The Polaris Covid-19 response is wide ranging and impactful. The management is suspending operations at eight plants across the United States, Mexico and Poland for a week. As part of the suspension the company is providing US employees with up to 10 days of pay. For dealers, they are allowing home delivery of products, providing product flooring support and covering flooring interest payments for off-road vehicles and motorcycles through May 31st.
Polaris Covid-19: Financial Response
On the financial side Polaris management announced a:
Drawing down of cash from their revolving credit facility
Reduction in capital expenditures
Suspension of share repurchases.
They have also withdrawn their financial guidance for the first quarter and full year.
This is not surprising given the current economic conditions brought on by the Covid virus. Similarly, BRP, maker of Can-Am products, withdrew their financial guidance for the year, suspended their dividend and drew down their $700 million revolving credit line. They are also considering reducing shifts and possibly suspending some plant operations.
Since the powersports industry in general is reliant on discretionary income, particularly in the recreational segment, they will be hard hit by the economic fallout from the Covid-19 virus. Polaris is more diversified than BRP with more commercial customers and products like Taylor-Dunn, Goupil, GEM and military vehicles. In addition, they have a large installed base and customers may choose to fix existing vehicles rather than purchase new ones. On the bright side Polaris points to the ability to maintain social distancing while still enjoying off-road vehicles.
Furthermore, the companies will be hit by sharply lower oil prices in important oil producing states and farmers still feeling the effects of the tariff wars. Several years ago these two sub-segments helped restrain growth in the side-by-side market. Oil prices were lower but not quite this low and farm income was low as well.
The BRP earnings call for Q4 and the full year for FY2020 revealed continued strong growth. Annual revenue increased 15% to $6,053 million (CA$) primarily driven by shipments of Year-Round products which includes side-by-sides. Net income increased by 63% and North American BRP retail sales for Seasonal Products and Year-Round Products increased 15%. BRP retail sales outpaced the industry in North America and International markets. For Q4 2020 total revenues improved 7.3% to $1,615.9 and net income jumped 57.1% to $118.2. Management stated that they met key five-year revenue and earnings goals a year ahead of schedule.
BRP Earnings Call Highlights
The following are some of the highlights of the Q4 2020 BRP earnings call that relate to side-by-sides.
BRP North American powersports retail sales increased 15% for FY2020 compared to mid-single digits for the industry
BRP continued their long streak of strong quarters as they continue to gain market share in the side-by-side market. They have emerged as the number one rival to Polaris. In large part this is because of a steady introduction of new models that meet customer needs. They are the only company that has come close to matching Polaris’ pace of new model introductions.
However, both companies are going to be challenged by the corona virus crisis as well as the sharp drop in oil prices. The oil rich states were a drag on the market several years ago when there was a less severe drop in oil prices. Tariff and flooding troubles in the farming states only adds to the problem. The effects of the corona virus are unclear at this point but are likely to be severe. Furthermore, products like side-by-sides that significantly rely on discretionary income are likely to be disproportionately affected.
Arcimoto and the Eugene Springfield Fire Department in Oregon started the first pilot program for the Rapid Responder vehicle. The Rapid Responder is a variation of the Arcimoto FUV designed specifically for first responders like fire, police and campus security departments. The three-wheeled, electric powered vehicle for emergency response offers a low carbon, small-footprint and lower cost option to traditional vehicles.
Rapid Responder Features
Arcimoto will disclose pricing and full specifications for the vehicle later this year when full production begins. As of now key specs include:
75 mph top speed
100 city mile range
Roof-mounted equipment rack
Rear cargo compartment
360-degree scene lights
This vehicle should find a nice niche in fire, police and security applications. The higher speed and range is an advantage compared to some of the first responder/security vehicles that the golf car and other low speed vehicle manufacturers offer. On the down side those four-wheel vehicles can carry a full stretcher. However, the Rapid Responder’s speed and small footprint should allow first responders to access the emergency scene faster. This can prove critical in many situations.
My colleague, Stephen Metzger, attended the 2020 PGA Show in Florida. His observations of the latest products on display “…suggests a new generation of diverse vehicles going well beyond the golf market. In general terms the emerging market that trends will play into is that of urban/suburban mobility. “ He lays out his observations and what they say about the strategies of the three major manufacturers in a new article.
PGA Show: Big Three Strategies
Club Car is looking towards connectivity and telematics technologies for new market opportunities. The company is monitoring developments in the urban/suburban mobility market. According to management, Club Car’s lithium battery powertrain and Onward PTV platform positions the company well to take advantage of new opportunities .
