Harley-Davidson

Harley-Davidson delivered 39,209 motorcycles in its second quarter, up 9%, with wholesale shipments below retail sales. This resulted in a 17% decline in dealer inventory, supporting unit profitability via fewer promotions. The motor company operating margin of 6.6% was up 70 basis points.

Why it matters: Improving dealer satisfaction is facilitating Harley's success. Dealers are now stocked with 85% current-year inventory, which aids full-price sell-through and should help double domestic dealer profitability in 2026. Better unit profit drives higher brand engagement in the sales channel. Engagement is also contingent on the firm's ability to deliver high-demand products. Harley is reading evolving trends, as seen with the launch of the Super Glide and Deadwood models in 2026 and the return of the Sportster 883 in Europe next year, all with highly customizable features. Harley is making progress in its core categories, as evidenced by touring share up 2%, to 69%, and cruiser share up 1%, to 54%. However, overall domestic heavyweight market share is still sitting at a depressed 32%, leaving room for improvement.

The bottom line: We don’t expect a material change to our $27 fair value estimate for narrow-moat Harley. We view the shares as appropriately valued. They have risen 35% year to date, well ahead of the Morningstar Global Markets Index's 11%. While Harley lifted its outlook for 2026 shipments to 136,000 from 132,500 at the midpoint, this isn't enough to alter our long-term demand forecast. Over the next decade, we still believe shipment growth of around 1% will be bound by declines in the legacy heavyweight models. Despite a better profit forecast at the motor company in 2026 (to a $30 million profit from a $15 million loss at the midpoint), we see issues with Harley's long-term ability to capture price hikes, given negative mix and modest scale gains, limiting motor company operating margin to the midsingle digits.

Neither financial services nor LiveWire results were particularly riveting either. In financial services, revenue of $117 million fell 55% as a result of the sale of loan assets last year. Operating income of $22 million was $7 million ahead of our forecast. With the addition of the second-quarter outperformance, our updated full-year forecast for more than $60 million in operating income falls squarely within the firm's segment guidance for $55 million-$70 million. The financial services annualized retail credit loss ratio on managed loans was 3.0% in the second quarter, down 30 basis points.

At LiveWire, the firm started production of the S4 Honcho and acquired Dust Motorcycles. In the second quarter, LiveWire revenue increased 52%, stemming from increased unit sales of electric motorcycles and Stacyc electric balance bikes. Still, the segment continues to print losses. It remains on track to lose $70 million-$80 million in operating income in 2026, which would be flat with the prior year.

We are maintaining our $27 fair value estimate after updating our model for second-quarter results and the introduction of the Back to the Bricks plan. Harley's second-quarter motor company sales rose 6% stemming from a 9% shipment increase and a modest average selling price downtick, along with a 5% decline in parts and accessories and a 1.5% increase in general merchandise, leading to EPS of $0.75. Fortunately, Harley's US heavyweight market share held firm year over year, at 32%. Versus last year, Harley's share of touring and cruising rose to 69% (up 2%) and 54% (up 1%), respectively, implying share gains stemmed from core categories. As a reminder, before 2018, the firm consistently held 50% or higher market share.

For 2026, Harley expects the motor company segment to deliver operating results that range from a $10 million to a $50 million profit, the financial services arm to generate operating income of $55 million to $70 million, and LiveWire to lose $70 million to $80 million. Our forecast has motor company profit of $23 million, financial services profit of $64 million, and LiveWire losses of $74 million. This results in our 2026 EPS estimate of $0.65, down from $2.78 in 2025.

With Harley's demand continuing to struggle, we now anticipate total shipments of around 132,000 in 2026, up 5% versus 2025, and below the firm's outlook for 133,500 to 138,500 shipments, given the still uncertain macroeconomic environment. Our sales forecast for electric includes around 950 units in 2026, above the roughly 650 units it shipped in 2025, and severely under Harley's projection in LiveWire’s initial roadmap (in 2022 Harley was projecting 100,000 units in 2026). Minimizing the growth of the dilutive electric segment will benefit consolidated margins, as heavyweight bikes with solid profitability per unit will comprise a greater portion of the mix.

Longer term, we expect enterprise-level shipments to rise modestly (1.5%) on average over the next decade, as electric adoption takes longer than anticipated and touring and cruising demand muddle along. Over the same time frame, we forecast modest average pricing hikes (1%), as innovation drives a lift in average selling prices but negative mix weighs on full potential. Our modest long-term forecast for parts and accessories and merchandise sales growth (2%), largely align with the pace of bike sales, supported by wider accessibility and updated merchandising efforts. We model HDFS revenue to grow 6% in the longer term, as we expect loans to grow directionally with demand and to benefit from the receipt of servicing fees from its partners. In total, Harley's unit sales cadence should align with industry growth over time, assuming consumer spending patterns on recreational goods and vehicles and conventional outdoor products return toward a historical proportion of wallet.

