Polaris unveiled an agreement with Zero Motorcycles to electrify Polaris snowmobiles and off-road vehicles over the next decade. The deal doesn’t cover Polaris’s Indian brand motorcycles, but 10 years is a long time, so Harley-Davidson investors should pay attention.
The deal is the latest sign that electric vehicles are taking over. It has taken a generation, but EVs are proliferating at an accelerating rate.
The first commercial EV may have been General Motors ’ (ticker: GM) EV1, a battery powered car launched in the mid-1900s. It wasn’t quite ready for prime time, but less than a decade later came Tesla (TSLA) which has grown to become the world’s most valuable auto maker.
The Polaris-Zero deal covers snowmobiles and ATVs. “Thanks to advancements in power, pricing and performance over the last several years, and with customer interest surging, now is the right time for Polaris….to implement our [EV strategy], said Polaris CEO Scott Wine in the company’s news release. The first EV designed by Polaris and Zero is due by the end of 2021.
The deal does more than indicate to investors that EV technology is real. It also makes it clear that it is hard. Companies can’t just slap a battery on a scooter and call it an EV. EVs have to have comparable, or better, performance characteristics versus their gasoline-powered kin, while being priced similarly.
“The problem was there was no way to dial in weight and range,” Wine told Barron’s in a phone interview, explaining how difficult it is to electrify, say, a snowmobile. “We looked at every option, Zero has figured out how to package and manage batteries.”
Lower battery costs help too. “Ten years ago you were looking at $800 per kilowatt-hour,” says Wine. “Now we’re down to $200 delivered to a customer.”
Polaris is resisting the urge to go it alone, taking a slightly different approach than Harley. The famous American motorcycle maker developed its Livewire electric bike internally and has experienced some manufacturing hiccups.
The Polaris-Zero deal doesn’t include the Indian motorcycle brand. “Indian will wait,” said Wine, adding he doesn’t want Polaris EV products to lose money. “Batteries make things slightly more expensive, but designing from scratch including things [such as] torque vectoring wheel hubs….you can charge a little more.”
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It’s a slow and steady approach to electrification. Polaris power-sport product platforms are renewed every three to five years. The company plans a new electric offering in each of its business segments covered by the Zero agreement by 2025.
Investors appear to like the deal. Polaris stock is up 4% in premarket trading,while Harley shares are unchanged.
Eight out of 17 analysts covering Polaris rate the shares at Buy. That’s a little lower than the average Buy-rating ratio for stocks in the Dow, at about 58%. The average target for the stock price, however, implies nice gains. Analysts believe Polaris stock is worth $116, about 25% higher than the current $92 price.
That $116 a share values Polaris stock for about 16 times estimated 2021 earnings. The S&P 500 trades for about 20 times.