E-Z-GO is leaning on their latest technology advancements like their first to market (of the big three) lithium powertrain for fleet and PTVs, their IntelliBrake technology, AC drive, 72-volt powertrain and new quieter and more efficient EX1 gas engine. In addition, they continue to monitor the urban and suburban mobility markets.
Yamaha emphasized their new, fully independent suspension which is likely a precursor to a lithium powered vehicle. The absence of much heavier lead acid batteries has significant implications for the suspension setup and vehicle ride quality.
Other PGA Show Insights
Automotive features such as touchscreen LED displays and rearview cameras are continuing evidence that more automotive features are becoming standard in PTVs. The trend fits nicely with the ongoing development of the urban/suburban mobility market. A slice of this market includes low-speed vehicles and PTV like vehicles. Manufacturers also displayed scotters and golf specific, electric powered vehicles. The technology of the latter category could likely be adapted to the urban/suburban mobility markets.
Polaris and Bobcat recalled approximately 1,700 utility vehicles in total because of a rear brake line issue. A puncture in the brake line could lead to rear brake failure and potentially crashes. The recall involves 2019 Polaris Pro XD, 2017 to 2018 Brutus and 2017 to 2018 Bobcat 3650 UTVs. Polaris has a product development agreement with Bobcat. Owners should immediately stop using the recalled vehicles and contact a local Polaris or Bobcat dealer to schedule a free inspection and repair. SVR maintains an ongoing list of small, task-oriented vehicle recalls. The following recall information is from the Consumer Product Safety Commission.
Polaris Pro XD Recall Information
Name of product: Model Year 2019 Polaris PRO XD Utility Vehicles (UTVs)
Hazard: The rear brake line can become puncutured causing the rear brakes to fail, posing a collision and crash hazard to the rider.
Recall date: January 30, 2020
Units: About 760
Description: This recall involves Model Year 2019 Polaris PRO XD utility vehicles in two- and four-seat configurations of models 4000D, 2000D and 200D 4X2. The utility vehicles are gray, black, and orange with “POLARIS” stamped on the front grille, “POLARIS COMMERCIAL” on the sides of the utility bed, and “PRO XD” on the front fenders. Vehicle identification numbers (VIN) can be found on a label affixed to the vehicle frame in the left front wheel well.
Consumer Contact: Polaris at 800-765-2747 from 7 a.m. to 7 p.m. CT Monday through Friday, or online at www.polaris.com and click on “Off Road Safety Recalls” for more information. Consumers should also check their vehicle identification number (VIN) on the “Product Safety Recalls” page to see if their vehicle is included in any other recalls.
Name of product: Model Year 2017-2018 Brutus Utility Vehicles (UTVs)
Hazard: The rear brake line can become punctured causing the brakes to fail, posing a collision and crash hazard.
Recall date: January 30, 2020
Units: About 340 (In addition, 19 units were sold in Canada)
Consumer Contact: Polaris at 800-765-2747 from 7 a.m. to 7 p.m. CT Monday through Friday or online at www.polaris.com and click on “Off-Road Recalls” for more information. In addition, check your vehicle identification number (VIN) on the “Product Safety Recalls” page to see if your vehicle is included in any recalls.
Description: This recall involves Model Year 2017–2018 Polaris Brutus utility vehicles (UTVs) with the following model names: HD PTO DLX and HD PTO( 2017 only). The two-seated vehicles are gray, black and blue. The vehicles have “POLARIS” stamped on the front grille, “POLARIS BRUTUS” on the sides of the utility bed, and “DIESEL HD” on the front fenders. Vehicle identification numbers (VINs) included in this recall can be found on a label affixed to the vehicle frame in the left front wheel well. Non-sequential VINs ending in 7740364 to 8576615 are included in this recall.
Name of product: Model Year 2017-2018 Bobcat 3650 Utility Vehicles (UTVs)
Hazard: The rear brake line can become punctured causing the brakes to fail, posing a collision and crash hazard.
Recall date: January 30, 2020
Units: About 522 (In addition, 53 were sold in Canada)
Consumer Contact: Bobcat at 800-743-4340 from 7:30 a.m. to 4:30 p.m. CT Monday through Friday or online at www.bobcat.com and click on the For Owners tab located at the top of the page. Then scroll to CPSC Recalls for more information. In addition, find a Dealer link at the top of the page or to check your VIN Number.
