In April Polaris announced three recalls, two involving Ranger XP 1000 utility vehicles and one related to the PRO XD and several Ranger models. The largest recall covers 80,000 model year 2018 to 2020 Ranger XP 1000 and Crew XP 1000 utility vehicles. The clutch belt can break and damage the secondary clutch and fuel line and create a potential fire hazard. The second recall covers model year 2019 and 2020 Ranger XP 1000 and Crew XP 1000 and involves 7,000 vehicles. The fuel line can be misrouted above the bracket that protects the fuel line from a clutch belt failure, posing a fire hazard. The final recall involves model year 2019 PRO XD and several model year 2020 Ranger vehicles. The seat belts on the vehicles can fail, posing an injury hazard in certain crash situations. The following details are from Consumer Product Safety Commission.
Models 2018 Ranger XP 1000 EPS 2019 & 2020 Ranger XP 1000 & Crew XP 1000
Models 2019 Ranger XP 1000 EPS & Crew XP 1000 EPS 2020 Ranger XP 1000 & Crew XP 1000
Models 2019 PRO XD 4000D AWD 2020 Ranger 500, 570, 1000, Crew 570, Crew XP 1000, EV, XP 1000
The clutch belt can break and damage the secondary clutch and the fuel line, posing a fire hazard to the rider
The fuel line can be misrouted above the bracket that protects the fuel line from a clutch belt failure, posing a fire hazard
The seat belts on the vehicles can fail, posing an injury hazard to the user if they were to be in a collision or tip-over incident.
Consumers should immediately stop using the recalled vehicles and contact a Polaris dealer for a free inspection & repair.
Consumers should immediately stop using the recalled vehicles and contact a Polaris dealer for a free inspection & repair.
Consumers should immediately stop using the recalled vehicles and contact a Polaris dealer for a free inspection & repair.
Polaris is notifying dealers and contacting registered owners directly. Consumers can 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. In addition, check your vehicle identification number (VIN) on the “Product Safety Recalls” page to see if your vehicle is included in any recalls.
Polaris appeared to have improved their quality and significantly alleviated their recall problems before this latest round. The Ranger XP 1000 is a very important vehicle for their Ranger business and an 80,000 vehicle recall is very large. This will only add to the difficulties of dealing with the pandemic. SVR tracks industry recalls on an ongoing basis.
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.
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.
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.
My colleague Stephen Metzger discusses Club Car’s product development strategy in a new article. In particular, he analyzes Club Car’s partnership with AEV Technologies and the resulting offering, the Club Car 411 utility vehicle. Rather than develop the vehicle in-house, which Club Car has the capabilities to do, they decided to go outside. Is management embracing a new approach to product development or is this just a one-off exercise? In addition, an interview with Brian Rott, President Cart Mart in California, discusses how the 411 fits in the market.
Road use regulations for golf cars, LSVs, ATVs and UTVs that have been passed or are being considered at the state, county and city levels since June, 2019 are summarized below.
The majority of the ordinances expand the use of golf cars, LSVs, or UTVs on city streets.
Most of the legislative activity is occurring in the Midwest
Road Use Regulation By Location
Wisconsin – Title fees for low speed vehicles will increase from $62 to $157, similar to other vehicles.
Barnegat Light, NJ – The Council, after earlier tabling an ordinance that would allow the use of golf cars on certain city streets, have decided to not pursue the issue further. A critical issue was that the vehicles would have to cross a higher speed road, which would require an exception to state law.
Brazil, IN – Residents registered nearly 100 golf carts and off-road UTVs since an ordinance passed in February, 2019.
Wakefield, IN – The City Council is considering an ordinance to allow golf cars on certain city streets. The police chief and a councilman are looking at similar ordinances and potentially expanding the ordinance to other types of vehicles.
Paola, KS – Starting in January, 2020 residents will be able to drive UTVs on city streets with posted speed limits that are 45 mph or less. Regulations require that vehicles have lights, turn signals and reflectors, drivers have a valid license and vehicles be registered.
St. Joseph, MI – The city commissioners are considering allowing residents to drive golf cars on city streets in the Harbor Shores, Edgewater and Ridgeway neighborhoods.
Newport, RI – The Newport Jitney provides free, advertiser supported rides around town on two low-speed vehicles that seat six and eight passengers.
Glynn County, GA – A new county ordinance goes into effect in October that will allow golf cars on certain streets. The ordinance has different regulations for LSVs vs. PTVs. A key difference is that LSVs can travel on streets with posted speed limits of 35 mph or less while PTVs can travel only on 25 mph or less streets.
Perry Village, OH – The Village Council passed an ordinance to allow LSVs, golf cars, UTVs and mini-trucks to be driven on local low speed streets. The vehicles must be inspected, licensed and have certain safety equipment.
Oregon-based Arcimoto recently started production of their Fun Utility Vehicle (FUV) to meet pre-order demand for 4,100 vehicles. Technically a motorcycle, the FUV is an electric powered three-wheeled vehicle that seats two. Many states have a special classification for three wheeled vehicles and only require a regular driver’s license to operate the vehicle. The current FUV Evergreen edition costs $19,900 but the company hopes in the future that volume production will reduce base model pricing to $12,000 and possibly below $10,000.
