Executive Summary / Key Takeaways

• Strategic Transformation Underway: Harley-Davidson is executing a multi-faceted "Hardwire" strategy, pivoting from a challenging past to a future focused on profitable growth through core product innovation, selective market expansion, and a significant financial restructuring of HDFS.
• HDFS Transaction Unlocks Substantial Value: The recently announced strategic partnership with KKR and PIMCO for Harley-Davidson Financial Services (HDFS) is a major value unlock, transforming HDFS into a capital-light business, generating an estimated $1.25 billion in discretionary cash for Harley-Davidson, and boosting HDFS's go-forward ROE to the high 20s.
• Product Innovation Driving Future Growth: Despite current market headwinds, Harley-Davidson is investing in new, profitable entry-level motorcycles, including a small displacement model targeting below $6,000 for H1 2026, and continuing innovation in its core Touring and Cruiser segments, alongside a strategic pivot for LiveWire.
• Resilience Amidst Macroeconomic Headwinds: The company faces persistent challenges from high interest rates, uncertain consumer sentiment, and a fluid global tariff environment, which impacted Q2 2025 retail sales (down 15.5% globally) and HDMC operating income (down 69%). However, cost control, productivity gains, and strategic initiatives are mitigating these pressures.
• Commitment to Shareholder Returns: With the HDFS transaction proceeds, Harley-Davidson plans to reduce debt by $450 million and accelerate its $1 billion share repurchase program, with $500 million earmarked for the second half of 2025, demonstrating a strong commitment to capital allocation.

The Enduring Roar: Heritage, Hardwire, and the Road Ahead

Harley-Davidson, Inc. (HOG), founded in 1903, stands as an enduring symbol of American motorcycle culture. For decades, its business centered on powerful, customizable internal combustion engine (ICE) cruisers and touring bikes, cultivating a deeply loyal customer base and a unique lifestyle brand. By 2020, however, the company faced significant challenges, including an aging core demographic and a lack of clear product strategy for its most vital segments. This critical juncture prompted the launch of "The Hardwire" in 2021, a five-year strategic plan designed to redefine Harley-Davidson for long-term profitable growth and enhanced shareholder value.

The Hardwire strategy prioritizes core product segments, selective market expansion, and a relentless focus on profitability. This strategic pivot is crucial in an industry grappling with macroeconomic headwinds, including persistently high interest rates and cautious consumer sentiment impacting discretionary purchases. Harley-Davidson's competitive positioning is unique; it thrives as a premium, heritage-focused brand, fostering an emotional connection and community that differentiates it from broader portfolio players like Honda Motor Co., Ltd. (HMC) and Polaris Inc. (PII), or luxury/performance-oriented rivals like BMW AG (BMWYY). While these competitors offer a wider range of models and often lead in certain technological advancements, Harley-Davidson's brand loyalty and customization appeal provide a distinct competitive moat, particularly in its core cruiser and touring segments.

Technological Differentiation and Innovation: Fueling the Future

Harley-Davidson's technological differentiation extends beyond raw power to encompass a holistic rider experience, blending heritage with modern performance. The company's core ICE technology, particularly within its Touring and Cruiser platforms, emphasizes distinct "look, sound, and feel" that resonates deeply with its customer base. The redesigned 2024 Street Glide and Road Glide touring motorcycles, for instance, were not merely refreshes but comprehensive remodels, setting new benchmarks for performance and rider comfort. This innovation led to Harley-Davidson being the only manufacturer to gain meaningful U.S. touring segment market share in 2024, achieving 74.5%, its highest since 2019.

The RevMax platform, underpinning models like the Pan America Adventure Touring and Sportster, represents a significant technological leap. This liquid-cooled, high-performance engine allows Harley-Davidson to compete in new segments. The Pan America's capabilities were underscored by John Cadreros' first-place win in the Africa Eco Race 1000 CC+ category, showcasing its versatility. The strategic repricing of the Nightster, a Sportster model, to below $10,000, combined with increasing consumer appreciation for the RevMax platform, drove 16% year-over-year growth in North America for these models in Q2 2025.