Description: This recall involves model year 2017-2018 Bobcat 3650 utility vehicles. The recalled utility vehicles are white and black with orange decals. “Bobcat” is printed on the hood of the utility vehicle and “3650” is printed on the rear box. The vehicle identification numbers (VINs) can be found on a label affixed to the vehicle frame under the seat and storage bin on the passenger side. The following vehicles are included in this recall.
Textron Specialized Vehicles recently recalled over 20,000 gas-powered E-Z-GO, Cushman and Tracker brand off-road vehicles. An improperly secured generator wire can potentially lead to a fire. Recalled models include the E-Z-GO Express S4-Gas, Express L6-Gas, Tracker LX4-Gas, Tracker LX6-Gas and gas powered Cushman Shuttle models 2, 4, 6 and 8 sold between November 2018 and October 2019. Vehicle owners should immediately stop using the vehicles and contact Textron Specialized Vehicles for a free repair. The following recall information is from the Consumer Product Safety Commission. SVR maintains an ongoing list of small, task-oriented vehicle recalls.
Textron Specialized Vehicle Recall Information
Name of product: Gas-powered E-Z-GO, Cushman and Tracker brand off-road vehicles
Hazard: The starter generator wire can be improperly secured, allowing it to come into contact with the vehicle’s exhaust, posing a fire hazard.
Description: This recall involves gas-powered E-Z-GO, Cushman and Tracker brand off-road vehicles manufactured from November 2018 through June 2019 with certain non-sequential serial numbers ranging from 3377720 to 3440924. The serial number is located on the kick panel below the driver side seat.
Remedy: Consumers should immediately stop using the recalled off-road vehicles and contact Textron Specialized Vehicles for a free repair. Textron Specialized Vehicles is contacting all known purchasers directly.
Incidents/Injuries: Textron Specialized Vehicles has received 13 reports of melted and/or burned wires and electrical components and loss of vehicle function in some cases, including one report of fire. No injuries have been reported.
Sold At: E-Z-GO, Cushman and Tracker off road dealerships nationwide from November 2018 through October 2019 for between $6,300 and $13,400.
Manufacturer(s): Textron Specialized Vehicles, of Augusta, Ga
Manufactured In: United States
Recall number: 20-073
This is a large recall representing basically a year’s worth of vehicle sales for these models. Luckily nobody reported being injured. The STOV market in general continues to experience a significant amount of recalls relative to total market sales. SVR’s latest market study showed that recalls accounted for anywhere from 11% to 47% of vehicles sold in North America. Even excluding the very large Polaris recalls during those years, the percentages remained high for the rest of the market. Marc Cesare, Smallvehicleresource.com
Yamaha Golf Car issued a recall of approximately 1,350 Drive2 golf cars because of an issue with the front wheel hubs. The hubs can crack and cause the front wheels to detach. No injuries have been reported due to the issue. The recall covers AC, DC and EFI models. The following recall information is from the CPSC. SVR maintains an ongoing list of STOV industry recalls.
Drive2 Golf Car Recall Summary
Name of product: Yamaha Golf Cars
Hazard: The front wheel hubs on the golf cars can crack causing the front wheels to detach, posing a crash hazard that could result in injury or death to the user or bystander.
Recall date: February 13, 2020
Units: About 1,350
Consumer Contact: Yamaha toll-free at 866-747-4027 anytime or online at https://www.yamahagolfcar.com/ and click on the CPSC Recall Alerts tab for more information.
Drive2 Golf Car Recall Details
Description: This recall involves for model-year 2020 golf cars, including “Drive2 QuieTech,” “Drive2 AC,” “Drive2 EFI,” and “Drive2 DC.” The vehicles were sold in various colors, including blue, green, red, gray, tan, silver, and white. The model and serial number can be found on a label under the seat on the left side.
Serial Number Range
305606 – 306597
301002 – 301100
103401 – 104680
303701 – 304600
Remedy: Consumers should immediately stop using the recalled Yamaha Golf Cars and contact a Yamaha Golf car dealer to schedule a free repair. Yamaha is contacting all registered owners directly.
Incidents/Injuries: None reported.
Sold Exclusively At: Yamaha golf car dealers nationwide from June 2019 through December 2019 for between $6,100 and $6,300.
Distributor(s): Yamaha Golf-Car Company, of Kennesaw, Ga.
