HOG short 11 April 2025

last updated: 12 Apr 2025

TL:DR - Iconic American brand Harley Davidson is encountering some serious market headwinds, and I don't see things getting any rosier for the company in 2025. The company's stock reflects this as it trades at the lowest level since September of 2020, during the Covid pandemic. 

This short stings, I don't like it. But on the other hand, I'm a realist and have to trade what's there. I wouldn't be putting this trade on if it weren't for the fat hand of the government interventionists. However, HOG's biz was strained under relatively clear skies, now there's a full-on market hurricane raging. Thanks to Trump's nonsensical tradewar, regardless of how it shakes out, I see a permanent stain on the US's reputation. Already there are talks of boycotts of US products in multiple countries. HOG is reliant upon 1/3 of its revenues from international sales. Should a small percentage boycott the US, this will hurt HOG. At the same time, the cost of their product is going up at a time when people will have less discretionary income to purchase their product. This is like a one-two punch for HOG. They already revised down their 2025 outlook in February, I feel like that should be further revised lower.

Then there are the issues stateside. Trump's policies have all but guaranteed a recession. Any uptick in sales HOG was banking on, are now out the window. Consumer costs are going up everywhere, and motorcycle guys are great at rationalizing an unreasonable motorcycle purchase, but even the most fervent motorcyclist out there will have a tough time making the case for why buying a $30k machine is a good buy. That's the other wrinkle. Should there be a recession, lots of current Harley owners will find themselves in a bind where they have to list their machine. And unlike cars, you can buy a 20yr old used Harley that runs good as new.

I really wish this weren't the case for Harley, but I think they are in for some very tough times ahead.

Points for consideration:

1.04 Apr 2025: HOG director leaves, citing "grave concerns" about the company - Jared Dourdeville who represents HOG's 2nd largest sharehold, H Partners, stepped down amid concerns about the company moving forward. What was interesting is that HOG spun it as Dourdeville stepped down dissatisfied with HOG's CEO succession plans.

2. Following on the heels of the above, it was reported H Partners has no plans to trim its stake. However, it appears as though their stake was acquired with the stock largely greater than $25/share. Given the market tumult, will H-Ps ride out the storm, or will they cut bait? Why give up the board seat if you're still planning on being the 2nd largest shareholder?

3. The current CEO who was overseeing a turnaround of sorts at the company is stepping down as revenues soften, but will remain in place until a new CEO can be found. He's essentially a lame-duck CEO at a time when all hands need to be on deck. Maybe he's still 100% committed, but what if he isn't?

4. Tariffs come into play right at the exact time of the northern hemisphere's peak riding season. Furthermore, there's a lot of anti-US consumer sentiment, threatening the 1/3rd of HOG revenues received outside of the US.

5. US recession all but assured for 2025 - the tariff pause is almost worse than going through with the tariffs, most companies will be in a holding pattern until they have more clarity on costs moving forward. This will put further pressure on HOG and its consumers. I can't imagine people tripping over themselves to purchase a $30k motorcycle with so much economic uncertainty.

6. Interest rates aren't going down. Rates to finance the machines are around 6% on the low end to about 8% on the high end for those with good credit scores. 

7. Harley dealers are sitting on massive inventory stockpiles. They already can't unload what they have. Furthermore, the dealers have to compete with all of the Covid purchases that people will be potentially unloading to raise cash should the US enter a recession. 

8. Bloomberg reported that Harley is seeking to sell its financing arm for $1b, which Harley declined to comment on. 

I think if Harley was facing just an inventory problem, or just a high interest rate problem, or just a CEO succession problem, it could find a way to fight back. However, the company is facing massive headwinds to say the least. Given the pressures the company is facing, I think the dividend could find itself on the chopping block. Harley also has $7b in debt outstanding, though the debt appears to have been secured