We reduced Harley-Davidson’s moat to narrow from wide in 2024. We still see brand equity stemming from a history of innovation, manufacturing experience, and a dealer network that has given Harley a dominant position in the US motorcycle market. However, we believe its brand intangible advantage has weakened in recent years, lowering our conviction in Harley’s ability to maintain market share and withstand operating margin degradation, resulting in more tempered economic profits ahead. As evidence, Harley holds 34% share in the US heavyweight motorcycle market in 2026 (according to the firm), achieving local brand perception that has surpassed its competitors (by our estimate, Honda has historically trailed Harley’s share of the heavyweight market). While this is impressive, the firm had an even greater leadership position prior to the pandemic, with more than 50% share of the heavyweight market between 2009 and 2019, despite the longtime demand shift to mid and lighter weight bikes. Still, we project ROICs, including goodwill, to average 2.8% over the next five years. This is below the rate the firm was able to achieve in the three years prior to the pandemic (25%), and remains below our 9% weighted average cost of capital estimate.

In our opinion, Harley’s brand intangible asset is underpinned by its manufacturing of high-quality, heavyweight motorcycles for more than 120 years, aided by its track record of on trend innovation, factors we believe would be difficult to replicate. We posit much of the brand’s staying power is a result of perpetual spending on research and development to ensure the firm has a pipeline of compelling new products to entice its customers. With respect to innovation, Harley has spent around 4% of sales over the last three years on R&D, a level that tracks in tandem with peers like wide-moats BRP and Polaris. We contend that when consumers think about purchasing products in the motorcycle market, they often want innovative products with the newest technology, which is what Harley attempts to provide.

Furthermore, due to successful product innovation, the firm has been able to sell its bikes with 3% average selling price (ASP) increases over the last decade. However, ASP consistency has fallen in recent years, remaining flattish in 2024 and 2025. We expect that average selling prices will grow around 1% over the next five years, held back by a negative mix shift (lower-price bikes), and below Morningstar’s forecast for personal consumption expenditure price index growth (our inflation proxy). We forecast the slower ASP growth will result in enterprise level gross margins that average 25% over the next decade, lower than the 34% average captured in the prepandemic decade. However, this is still higher than the high-teens gross margins narrow-moat BMW has reported in its motorcycle segment in recent years, indicating Harley’s brand still has pricing power.

Additionally, we surmise Harley’s brand image is bolstered by its robust dealer network (with around 1,200 globally), which allows the firm to have broad reach and awareness with its products. In our opinion, the breadth of Harley’s distribution channel would be difficult to replicate quickly, particularly in North America. Harley dealers have a long-standing commitment to sell just one brand, and we think this type of loyalty helps elevate Harley’s brand perception. Most of the company’s peers, including Polaris’ now-divested Indian brand and BRP’s Spyder/Ryker motorcycles, share floor space with other manufacturers, competing for dealer attention. However, Harley’s dealer profitability is wholly tied to Harley unit sales, with all efforts at the dealer level solely focused on selling the one brand,supporting our narrow moat rating.

Moreover, Harley has crafted strategic efforts to lift brand perception, with prior CEO Jochen Zeitz refocusing on its core consumer. This started with “The Rewire” initiative to reduce complexity and restore the performance of the parts, accessories, and merchandise lines. Then the firm launched “The Hardwire” strategy, focused on high return on investment opportunities, like growing into new channels (for example, with the Pan America), evolving consumer preferences (EV), better managing complementary businesses (like merchandise), and improving the customer experience (to elevate engagement). We think these actions had temporarily been successful, setting Harley’s motorcycle operating margin back on a stable trajectory; in 2018 and 2019, motorcycle operating margins were 11% and 9%, respectively. In 2022 and 2023, the same metric averaged nearly 14%. Unfortunately, this fell back to 7% in 2024 due to weak cost absorption and was reduced to a loss in 2025 as Harley's bikes remained out of favor. The newly launched Back to the Bricks strategic plan under current CEO Artie Starrs sets to hone prior efforts, including expanding the bike portfolio, improving dealer profitability, and enriching the parts and accessory offerings, while reducing costs. Given that many of these efforts had been attempted previously, we think Harley will remain a show-me story.

We still don’t think the firm has amassed a cost advantage given the decline in sales and volume over the past 17 years. In 2008, Harley booked $5.6 billion in revenue and 303,000 units. In 2025, this fell to $3.6 billion in sales and around 125,000 units, prohibiting scale gains. While the motorcycle operating margin could stabilize at a mid-single-digit rate over time, the business also sells electric bikes through its Livewire brand, which continues to print losses at the operating margin line (roughly $74 million in losses expected in 2026). With a limited electric market and shrinking heavyweight interest, we don’t think Harley is set to capture negotiating leverage with its suppliers, limiting the development of a cost edge. Additionally, there are no switching costs to protect Harley’s brand when consumers replace their bikes.

Harley-Davidson's brand is more than 120 years old and resonates globally with a wide consumer base, particularly its core market (men older than 35). Successful efforts to connect with its core consumer could lead to a unit demand uptick faster than we anticipate.

The firm has historically generated solid free cash flow, and we expect it to return to a double-digit FCF yield over the next decade.

Harley has high brand awareness and robust market share in custom and touring segments domestically, two of the most profitable motorcycle categories.

Harley's traditional focus on heavyweight bikes could reduce the demand for the firm's products as consumer preferences shift to other types of bike products. To mitigate the lost revenue from this consumer, less profitable opportunities may be pursued.

If electric bikes rise as a percentage of the total unit mix, lower unit profitability in the segment would limit upside in the enterprise, bounding firmwide operating margins.

If supply chain issues return, higher lead times due to product shortages and rework could lead to lower throughput and mismatched supply.