In their recent earnings call Polaris management reported strong annual sales despite relatively low fourth quarter growth. Overall sales increased to $6.78 billion for the full year, an increase of 12% from last year. All segments grew with the ORV/Snow segment increasing by 7%. For the fourth quarter sales increased 7% to $1.74 billion despite North American powersports retail sales increasing by only 2%. There was strength in Ranger/General side-by-sides, full-size ATVs and Indian Motorcycles unit sales. In addition, PG&A sales outside of the TAP business performed very well, up 22%. The company continues to be hampered somewhat by tariffs, a $90 million cost in FY2019. However, the management has been able to receive some exemptions and managed to pass some of the cost on to suppliers.
Polaris Earnings Call
The following are highlights related to small, task-oriented vehicles from the recent Polaris earnings call for fiscal year 2019 fourth quarter.
ORV segment (UTVs & ATVs) sales increased by 13%
ORV retail increased mid-single digits %
Side-by-sides retail up low single digits percent
ATV retail up mid-single digits
Management reports that the ramp up of 2020 side-by-side retail sales were slightly below expectations and dealer inventory increased as a result
They named a top executive from their ORV business head-up their electrification strategy
Company-wide average selling price (ASP) jumped by 8% on the strength of ORV and motorcycles
ORV ASP increased 10% with more unit sales and more side-by-side sales
The company boosted prices 3% to 3.5% on many models earlier in the year
Recently they reduced prices substantially on select RZR models
Global Adjacent Markets decreased 1% to $120 million with vehicle sales declining but PG&A increasing
Full Year Sales Guidance
Full year sales are expected to improve 2% to 4%
ORV/Snow segment is expected to increase low single digits percent with ORV up low single digits percent
The Global Adjacent Markets segment is expected to increase high single digits percent as all product lines should show growth
Side-by-side shipments to dealers should decline in the first quarter as management tries to reduce dealer inventory that increased slightly the last two quarters.
One of the most interesting pieces of information coming out of the earnings call was the appointment of a Senior Vice President for electrification strategy. Management noted that the powersports industry tends to lag the auto industry by 5 – 10 years. They think there is currently an inflection point in the market with regards to electrification. In addition, they talked about making investments and see a need to become more competitive in their core powersports business as it relates to electrification.
While Ranger sales continued to drive growth, RZR sales were not as impressive. This is likely where the higher dealer inventory levels originated. The price reduction of some of their RZR S models is likely a reflection of increased competition in the market segment. Kawasaki and Honda are the last two entrants into the high performance segment which has now become quite crowded. In addition, Polaris lowered RZR XP Turbo prices. This reduction may be to remain competitive as well as an effort to create pricing differentiation between the XP Turbo and their higher priced Pro XP models.
New urban and micro mobility technology creates a potential challenge to the existing players in the PTV market. This technology is wide ranging from electric skateboards and electric bikes to three-wheeled and larger autonomous vehicles. While the technology is typically discussed in the context of the urban environment, it can also be well suited to the gated and vacation community markets. These alternative mobility technologies do not provide a head-on, direct competition to PTVs, but neither are they merely tangential. They can challenge the existing PTV players by taking multiple, smaller slices of the market pie. In addition, they are attracting a host of new players and new investment.
Electric Bikes & Scooters
The gated and vacation community skews older so skateboards are probably out, and at first glance electric bikes and electric scooters (Vespa like) may not seem to make sense. However, electric bikes and scooters can offer a slice of the market an alternative transportation experience. An electric pedal assist bike can provide exercise without as much exertion as a traditional bike. In addition, if you already bike, it extends your existing trip range and experiences. Scooters offer an alternative to PTVs for quick single or two-person trips. This technology can also be applied in the form of a bike or scooter share program, providing access to the whole community. A share program would seem well suited to a planned community that has a large enough population and well planned out destination points.
They are fun to ride and, in the case of bikes, can provide additional exercise opportunities. They are a less expensive alternative, especially if you need an occasional second mode of transportation and have a small footprint. Furthermore, their speed range fits well in the low speed planned community environment. They can also be used to venture outside the community with likely less restrictions than PTVs.
On the other hand these modes of transportation have some drawbacks that limits their appeal. First, they can only accommodate one or maybe two people in the case of scooters. They have limited carrying capacity for running errands. They also do not provide any protection from the elements or as much collision protection from other vehicles as a PTV does. In addition, older folks may not feel as physically capable of operating these vehicles. Although, the low speed and well planned roadways can ameliorate this issue to some degree.
