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.

Polaris Q4 2017 Earnings

2018 Polaris Ranger XP 1000 EPS

The 2018 Polaris Ranger XP 1000 EPS helped drive sales for the quarter and the year.

Polaris Industries reported quarterly revenue of $1.431 billion and annual revenue of $5.429 billion, representing increases of 18% and 20% respectively compared to last year. Adjusted earnings per share for the quarter increased 25% driven by higher volume, lower promotional spend and operating expense leverage. For the year a 39% increase in earnings per share was driven by a combination of increased volume, an improvement in gross margins and a lower tax rate.

The following are highlights of the earnings call related to small, task-oriented vehicles.

  • ORV sales increased 14% in Q4 and 9% for the year
  • Average ORV selling price was up 4% for the quarter
  • ORV retail was up for the year but down for the 4th quarter as retail unit sales of Off-Road Vehicles were down just under 1%
  • Ranger sales were up for the quarter with strong demand for the new Ranger XP 1000 lineup
  • RZR sales declined for the quarter driven by “tapped demand and limited product availability”
  • For the quarter the ramp up of Ranger and RZR production was slower than expected in part attributed to the new quality initiative. This manifested as a production issue with a four-wheel drive component on the Ranger XP 1000, which was originally not up to the company’s quality standard.
  • Continued roll out RFM inventory and ordering system for side-by-sides and should be fully optimized by the second quarter
  • North American industry side-by-side growth was strong in Q4 but ATVs down.
  • Utility side of ORV is expected to grow but there is stiff competition on the RZR side which will not grow as much as competition increases
  • Agriculture markets were down in the fourth quarter and oil markets were up slightly, but there was no “substantial shift” in buying patterns.
  • In the side-by-side market decreased pricing is offset somewhat by decreased promotional costs and there is some commodity pricing pressures
  • Australia was a strong market as buyers switch from ATVs to UTVs
  • Global Adjacent Markets sales increased 19% in the fourth quarter, driven by strong growth in Aixam and Goupil, as well as continued strong sales growth in Government and Defense
  • For the year Global Adjacent Markets revenue reached almost $400 million including PG&A
  • Average selling price for Adjacent Markets increasing 14% for the quarter
  • For the full year Global Adjacent Markets sales increased 16% with all business lines growing
  • In Europe there is strong demand for small, inner-city delivery vehicles including electrics and that demand is increasing in the US as well
  • “More autonomous activities with both the military and Taylor-Dunn platforms than anywhere else in the company”

Guidance for 2018

  • Total company sales are expected to be up in the range of 3% to 5% with ORV market expected to be up
  • ORV market share is expected to be stable with continued momentum from Ranger and General product lines
  • ORV/Snowmobile sales are expected to be up low to mid-single digits with Snow about flat and ORV and PG&A sales up
  • Global Adjacent Markets sales are expected to be up mid single-digit percent with growth expected in all businesses.
  • The new long-term strategic targets for the company as a whole are 5% compounded annual growth rate for revenues and 15% for earnings
  • Management will be focusing on cost leadership more while maintaining innovation

Learn more:  Seekingalpha.com (Earnings Call Transcript)

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