Looking ahead, Harley-Davidson is making a bold move into new, profitable entry-level segments. A new small displacement motorcycle, inspired by the iconic Springer, is slated for launch in the first half of 2026, targeting an entry price below $6,000. This initiative is particularly significant as management notes, "historically, if I look at the last 30 years, we've never had an entry model that actually made money for Harley Davidson." This new bike, engineered for profitability, aims to expand the addressable market and attract new riders, addressing affordability concerns that have impacted discretionary spending. An "iconic classic" cruiser, also designed for profitability, is planned to follow.

In the electric vehicle (EV) space, LiveWire, Harley-Davidson's consolidated subsidiary, leverages its S2 platform for new product extensions. While EV adoption has been slower than anticipated due to external factors like a lack of incentives and charging infrastructure, LiveWire is strategically pivoting. It plans to launch production versions of two mini-motorcycle concept models, targeting lightweight, off-road, and urban-friendly mobility solutions. An electric maxi scooter, primarily for the European market, is also planned for the first half of 2026, leveraging the existing S2 platform and expertise from partner Kymco. These efforts aim to reduce cash burn and operating losses, with LiveWire aggressively cutting Bill of Material (BOM) costs to achieve contribution margin positive by year-end.

For investors, Harley-Davidson's technological roadmap is critical. The ability to innovate within its core ICE segments, expand profitably into new, more affordable ICE categories, and strategically manage its EV venture positions the company for diversified growth. These initiatives aim to broaden the customer base, enhance competitive differentiation, and ultimately drive higher revenue and improved profitability margins by tapping into previously underserved or unprofitable segments.

Financial Performance: Resilience Amidst Headwinds

Harley-Davidson's recent financial performance reflects a company actively managing through a challenging macroeconomic environment while executing its strategic transformation. In the second quarter of 2025, consolidated revenue declined 19% year-over-year to $1.31 billion, primarily driven by a planned reduction in motorcycle shipments and softer retail demand. Consolidated operating income fell 53.4% to $112.4 million. For the first six months of 2025, consolidated revenue was $2.64 billion (down 21.2%) and operating income was $272.9 million (down 45.9%).

The Harley-Davidson Motor Company (HDMC) segment bore the brunt of these pressures. In Q2 2025, HDMC revenue decreased 22.6% to $1.04 billion, and operating income plummeted 69% to $61.3 million, resulting in an operating margin of 5.9% (down from 14.7% in Q2 2024). This decline was largely due to a 27.8% decrease in worldwide motorcycle shipments to 35,837 units, reflecting the company's commitment to reducing dealer inventory and responding to softer retail demand. Gross margin for HDMC in Q2 2025 was 28.6%, a 350 basis point decrease from the prior year, impacted by lower operating leverage (higher fixed costs per unit from reduced production) and increased tariff and logistics costs. These headwinds were partially offset by favorable pricing on new models, a beneficial mix towards new limited-edition models, and lower raw material costs.

Worldwide retail sales of new Harley-Davidson motorcycles declined 15.5% in Q2 2025, with North America down 17%, EMEA down 4.9%, and Asia-Pacific down 21.4%. This softness is attributed to depressed consumer sentiment, economic uncertainty, and high interest rates. Despite these challenges, the company's strategic inventory management saw global dealer motorcycle inventories down 28% at the end of Q2 2025 compared to the prior year, aligning with its goal of a significant year-end reduction.

Harley-Davidson Financial Services (HDFS) demonstrated relative stability, though Q2 2025 operating income decreased slightly by 2.2% to $69.8 million. This was primarily due to lower interest income from reduced average outstanding finance receivables, partially offset by a lower provision for credit losses. The annualized retail credit loss ratio increased to 3.25% in Q2 2025 (from 3.12% in Q2 2024), and the 30-day delinquency rate rose to 4.34% (from 3.92%), reflecting ongoing macroeconomic pressures on consumers. However, used vehicle recovery values at auction have stabilized.