Three-wheelers & Autonomous Vehicles
On the other end of the spectrum you have larger multi-passenger vehicles that provide a more direct competition to existing PTVs. Vehicles like the FUV can carry two passengers or one with cargo. As a three-wheeler, the FUV can operate at higher speeds and has no restrictions for venturing outside of communities on public roads. At the same time, this vehicle can be speed limited for golf course and planned community use. With autonomous vehicles planned community residents could displace at least some of their PTV usage, and possibly all of it if the the service is robust enough.
With the ability to travel from golf course to community roads to public roads, the three-wheeled vehicle offers greater versatility than PTVs. Capable of higher speeds, it also has greater functionality than PTVs for certain use scenarios. For autonomous vehicles, the low-speed, well-defined and relatively limited planned community road networks offer an ideal environment. For residents less inclined or capable of driving a PTV, they provide a method to maintain mobility.
The FUV is currently much more expensive than PTVs and even LSVs. Therefore, customers may not find the increased versatility and functionality worth the price. They also are limited to two passengers, and as a result are less useful for family outings. For autonomous vehicles the technology is still in the development phase. In addition, some customers may prefer the convenience, customization and the statement made by owning a PTV. Furthermore, the cost of this type of service is not currently known.
New Players, Investment & Disruptive Innovation
An additional aspect of urban and micro mobility that PTV manufacturers must contend with is the increased number of market players, capital investment and disruptive product innovations that the technology brings. For example, Harley Davidson and Jeep have revealed at least prototype electric bikes. Completely new companies like Arcimoto have entered the market. Tech companies like Alphabet (Google) and traditional auto manufacturers are developing highly sophisticated autonomous vehicle technology. In addition, you have ride share companies.
PTV manufacturers are potentially at a disadvantage because they have neither the focus of disruptive startups or the financial resources of much larger companies. On the other hand, they do possess strong knowledge of the market and a distribution network to serve the market. They also have experience in developing and manufacturing electric vehicles in a highly competitive environment.
One strategy for PTV manufacturers to take is to start developing new mobility platforms themselves. The question is whether they have enough resources and commitment. They would have to balance maintaining their current product lines while trying to introduce entirely new a category of products. Another strategy would be to leverage their distribution and marketing expertise by acquiring or partnering with new market entrants to launch to product categories. They could also decide to keep improving their existing products and manufacturing efficiency. As a result, they could maintain or lower prices while increasing the value of their products. Therefore, new entrants could find market entry to difficult or limited to niche markets. However, compared to the other two strategies, this strategy offers less upside. In addition, it still leaves them vulnerable to a disruptive technology. The first two strategies provides the opportunity to potentially expand into urban markets.
Netherlands based Squad Mobility launched their Squad urban mobility vehicle last week. The electric powered Squad features solar cells on the roof, seating for two and a small, rear cargo area. The name Squad is short for solar quadricycle. The vehicle is designed for the European market and falls under the L6e or light quadricycle category. These vehicles are similar to low speed vehicles in the US. They can’t exceed 28 mph or have a battery pack larger than 4 kWh. The L7e category includes heavier vehicles with a top speed up to 50 mph and a 15 kWh battery pack limit. The vehicles have proven to be popular with teenagers and older drivers.
The Squad is 2000mm long, 1600mm high and 1000mm wide. It has room for two passengers and two children (where legal) if a rear bench seat is used. The vehicle features two in wheel rear wheel drive motors, regenerative braking, 4-wheel independent suspension and two portable lithium-ion batteries. The battery only range is 100 km and the solar cells can add 20-30 km per day. Other features include a tubular roll cage, 4-wheel disc brakes, a lighting package, and seat belts. A cargo version with an enclosed cargo area is available as well.
The company is clearly targeting the daily urban mobility market and offering the vehicle as a safer, more weatherproof alternative to scooters and electric bikes. Other advantages include avoiding road taxes and congestion pricing, easier to park and maneuver in urban environments, emission free and sustainable and more comfortable for longer commutes. The lack of doors provides easy and quick access. The base model can be pre-ordered for an estimated price of 5,750 euros ($6,365 US) or 6,500 euros ($7,195 US) for one of the first 1,000 Signature models.
This vehicle makes more sense for the European market than the US, although it could find some traction in gated communities and vacation locations in the US. The tighter quarters of European urban centers are ideal for the smaller size and lower speed. One question is how will they distribute the vehicles. It will be interesting to see how many pre-orders they receive and what their distribution strategy is after those initial orders.