Harley Positioned for Improved Operating Profits Despite Inflation and Supply Chain Headwinds

With a long history of manufacturing experience, Harley-Davidson has brand strength and a dealer network that give the firm a wide economic moat and dominant position in the U.S. motorcycle market. However, there are no switching costs to protect Harley's brand when consumers replace their bikes, and the premium price Harley commands relative to its peers has proven problematic during cyclical downturns and periods of competitive pricing, hindering Harley's retail sales and shipments. In 2020, as a result of temporary factory shutdowns and dealer closures (as well as the pushback of product launches until spring 2021), Harley ceded massive market share. While still a significant market player, Harley's market share fell roughly 800 basis points, to 42.1% in 2020 from above 50% in 2019. Thankfully, it has recovered 3% of share in 2021, a gain that it should maintain with the introduction of new products. We plan to monitor Harley's market share position to help determine whether Harley's wide moat rating deserves to stay intact.