Arcimoto FUV Specs
The Arcimoto FUV is essentially a trike with two wheels up front and one in the rear. Each wheel up front has an electric motor. The vehicle has a 19.2 kWh lithium ion battery pack for a range of just over 100 miles and a top speed of 75 mph. The FUV has handlebar steering with a twist throttle and finger activated regenerative braking. Foot operated hydraulic brakes on all three wheels augments the regenerative braking. Other specs include:
Two USB ports
Lockable rear storage
The company is also developing a one person delivery vehicle and an emergency responder vehicle based on the same platform.
The Arcimoto FUV satisfies a need for a small, energy efficient vehicle that can be driven locally. Even though the FUV can operate at highway speeds I believe the sweet spot for the vehicle will be on roads up with speed limits up to 50 mph. Gated communities and vacation destinations that already allow low speed vehicles (LSVs) and golf cars will be a key market.
The problem with this market currently is that LSVs and golf cars can only go 20 to 25 mph and are often restricted to certain public roads based on speed limits and local ordinances. Classified as a motorcycle and with the power to operate at higher speeds, the FUV avoids this issue. This combination greatly increases the functionality of the FUV. The FUV with a speed limited setting can go from golf course to gated community to higher speed public roads. Therefore, the FUV is appropriate for a wider range of activities.
I currently see three main challenges that may limit the FUVs appeal. The first is consumer acceptance of driving a three-wheeled vehicle with handlebar steering. This is different than many consumer’s traditional driving experience. The second is price. The company should target the $10,000 to $13,000 price range to be competitive with LSVs, PTVs and golf cars. Although, the increased functionality of the vehicle is a mitigating factor that could allow for a pricing premium. The third is that the vehicle is only two passenger, so it may have limited appeal for families or larger groups.
The FUV is a direct challenge to the LSVs and more importantly the personal transportation vehicles (PTVs) that have become a key growth market for the traditional golf car companies. The decline and stagnation in fleet golf car market has forced these companies to target the utility vehicle and PTV markets for growth. (LSVs have largely been relegated to college and corporate campuses with some personal transportation use.) This could become the classic case of the outsider coming in and disrupting a market.
Where are the golf companies?
There is no reason the golf car companies could not have developed this vehicle first and they certainly have the resources and time to create a vehicle of their own. However, in the past these companies have missed opportunities such as the utility vehicle market for which they were well positioned. In addition, the FUV could serve as an alternative to a second or third automobile for running local errands or short one or two person commuting.
What Does The Future Hold
It will be interesting to see what kind of uptake the consumer version has. Recreational vehicles like the Can-Am Spyder and Polaris Slingshot have not completely taken off and remained niche. However, they are more recreational and less of a practical and green transportation alternative than the FUV. I think the delivery version of the FUV might be the sleeper product. Given concerns about urban congestion, pollution and sustainability, these vehicles could become a popular option for last mile logistics in crowded cities. The urban environment could play to the vehicle’s strengths of smaller size and zero emission powertrain while mitigating weaknesses such as limited top speed and driving range.
John Deere is recalling nearly 20,000 XUV835 Gator utility vehicles because the plastic sheathing on the throttle cable can melt and cause the throttle to stick. The underlying issue is improperly routed throttle cables. The recall covers models sold from November 2017 through July, 2019. Consumers should immediately stop using the vehicles and contact their local John Deere dealer for a free inspection and repair. The following recall details are from the Consumer Products Safety Commission.
Name of product: John Deere XUV835 Gator utility vehicles
Hazard: The plastic sheathing on the throttle cable can melt due to improper routing, causing the throttle to stick. This could result in the operator not being able to stop the vehicle, posing a crash hazard.
Recall date: September 4, 2019
Units: About 19,730 (In addition, about 840 were sold in Canada)
Description: This recall involves John Deere Gator utility vehicles with model number “XUV835” printed on the hood. “John Deere” and “Gator” are printed on the cargo box. The serial number is located on the frame directly above right front tire and begins with 1M0835 and falls within the ranges on the chart below. The recalled utility vehicles were sold in green and yellow, olive drab and camouflage and have side-by-side seating for two or three people, depending on the seat option.
Serial Number Range
1M0835ExxxM010001 – 1M0835ExxxM020413
1M0835MxxxM010001 – 1M0835MxxxM022741
1M0835RxxxM010001 – 1M0835RxxxM023115
Remedy: Consumers should immediately stop using the recalled vehicles and contact an authorized John Deere dealer for a free inspection and repair of improperly routed throttle cables. John Deere is contacting all known purchasers directly.
Incidents/Injuries: John Deere has received reports of nine incidents. No injuries have been reported.
Sold At: John Deere dealers nationwide from November 2017 through July 2019 for between $13,860 and $22,930.
This is a large recall relative to the total sales of John Deere gator utility vehicles, even though the sales stretch over nearly two years. There have been a number of throttle related recalls in the industry the last year including a smaller Gator XUV590 recall. This and other recalls continues the disturbing trend of a relatively high number of recalled vehicles in relation to annual industry sales. Smallvehicleresource.com maintains a list of small, task-oriented vehicle recalls.