How Alive is Livewire?

Another bad quarter and a pullback from Silicon Valley

On 24 October 2024, Livewire filed its third quarter (ending 30 September) results for the year. Let’s look at the positives first; there are not too many. The brand’s motorcycle sales nearly doubled year-on-year from 50 to 99 units.

2X of next-to-nothing is still next-to-nothing.

Still, sales—even though low—seem to be on the right track in a market that is reluctant to switch to electric road bikes; 99 units were enough to keep Livewire the biggest electric road motorcycle brand in North America.

That’s not a reason for pride; that’s a cause for worry.

Livewire has two product lines: Livewire Motorcycles and the STACYC brand of balance bikes. Harley-Davidson acquired STACYC in March 2019, and the brand came into the Livewire part of the business when the electric brand was spun off. STACYC is still Livewire's main revenue generator. In the previous financial year (2023), STACYC represented nearly 70% of all revenues.

These electric balance bikes account for 70 percent of Livewire sales.

So when STACYC goes down, Livewire suffers. This is what happened this quarter.

First the Data

Here are Livewire Motorcycle sales units and Net losses for the last twelve quarters.

Livewire Motorcycle sales unit vs. Net Losses in the last twelve quarters reveals a heavy bleed. Livewire has reported nearly USD 280m in cumulative losses within the last twelve quarters.

That data is depressing. While Livewire may point out that they nearly doubled the volumes year-on-year, this was the worst quarter of the year in unit sales, steadily declining since Q4 2023. That was the only quarter when Livewire sales crossed 500 units for the only time in history.

Livewire Motorcycle Revenue vs Operating Profit.

More Livewire motorcycle revenues drive more losses.

The problem is that the more Livewire sells motorcycles, the more it bleeds. That indicates that the motorcycles are not profitable even at the Gross Margin level.

In simpler terms, Livewire sells motorcycles at lower than input costs. In July this year, Milwaukee Business Journal quoted Baird analyst Craig Kennison, estimating that Livewire loses USD 88,000 on every motorcycle sold.

If Livewire is making losses at the gross margin levels by selling motorcycles at USD 15.5k, we have serious problems. The only way to turn things around is to increase prices while multiplying sales, but there is no room to do the first.

The USD 15.5k is about 32 percent lower than what it charges for the Livewire One. The BoM cost difference between the two is substantial but not of the same magnitude. We assess that Livewire has been losing significant money on every S2 platform model.

You realize how difficult that sounds in a market that is not enthusiastic about electric motorcycles in the first place. People are not buying advanced, highway-capable, full-size lifestyle motorcycles at this price.

It is not irreversible. Del Mar's ‘Should Cost’ is moderate, even with the precision aluminium castings. Battery prices are below USD 100 / kWh and falling.

Livewire needs to reduce costs, increase sales, and improve profitability. However, management has not yet devised a substantial plan beyond reducing the selling, administrative, and engineering expenses by USD 1.5m last quarter and USD 4.7m overall this year.

The STACYC Business

In comparison, STACYC was a solid business until 2022. However, sales have been steadily declining, and we have reached a point where sales are so low that STACYC cannot deliver a profit.

In comparison, the STACYC business occasionally turns a profit, with profitability directly affected by sales volumes.

So, the problem seems to be simpler in magnitude. Increase the sales, and profitability will return. But it’s a competitive business increasingly dominated by Chinese imports and Japanese players like Kawasaki that offer competent products. Increasing sales may not be that easy.

Livewire expects (logically) the STACYC business to be the secondary once Livewire sales take off. Going by present trends, that may be many quarters away.

Beyond the Numbers

Apart from the continuing poor financial results, several actions point to the worsening situation at Livewire Motorcycles.

In April this year, Harley-Davidson announced that Livewire’s California-based R&D facility, Livewire Labs, would relocate to Milwaukee to cohabitate with H-D’s global headquarters. The closure happened at the end of September.

From an accountant’s perspective, the move makes a lot of sense. You save real estate costs in high-cost Mountain View and use the under-utilized offices at Juneau Avenue in Milwaukee.

From a talent perspective, this means that many high-quality talent would be left behind. Considering that Milwaukee is 2200 miles from Mountain View, we don’t expect all the employees to relocate. We expect many of them won’t, considering that high-paying jobs in the Valley are more lucrative.

Harley-Davidson and Livewire senior management also indicated that there would be job losses at Livewire Labs. As of the end of 2023, Livewire had 248 employees, 227 of whom worked on the Livewire motorcycles side and the remaining on the STACYC business.

After deciding not to pursue the acquisition of Alta Motors or invest in them in 2018, Harley Davidson set up Livewire Labs in Mountain View to attract high-quality talent. This is especially true considering that talent in power train development, vehicle design, and high-voltage E&E development in electric vehicles can be attracted within the geography.

Now, that thought process has been shelved.

In moving Livewire Labs, Harley aims for a 10-percent reduction in personnel count and an overall 15-percent reduction in employee costs. Karim Donnez, the group CEO of Livewire, said that they aim to save USD 10 million through reducing employee costs.

It started with a bang.

