact, they may even provide competition to golf cars and Personal Transportation Vehicles (PTVs) within gated communities.

Autonomous vehicles take a new direction

May Mobility self-driving GEM

GEM configured by May Mobility for self-driving.

Similarly autonomous driving technology may very well reduce the potential footprint for LSVs. Google has used some LSVs for the testing of their autonomous driving technology.  You could argue from a standpoint of safety that the more controlled environment of gated communities could be a good entry point for the technology. But it appears the major players are starting with highway capable vehicles. There have been some instances of LSVs with the technology being tested for limited use scenarios such as shuttle runs. Currently, the relative expense of the autonomous driving technology compared to the cost of an LSV is likely too high. The economics favor installation on premium vehicles or rental/sharing fleets with the flexibility for high volume usage.

Nuro autonomous vehicle

This Fall Kroger will be using passengerless autonomous vehicles from startup Nuro to deliver groceries to customers.

Starship Technologies Delivery Robot

Starship Technologies is rolling out a robotic delivery service on college and corporate campuses this year.

Even in the commercial use of LSVs or their slightly faster cousins in Europe for tasks like urban delivery, autonomous driving technology may undercut the application of these vehicles. There are a number of startups developing autonomous delivery vehicles for operation on streets. However, they are passenger less or even smaller and slower for use on sidewalks. The last vestige for the LSV may remain the college or corporate campus, but even the autonomous shuttle could cut into some of that usage. We may be witnessing the highpoint for the use of LSVs right now.

Marc Cesare, Smallvehicleresource.com

 

 

Polaris Earnings Report: Q1 2018

2018 Polaris Ranger XP 1000 EPS

The new 2018 Polaris Ranger XP 1000 EPS helped drive ORV sales in the first quarter according to the latest Polaris earnings call.

Polaris Industries reported first quarter 2018 revenues fo $1,297 million, an increase of 12% from the prior year. Adjusted net income for the quarter ended March 31, 2018 was $69 million compared to $48 million in the 2017 first quarter. ORV/Snowmobile segment sales were up 15% in Q1 driven by improved ORV shipments of side-by-sides worldwide as demand accelerated during the quarter.(ORV includes UTVs and ATVs). The following are highlights of the Polaris earnings call related to the small, task-oriented vehicle market.

  • ORV/Snowmobile segment sales were up 15% in Q1 to $833 million driven by improved ORV shipments of side-by-sides worldwide as demand accelerated during the quarter
  • Average Selling Price of ORV was up 4%
  • First quarter North American (NA) retail sales were driven side-by-side sales
  • NA side-by-side sales were up high single digits %
  • Important oil and agriculture market areas are improving
  • Side-by-sides gained market share in Ranger and RZR brands despite less promotional spending
  • Ranger business grew both in units and in dollars faster than the RZR business
  • The RZR RS1 demand was slightly higher than anticipated but management is not ready to call it a “Grand Slam” product
  • Global Adjacent Markets (GAM) grew revenue by 20% to $113 million and is looking for a strategic acquisition. This segments includes commercial ORVs, Defense, GEM, Aixam, Taylor-Dunn and Goupil sales)
  • GAM vehicle sales increased 25% with strong performance from Aixam, Goupil and government/defense business, and PG&A sales increased 19%
  • International ORV/Snow sales increased 20%
  • GAM international sales increased by 32%
  • Polaris has the leading ORV market share outside of North America
  • Polaris increased its full year 2018 sales guidance to up 4% to 6%
    • ORV/Snow is expected to increase mid-single digits %
    • GAM is expected to increase high single digits %
  • Management addressed the latest recalls and stated that they were part of the process of improving their systems, working with the CPSC and identifying any previous outstanding thermal issues. Moving forward under the new systems in place management expects to see fewer recalls involving a smaller number of vehicles.

Learn more:  Seekingalpha.com (Polaris Earnings Call Transcript)

SVR’s Take:  This was another strong Polaris earnings report and the last large recall appears to be related more to the company’s previous issues than an ongoing or new problem. The company seems to be back on track with strong performance in both Ranger and RZR and introducing innovative new products like the RZR RS1. I’m curious to see what the GAM acquisition they referred to could be. After the failed Eicher-Polaris JV are they going to try to buy their way into the Southeast Asian STOV market as an alternative? In the past they have often acquired strong brands that could be grown with improved financial and engineering resources as well as expanded distribution. I previously speculated on the pros and cons of Garia as an acquisition target, which offers a luxury international brand and electric vehicles.