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Harley-Davidson: More Tech, Less Roar

While watching CNBC’s Squawk Box show last week, I heard Jim Cramer make the following comment:

“You know… this may be more of a technology company than we think. It reads like a fantastic semiconductor company.”

The company he was referring to?

None other than Milwaukee’s motorcycle stalwart, Harley-Davidson (HOG).

Now, I’ve heard Harley-Davidson get called many things in my day… but a tech company? Not so much.

Is Cramer as mad as his Mad Money show? Or is there some truth to his claim?

Let’s see…

Harley-Davidson Embraces Its Tech Side

As we’ve noted here many times before, the “connected car” trend is gaining some serious momentum, as in-car technology advances quickly.

From augmented reality, to infotainment systems, to driverless cars from the likes of Google (GOOGL) and Volvo (VOLVY), there’s no doubt that the auto industry is getting increasingly high tech.

Tesla (TSLA) is getting in on the act, too, with a driverless “autopilot” feature revealed in its Model D car.

But the conversation on automotive technology has always excluded motorcycles. That is, until Harley-Davidson launched a few projects it’s been working on…

Project LiveWire

With the introduction of Project LiveWire, Harley officially broke away from two century-old traditions at the company.

For starters, it’s the company’s first fully electric motorbike, with the company swapping its signature V-Twin engine for an electric motor. The 460-pound bike boasts 74 horsepower and can race from zero to 60 mph in under four seconds.

Second, it’s the first time that Harley has seriously looked to its customer base for feedback.

Keep in mind, Harley was one of only two American motorcycle manufacturers to survive the Great Depression. With such longevity and success, company executives have applied the motto, “We know what we’re doing,” and haven’t looked for outside help.

But the crippling recession a few years ago changed all that, and was reflected when Harley shares plummeted from $73.77 to $10.10 by February 1, 2009.

So Harley started listening more. And to help the company refocus, expand, and put itself in a better position to survive economic turmoil, CEO Keith Wandell decided to make a few innovative changes.

LiveWire is one of them. Take a closer look…

There are a few drawbacks, though…

First, the bike only has one gear. That means LiveWire tops out at 92 mph.

The second potential downside is noise. Or lack of noise, I should say…

While LiveWire roars like a lion at top speed, it sounds more like a lamb when the electric engine initially cranks up.

Now, even if you have just cursory knowledge of Harley’s customers, you’ll be able to guess that they’re typically men who buy the bikes precisely because they want to hear the loud roar of the V-Twin engine. So needless to say, this new, “environmentally friendly” approach could be a major turnoff.

That’s why the company isn’t selling LiveWire just yet. Instead, it’s taking the bike for a test-drive, soliciting customer feedback every mile of the way.

Regardless, Harley isn’t quite heading in the “Flower Power” direction of Volkswagen. Nor is it pushing any type of “Go Green” agenda.

In fact, the company’s game plan isn’t even centered on its environmental footprint at all. Instead, it hopes this project will attract a younger generation of bikers in hopes of increasing profits.

Project Rushmore

Cramer’s comment about Harley’s “tech” status came on the back of the company’s third-quarter results, which showed a 6.8% sales rise, a 16.9% jump in net income, and a 20.1% rise in diluted EPS, compared to Q3 2013.

Harley achieved those numbers as U.S. bike sales grew by 3.4% and global sales rose by 3.8% over the past nine months.

It also came on the heels of Harley’s “Project Rushmore” campaign, where the company significantly diversified its lineup and made several “semiconductor-esque” upgrades to eight of its 2014 models.

For example, the vehicles were given a new camshaft, essentially letting Harley boost low-rpm torque by about 5%. This increased power produces 60 to 80 mph in fifth gear and helps when carrying more weight – for instance, when there’s an extra passenger on board.

The upgrades also include a new high-flow airbox that provides more legroom and improved airflow around the driver.

But perhaps the most significant upgrade of Project Rushmore is Harley’s new Twin Cam 103 – its “liquid-cooled” V-Twin engine. Why?

Because the engine’s liquid coolant not only offers a 10:1 compression ratio, which produces nearly 11% more peak torque than a standard Twin Cam 103, it also gives the rider dramatically improved thermal comfort, especially in situations like stop-and-go traffic on brutally hot days.

When you add linked anti-lock braking system (ABS) brakes, a larger, more rigid fork, brand-new “DayMaker” LED headlamps, and a text-to-speech infotainment system, fully equipped with voice-recognition software, satellite radio, and Bluetooth connectivity, you start to see that perhaps mad, old Jim Cramer might have a point.

Your eyes in the Pipeline,

Marty Biancuzzo

Marty Biancuzzo

, Technology Analyst

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