Thanks to the original Harley-Davidson Livewire One motorcycle, Livewire hit the ground running as a company. It already had a motorcycle in retail, putting the dismal sales numbers aside. H-D further strengthened the company by merging LiveWire with AEA-Bridges Impact Corp. (ABIC), a SPAC. It would begin publicly trading in Sept 2022 with USD 400m in cash from ABIC and a further USD 100m injection each from H-D and Taiwanese scooter manufacturer KYMCO.

As we can see, KYMCO’s relationship will be important for Livewire in the future.

Product strategy

In the early days, Livewire unveiled a few concept drawings that pointed to its future product strategy. Some of the first promises of work were promising; others were worrying.

This Livewire ‘scooter’ concept looked radical and cool.

The top left became the S2, and the bottom left is the above-mentioned ‘Scooter’; the other two worry us.

From the bottom left in a clockwise direction:

1. The funky scooter has yet to appear and may not appear long.

2. The motorcycle sketch would eventually become the S2 Arrow platform.

3. The other two concepts are a mountain bike and a normal pedelec, products that are not exciting, have high-density Chinese competition and would add little to the bottom line.

The problem with Livewire is that both the One and S2 are too big and expensive. Even though the S2 platform-based Del Mar and Mulholland intentionally target a new generation of riders away from Harley-Davidson‘s core rider group, they are much too expensive.

Livewire needs something to go below the S2 in the pecking order. The media calls it the S3, and KYMCO may eventually build it.

That is, if KYMCO can get its act together. We have seen the RevoNEX and SuperNEX concept electric motorcycles for a few years. They are supposed to use the Arrow platform in some shape, but there are no dates for the SoP. Meanwhile, the concepts also change every year. This year at EICMA, a new RevoNEX was displayed, which looked nothing like what we have seen from KYMCO until now.

The new RevoNEX is very different from the previous concepts; those look like the underpinnings of the Arrow platform.

However, the most important thing at EICMA was the joint announcement from Livewire and KYMCO that they would jointly develop and manufacture electric touring scooters based on what Livewire had already created.

The KYMCO-Livewire touring scooters would likely use the Arrow platform of a structural battery as the bottom member with subframes attached to it.

The rather raw sketches suggest that these are full-size touring scooters that may carry the Arrow platform in its entirety. While the S2 carries the Arrow as a slant member at the front, the scooter concepts have it at the bottom.

They are not going to be cheap.

Arrow Platform

Livewire first introduced the high-voltage (400V) Arrow platform in 2021. Essentially, this monocoque structural battery mounts the headstock at the front top end and the swingarm at the rear bottom. There is no main frame—the cast-aluminum battery box does the job.

The electronics, motor, and battery are all integrated into the battery compartment. A structural battery is becoming fairly common now. However, in 2021, only a handful of startups (most prominently Damon) built a motorcycle around a structural battery. Harley Davidson has used a similar engine as a stressed member in the Pan America. A structural battery pack also gives some flexibility to play with various body styles and sizes. The Arrow platform will likely create at least three motorcycle lines with multiple models. Theoretically, a ‘Broken Arrow’ can even create commuter motorcycles with a 48V LV system.

Why aren’t they high on priority then?

Dealer stress is real.

From Livewire’s 2023 annual report, the company has 127 electric motorcycle retail partners. The company owns one outlet/experience center, leaving 126 independent partners. Arguably, most of them are extensions of Harley’s ICE motorcycle dealerships. Even then, with quarterly sales of 99 units in the last quarter, some outlets sold not even one motorcycle in three months.

Losses may be a problem; Immediate Finances are not.

While mounting losses and a lack of sales are critical problems for Livewire, we do not see any cash crunch for the brand. Harley Davidson owns 90% of the company, and HD's support is primarily why Livewire maintains an enviable valuation.

The market rewards Livewire for the Harley backing it has.

In March 2024, Harley Davidson announced that it would extend a USD 100-million loan to Livewire. This is a credit line, and Livewire has yet to use any of it.

Then, there are government grants. In July this year, Harley-Davidson was selected for USD 89 million in grant support. This represents half of the USD 178 million that the company needs to increase production of the two models.

The language is changing.

Companies that plan to change the world have to be bold. That’s what Livewire was when it started. The Arrow platform and all the other concepts were ahead of time. However, lately, the language is more resigned and has gone defensive. This is the Livewire CEO Karim Donnez in July 2023:

Thanks to the investments already made and the continued support from our shareholders, I believe LiveWire is poised to have a massive impact into the electrification of the industry.

When we start measuring things in terms of the “revolution we started” or the “long-term impact on the industry,” it is telling the shareholders that the ride is going to be long and bumpy.

The future?

Livewire needs a change in strategy, maybe the entire business plan. Being an offshoot of Harley-Davidson has advantages, but it also comes with the burden of thinking in a certain way regarding product and design. Livewire products are made for the niche, which hinders volume growth. Smaller products like the ones KYMCO seems to be working on may be the answer. But will Livewire get their version of the same?

With the H-D baggage, it is also complex for Livewire to reimagine itself and pivot to smaller bikes like Zero has done with the new XE and XB motorcycles. The market for lighter, lower-speed dirt bikes is booming in North America, and Chinese brands like Talaria and Sur-Ron are having a field day.

But does Livewire have the ‘brand flexibility’ to make something like that?

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