LiveWire, the electric motorcycle segment, showed progress in cost management. Its operating loss improved 34% in Q2 2025 to $18.7 million, and cash and cash equivalents use for the first six months of 2025 decreased 36% year-over-year. This improvement stems from aggressive cost reduction actions taken in the second half of 2024.

For the full year 2024, Harley-Davidson reported consolidated revenue of $5.19 billion (down 11% from 2023) and operating income of $417 million (down 47%). HDMC operating income was $278 million (down 58%), while HDFS operating income increased 6% to $248 million, and LiveWire's operating loss was $110 million (a 6% improvement). The company generated over $1 billion in operating cash flow in 2024, a nearly 40% increase from 2023, driven by favorable changes in wholesale finance receivables and positive working capital. Total cash and cash equivalents stood at $1.6 billion at the end of Q2 2025.

HDFS: A Strategic Re-evaluation and Value Unlock

Harley-Davidson's financial services arm, HDFS, has long been a critical asset, supporting dealers and customers with financing solutions. Recent strategic moves underscore its importance and aim to unlock its inherent value for shareholders. The company announced a landmark strategic partnership with KKR and PIMCO in July 2025, transforming HDFS into a "capital-light" financing business.

Under this agreement, KKR and PIMCO will each acquire a 4.9% common equity interest in HDFS, valuing the business at approximately 1.75x its post-transaction book value. Harley-Davidson will retain over 90% ownership and control, ensuring HDFS continues to serve its customers and dealers seamlessly. The transaction involves the sale of over $5 billion of HDFS's existing gross consumer retail loan receivables and residual interests in securitized consumer loan receivables at a premium to par value. This is expected to generate a significant $275 million to $300 million incremental benefit to HDFS's operating income in fiscal year 2025. Furthermore, the transaction is projected to reduce HDFS debt by approximately $4 billion.

Looking ahead, the strategic partners will purchase about two-thirds of HDFS's new retail loan originations annually for a minimum of five years, also at a premium. HDFS will retain one-third of new consumer loans and earn servicing fees (1% per annum for prime loans and 2.5% for subprime loans). This new model is expected to significantly increase HDFS's go-forward Return on Equity (ROE) to the high 20s. Management projects normalized HDFS operating income post-transaction to be around $240 million to $250 million annually, growing towards pre-transaction levels in an asset-light manner through retained originations, new fee streams, and organic growth in commercial finance, insurance, and international partnerships.

The financial implications for Harley-Davidson are substantial. The transaction is expected to generate approximately $1.25 billion in discretionary cash for the parent company. This capital will be strategically deployed: $450 million for debt reduction, an accelerated $500 million for share repurchases in the second half of 2025 (part of a larger $1 billion program through 2026), and up to $300 million for future growth opportunities. This move is positioned as a "major value unlock" for shareholders, highlighting the perceived undervaluation of HDMC relative to its peers.

LiveWire: Electrification's Evolving Path

LiveWire, Harley-Davidson's electric motorcycle segment, continues to navigate a complex and challenging market. The broader powersports and discretionary leisure industries face headwinds, but the EV segment is particularly complicated by slower-than-anticipated adoption. This is attributed to a lack of government incentives, a less favorable regulatory environment, and a slower expansion of charging infrastructure than originally projected.

In response, LiveWire is undergoing a strategic pivot, focusing intensely on cost reduction and operational efficiency. The segment delivered a 34% improvement in consolidated operating loss in Q2 2025 compared to the prior year, and reduced its use of cash and cash equivalents by 36% for the first six months of 2025. This was achieved through aggressive cost reduction actions, including a 30% headcount reduction heading into 2025 and a focus on reducing Bill of Material (BOM) costs. LiveWire is targeting to be contribution margin positive by the end of the year.

