Last December, Harley-Davidson (HOG) announced that it was spinning off LiveWire, the company’s electric-bike division, and merging it with special purpose acquisition company AEA-Bridges Impact Corp. (IMPX). Once the merger is completed, LiveWire will trade on the New York Stock Exchange under the symbol LVW.
“LiveWire plans to redefine motorcycling as the industry-leading, all-electric motorcycle company, with a focus on the urban market and beyond,” Marketwatch reported in the company’s December press release.
When the deal was first announced, LiveWire had an enterprise value of $1.77 billion. Since then, the SPAC’s share price hasn’t changed much. It still has an enterprise value of $1.77 billion based on 231 million shares outstanding post-merger and $545 million in cash on Live Wire’s balance sheet.
LiveWire generated approximately $33 million in 2021 sales. Only 20% was from actual motorbikes.
You can buy LVW shares and hope for the best or you can consider Harley-Davidson or Polaris (PII) instead. Both have their hands in the electric game. Both are much safer investments.
The question is which should you buy? I’ll look at both stocks and give you my two cents.
HOG Stock Is the Buy
Based on $33 million in revenue, IMPX is currently trading at 70x sales. You can buy a lot of great companies for less than that. Heck, Tesla (TSLA), the champion of electric transportation only trades at 20.5x sales.
At the end of the day, I don’t care how cool an electric motorbike might be, it’s not as valuable as a manufacturer of cars and trucks. Your chance of dying riding on the back of a motorcycle is much higher than in an SUV.
The alternative is to buy Harley-Davidson stock. The company is far past its iconic days of the 60s and 70s, but post-merger, it will still own 74% of LiveWire. So, if electric motorbikes become the greatest thing since sliced bread, you will still own a piece without nearly as much risk.
In 2021, Harley-Davidson delivered sales of $5.34 billion, 32% higher than in 2020, and 16.8% above 2019. Its adjusted net income last year was $652.7 million, almost 7x 2020, and $530.4 million in 2019. That’s a net margin well above 10%. There’s nothing wrong with that kind of return on sales.
Harley-Davidson is hardly a decrepit company. However, hanging on to the electrification part of the business was probably a little too much risk for the board to swallow. This merger is a good alternative.
What About Polaris?
On March 8, Polaris announced that it and Zero Motorcycles, its partner for developing top-notch electric vehicles, were named to Fast Company’s 2022 list of the World’s Most Innovative Companies.
“This year’s World’s Most Innovative Companies list honors businesses that are making the biggest impact on their industries and culture as a whole —ultimately thriving in today’s ever-changing world. These companies are creating the future with some of the most inspiring accomplishments of the 21st century,” stated the press release.
Polaris and Zero entered into a 10-year exclusive partnership in 2020. The partnership utilizes Polaris’s powersports leadership combined with Zero Motorcycles’ expertise in electric powertrains.
A year later, the partnership produced its first vehicle, the Ranger XP Kinetic. The off-road vehicle sold out in less than two hours.
“The combination of our industry-leading electric powertrain technologies and expertise with Polaris’ category-leading products will accelerate electrification within the powersports industry,” said Sam Paschel, CEO of Zero Motorcycles. “The RANGER XP Kinetic is the first proof point of that and we look forward to many more game changing collaborations to come.”
The reality is that both parties brought talents and capabilities to the table that will enhance each of the new products produced by the partnership. Zero’s been making electric motorcycles for 14 years. Who knows if the two companies will ever collaborate on Polaris electric motorcycles.
Worst-case scenario: They produce some awesome off-road vehicles like ti eh Ranger XP Kinetic and call it a day.
The Smart Play Is …
In 2021, Polaris had sales of $8.2 billion, 54% higher than Harley-Davidson. On the bottom line, it had $572.6 million in adjusted net income, about $80 million less than HOG. By this metric, Harley-Davidson’s got better margins.
However, Polaris has five different revenue segments, all of them generating at least $500 million in revenue in 2021. And while its off-road vehicles and snowmobiles accounted for 63% of its sales in 2021, each of those other segments has an opportunity in the future to get to $1 billion annually.
I think both companies have arguments for and against buying their stocks to ride the electrification wave.
Harley-Davidson trades at 1.1x sales while Polaris trades at 0.81x sales. By almost every valuation metric, PII is cheaper than HOG. I’d reckon that’s partly to do with HOG’s margins and partly overzealous interest from electrification fans pushing its share price higher.
Over the past year, HOG is down 7.9% through April 12, while PII is down 26.0%. Over the past five years, PII’s outperformed HOG.
Long-term, I think Polaris’ revenue diversification makes it a better play over Harley-Davidson. And who knows, maybe Polaris will become the King of electric motorcycles someday.
They’re both better buys than IMPX/LVW.
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