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Supply chain challenges ‘are holding us back,’ Harley-Davidson CEO says

Harley-Davidson CEO Jochen Zeitz joins Yahoo Finance Live to discuss LiveWire, the electrification of motor cycles, supply chain challenges, consumer demand, and the outlook for profit growth.

Video transcript

- Big day for Harley-Davidson down at the New York Stock Exchange where we find LiveWire. Its electric vehicle division now becoming a public company via a SPAC transaction. Still with us is Harley-Davidson CEO Jochen Zeitz. Jochen, good to see you again. I'm glad we got those audio problems touched up here. Take us through the transaction. Why was it so important for you to do it and do it now? What will let you do inside of that core Harley division?

JOCHEN ZEITZ: Well, LiveWire's now an all-electric motorcycle company and brand that is public at the New York Stock Exchange. And it really gives us the ability to innovate like a startup company but with the support of Harley-Davidson. Harley-Davidson would provide the manufacturing, the supply chain, and a lot of the support that a startup will need to be successful.

But on the other hand, we have a truly extraordinary management team that is focusing purely on the electrification of the motorcycle sport. We appeal to different consumer groups. But together, we believe this is a winning formula.

- Yeah, Jochen, I noticed that there are going to be quite a few of the Harley-Davidson execs that are going to be sitting on the board of LiveWire. So still, a lot of knowledge sharing that's going to be taking place there. Even as we're looking at some of the projected revenues versus the projected unit sales over about a three-year stack at this point, it seems like this is really going to be based on the projection that new models are going to sell the best. A model in a $15,000 price range that's going to make it into the market. And so walk us through exactly where you expect some of that demand to build up for LiveWire and the pricing mechanisms that are going to need to be instituted.

JOCHEN ZEITZ: Well, first of all, we already have one model LiveWire one in the market that is selling quite well. It's a bike that sells for $22,700. But we've just introduced a new model. We're taking reservations as of today. It's called Del Mar.

It's a product and a bike that's priced at $16,999. We have high expectations for it. We are just building our first production prototypes. And we think it's ready in the spring. So that is going to be a key price point for us to achieve our projections.

- You've been a real turnaround agent since you took over, Jochen. Where is Harley at in its overall turnaround? What inning you think?

JOCHEN ZEITZ: Well, I think we are doing really well given the environment we are in. We did our rewire program during COVID when it started. We have our hardwire strategy. We are on track. Obviously we are facing just like everybody else, supply chain challenges, which are holding us back a little bit.

But overall, our margins are up significantly. We believe we will have record EPS this year. And we are delivering on our strategy despite the fact that the environment is certainly challenging and continues to be.

- Has the semiconductor and supplier shortages and the challenges that you had mentioned on your most recent earnings call for Harley-Davidson? Has that materially changed in either direction in order to retain some of the revenue forecasts that you've set forth?

JOCHEN ZEITZ: Well, we think so. Obviously we had an outage and a two-week production shutdown in June-July. And we are now ramping up and trying to make up for the quantities that we've lost. You get used to this environment. In a way, it's been around for a couple of years now. And daily challenges continue.

We're seeing a slight improvement, certainly more stability on the semiconductor side. But we believe that the challenges will continue. But I think we have the right measures in place in order to cope with it.

- I haven't heard a lot of folks come on and recently go in and say record anything. But it's good to hear those comments from you. In this environment, what type of bikes are people buying?

JOCHEN ZEITZ: Well, what's great to see is that we're actually seeing growth in our core categories, in our core touring, and cruiser categories. And that's nice to see after several years of declines where we are seeing the customer coming back to our touring bikes. So that's a real positive, especially in North America.

So our core stronghold segments that are the ones that we're wanting to grow in the next couple of years. And that's part of the strategy. And that's where the profitability of the company is and where we are confident that with the new models that we're going to launch into the market in the coming years, we can grow our market share.

- Why do you think the customer is going back to those touring bikes? I got a sense on your last earnings call, what, late July that you're now starting to innovate more, whether it's the look of the tank or the horsepower of the bike.

JOCHEN ZEITZ: Well, touring is our core category. Touring, Cruiser, Softtail, Treitz is where the big profitability of the business is and while we've innervated also in the small cruiser segment with our Nightster and have also gone successfully into the adventure touring market. We need to make sure that we're focusing on that.

In addition to expanding the brand, we are growing our parts and accessories business, our apparel and licensing business. So we're broadening the brand to make it appealing for the rider, for existing riders, but also for new riders, for the female customer, and those who love the Harley-Davidson brand.

- I've walked into one of those stores in SoHo, Jochen. So I'm going to have to stop back in and see what on the merchandise side, what is new, it's fresh. And perhaps, I can update my apparel here for on set as well just what we have here. I mean, I've grown up around two parents that have been on Harley-Davidson motorcycles in the past and have been proud owners.

But even as we think about some of the pricing mechanisms that you've talked about in the most recent earnings call, what of the demand are you seeing right now remain intact following some of those pricing decisions knowing that in the consumer right now, there is more consciousness about how much you're spending on these products?

JOCHEN ZEITZ: Well, I can't really talk about the third quarter. At this point, we're in a quiet period. But if you go by what we said after in our second quarter earnings call, we expect 5% to 10% revenue growth. We expect our operating income to be somewhere between 11% and 12%. And that's a pretty significant growth in the current environment.

- Harley-Davidson CEO Jochen Zeitz joining us this morning. Thanks so much for hopping on-- appreciate it.

JOCHEN ZEITZ: Thank you.