Product strategy is also evolving. LiveWire plans to launch production versions of two new mini-motorcycle concept models, representing a strategic refocus towards lightweight, off-road, and urban-friendly mobility solutions. An electric maxi scooter is also planned for the first half of 2026, primarily targeting the European market. These new products leverage the existing S2 platform, avoiding new platform development costs, and utilize expertise from partners like Kymco. Harley-Davidson has stated it will not provide additional investments into LiveWire beyond a $100 million line of credit agreement entered into in Q1 2024, underscoring the imperative for LiveWire to achieve a sustainable business model with existing funds. LiveWire's full-year 2025 operating loss is now expected to be between $59 million and $69 million, with total cash use of $50 million to $60 million.

Outlook and Risks: Charting a Course Through Uncertainty

Harley-Davidson's outlook for 2025 and beyond is shaped by its strategic initiatives and the dynamic external environment. The company withdrew its full-year 2025 financial outlook for HDMC and HDI in May 2025, citing "historically low levels of consumer confidence" and the "uncertain macro environment," particularly the "level of uncertainty...in global tariff and trade." However, revised expectations provided in July 2025 offer a clearer picture of the path forward.

The company remains committed to reducing 2025 year-end dealer inventory of new Harley-Davidson motorcycles by approximately 10% compared to the end of 2024. North American retail sales are expected to turn positive in the second half of 2025, driven by sequential improvements observed since February, easier year-over-year comparisons, and the positive impact of new U.S. automotive tax reduction legislation. This legislation allows individuals to deduct up to $10,000 annually in interest on new, U.S.-assembled personal vehicle loans purchased between 2025 and 2028, a measure expected to stimulate demand.

Harley-Davidson is implementing a new efficiency program, leveraging technology including AI, to drive substantial cost savings and further productivity gains across the business. It expects to achieve $100 million in annual productivity savings in both 2025 and 2026, totaling $457 million by the end of 2026. Capital investments for 2025 are projected to be between $200 million and $225 million, focused on product development and capability enhancements. The company's long-term ambition is to achieve a double-digit HDMC operating income margin in 2026, climbing to its 15% target in subsequent years, contingent on slight volume growth supported by exciting new product launches and a more favorable discretionary spending environment.

Despite these strategic maneuvers, significant risks persist. The global tariff environment remains fluid and volatile, with an estimated full-year 2025 impact from direct tariff costs ranging from $50 million to $85 million. High interest rates continue to suppress consumer discretionary spending and impact HDFS's cost of funds. Supply chain issues, such as the ongoing regulatory compliance matters related to brake hose assemblies, could lead to material costs ranging from $140 million to $450 million if a recall is mandated. The slower-than-anticipated EV adoption poses a challenge for LiveWire, requiring continuous re-evaluation of its business model. Furthermore, the CEO transition, with Artie Starrs taking over from Jochen Zeitz in October 2025, and ongoing shareholder activism, could introduce perceived instability.

Conclusion

Harley-Davidson is in the midst of a profound transformation, actively reshaping its business model and product portfolio under the "Hardwire" strategy. The recent HDFS transaction with KKR (KKR) and PIMCO stands as a testament to this strategic ingenuity, unlocking significant shareholder value, providing substantial liquidity, and repositioning HDFS for capital-light, high-ROE growth. This financial maneuver, coupled with a renewed focus on cost productivity and a new efficiency program leveraging AI, demonstrates a proactive approach to enhancing profitability amidst persistent macroeconomic challenges.

While the company faces headwinds from high interest rates, uncertain consumer sentiment, and a fluid tariff landscape, its commitment to product innovation—including new, profitable entry-level ICE motorcycles and a strategic pivot for LiveWire's EV offerings—lays a foundation for future growth. The long-term vision of achieving double-digit HDMC operating margins by 2026 and climbing to 15% thereafter, supported by new product launches and a potential market rebound, paints a compelling picture. For discerning investors, Harley-Davidson represents a company strategically re-engineering its core, monetizing non-core assets, and innovating its product lines to drive sustainable value, making it a noteworthy consideration for those seeking a turnaround story with significant upside potential.