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Harley Teams Up With Qianjiang, Eyes Expansion in China Market

Zacks Equity Research

In an effort to boost the company’s production outside the Unites States, Harley-Davidson, Inc. HOG recently entered into an agreement with Chinese manufacturer — Zhejiang Qianjiang Motorcycle Co. — to produce small motorcycles for global markets.

Per Bloomberg and Reuters reports, the motorbike models will be sold under Harley’s brand name. Remarkably, these bikes will feature an engine displacement of 338 cubic centimeters — one of the smallest-powered engine bikes in the company’s history. In fact, Harley’s existing motorcycles sold in the United States are larger, with high price and engine capacities of more than 601 cubic centimeters.

The new 338 cc models will likely be initially rolled out in China, one of the largest motorcycle markets, by the end of next year, before being introduced to other Asian countries.

Qianjiang holds expertise in premium smaller motorcycles, building a supply base with the knowledge of emerging markets. Qianjiang is a unit of Geely Holding Group, a Chinese company that owns Volvo Cars.

This partnership is aimed at capturing China’s huge bike and moped market, and in sync with Qianjiang’s plan to cut costs and generate half of all sales outside the United States by 2027.

Last year, Harley announced the launch of lightweight motorcycles in Asia and electric bikes globally, to revive the motorcycle demand in the United States. The company expects to unveil its first electric motorcycle without clutch and gear-shift controls later this year.

Harley’s investments to broaden the product portfolio, and improve marketing and sales support are anticipated to boost revenues. Also, the acquisition of StaCyc in March has widened Harley’s customer age bracket. Furthermore, its foray into the e-commerce platform will drive merchandise sales.

The company has been taking prudent expense-control measures. It is also working on manufacturing optimization, which will enable the company to restructure its cost arrangement as well as optimize the product manufacturing process during periods of declining sales. Notably, manufacturing optimization refers to the consolidation of the company’s Kansas City, MO assembly plant into its York, PA plant. This initiative is estimated to raise annual cash savings of $65-$75 million after 2020.

Harley-Davidson, Inc. Price and Consensus

Harley-Davidson, Inc. Price and Consensus

Harley-Davidson, Inc. price-consensus-chart | Harley-Davidson, Inc. Quote

Zacks Rank & Stocks to Consider

Harley currently carries a Zacks Rank #3 (Hold).
 
A few better-ranked stocks in the auto space are Gentex Corporation GNTX, Fox Factory Holding Corp. FOXF and Cummins Inc. CMI each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gentex has an expected long-term growth rate of 6%. Over the past six months, shares of the company have gained 19%.

Fox Factory has an expected long-term growth rate of 16.4%. Over the past six months, shares of the company have gained 42.6%.

Cummins has an expected long-term growth rate of 8%. Over the past six months, shares of the company have gained 31%.

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