WHEN: Today, Monday, May 20, 2019
WHERE: CNBC's "Squawk Alley"
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Harley-Davidson CEO Matt Levatich on CNBC's "Squawk Alley" (M-F 11AM – 12PM) today, Monday, May 20th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/05/20/harley-davidson-ceo-matt-levatich-on-trade-electric-bikes-and-more.html.
All references must be sourced to CNBC.
MORGAN BRENNAN: Speaking of roads, iconic American brand Harley-Davidson launching its first electric motorcycle this summer and now the brand is looking to continue those investments into electric with new models that it's hoping to attract the next generation of riders with. Harley also continues to be on the front lines of the President's trade war, seeing the impact of tariffs on many of its products in a number of countries. And joining us now exclusive is Matt Levatich, the CEO of Harley-Davidson, at post-nine. Welcome.
MATT LEVATICH: Thanks. Great to see you.
MORGAN BRENNAN: So, five years ago, you and I were standing outside this building talking about Harley's potential new electric motorcycle Project LiveWire at the time. The fact that the company was considering going into this market. And now, today we have one of these motorcycles behind us here at post-nine. Let's talk about the evolution and who you're expecting to target with this new model.
MATT LEVATICH: Yeah, so 2014 we did Project LiveWire. We built 33 of a product that we were very excited about. But needed to test the assumptions, right? Put those in the hands of real customers and did that worldwide. When we met it was the kickoff of that tour about 18 months long. We demoed the product with about 12,000 to 13,000 people, in countries all over the world. They were riders from across the spectrum: young, old, existing customer, potential customers. And the universal feedback was 'This is an amazing product. It's done. I want it now.' And so, we stepped back and said, 'What do you really need, you know, from a range perspective and price perspective?' And we got a lot of other useful input about more work that we needed to do. And it wasn't quite ready for primetime from a technology and cost perspective and a range perspective. So, between then and now the team has been working very hard to bring what you have referenced here to market this summer, in August. And we're proud of it. It's one of the most thrilling products I've ever experienced of any kind, not just in the motorcycle space. And we think it is going to inspire a lot of people already riders to give EV a look and also to inspire new riders, who maybe are just curious about what motorcycling is all about. And EV offers a tremendous sort of ease of entry and an inspiring way for people to join us.
MORGAN BRENNAN: I want to get more into the new riders piece of this in a second, but first, there's a lot of focus at least from investors and analysts on the price point, just under $30,000, which is higher than a lot of your competitors out there in the marketplace. What do you say to the critics that are concerned about where it's priced?
MATT LEVATICH: Yeah, so, first of all, from the price point standpoint it is a super-premium product. All the components, the dynamics, it is one of the best engineered products on the market, certainly that we've seen in the space. So, we're leading in electrification. That's our objective. Not just with LiveWire but with a full portfolio of EVs. We are also looking to be profitable on a gross margin basis with every motorcycle we sell, which is important. And we believe this product is worth every penny of its $30,000 price point and we aim to demonstrate that when people get on it.
JON FORTT: Are there good engineering specs, things like torque and range that we would want to hear about?
MATT LEVATICH: Yeah, ones that were quoting most often is 0 to 60 in three seconds and 60 to 80 in another 1.8 seconds. So, this is a high performance halo product. And obviously electric is all about torque. And so, metering out that power and torque to the rider is very important in a motorcycle and we've got a fantastic balance of all that performance. And balancing also with range and regenerative braking because range is important to people. And as infrastructure and charging builds out, that's an important part of the equation. We get 80% charge on a Dc fast charge in about 40 minutes. So, you know, we're in the sweet spot that people are starting to kind of let go of some of their concerns.
MORGAN BRENNAN: This is part of the longer term multiyear strategy, the More Roads to Harley-Davidson strategy. You're recruiting more riders over the coming years. More models like the EV. But also, growing international business about 50% of sales. Begs the question, a lot of focus on trade. Tariffs, Harley, like it or not has really been on the forefront of that. With 25% tariffs on some goods imported into the U.S. here from China, also retaliatory tariffs in that country, how will that affect Harley?
MATT LEVATICH: So, our exposure to China both on the import side and actually on the sales side is much less than maybe other companies. We don't import a lot of components from China. Most of our products are made and sourced here in the United States. So we're pretty well protected and the latest round of tariffs didn't affect us in any regard on the import side. On the sales side it's actually similar to Europe, although our volume is much lower so from a financial perspective it's -- not happy about it but it's manageable. Europe is the big issue for the company. About $100 million a year run rate that we are covering in order to protect our business in Europe, protect our market share, protect our volume, protect the viability of our distribution channel. Very important for us whether the tariffs go away or not, we are just operating with the facts and circumstances in front of us. In light of the fact that some of our other new products, including some very potent traditional motorcycles that play very well into strong and growing segments internationally, in particular in Europe, they're coming out about less than 18 months from now. So, they rival those products. It is very important to have that distribution channel and have that velocity and to make sure that those tariffs be mitigated if they don't otherwise go away.
JON FORTT: Now, it retrospect, how badly did the President hurt your brand and how much have you recovered?
MATT LEVATICH: You know, we don't see any impact.
JON FORTT: None.
MATT LEVATICH: And the best way to measure that is through market share. You know, we grew market share 0.6 in the first quarter, it's – we're over 51% market share in the United States. It certainly didn't help. There's no question that you don't want comments like that made. No company wants comments like that made about their company. But, we did a nice job, I believe, helping customers and dealers who were on the front lines of retail –
JON FORTT: What did you do and how much demand was that?
MATT LEVATICH: Just clarifying what the facts are. That this is a European Union Tax imposed significant impact to the company, impedes our ability to invest or return to shareholders and that we needed to find ways to mitigate it well and less and until the tariffs go away by other political means. And here we are 11 months after the EU increased the tariffs. They're on the books to go, we were at 6%, we went to 31%, two years from now they'll go to 56%, unless something else changes in the trade environment. And obviously we can't sit by and wait for something to happen. We have to act and make it happen. We just help people understand that. There was misinformation we worked to clarify so that people got comfortable. And our dealers tell us once they were able to tell customers, customers say, 'Oh, I understand,' and they sort of relaxed.
CARL QUINTANILLA: Speaking of planning, "The Journal" has a Page 1 story about CapEx today, where they go through all of these regulatory filings. And CapEx growth has gone from 20 a year ago to plus 3 in Q1. And they cite Cat, FedEx, you name it as saying, 'Confusion over trade is making us be more cautious.' That has to be having an--
MATT LEVATICH: Well, of course, I mean I think business thrives on predictability. Uncertainty robs businesses of the kind of clarity that they need to make investments and most of these investments for most companies are long-term in nature. They are for Harley as well. We're having to make investments that we didn't contemplate a year ago because of this trade situation. We don't need additional motorcycle capacity. But in order to get into Europe, whether it's through our Thailand investment or if the EU doesn't approve our application, through another investment possibly within the European Union, that's capacity we don't need. That's investment we don't need. So, this uncertainty to me is real and affects every business and every business leader making decisions about how to deploy capital.
MORGAN BRENNAN: Given the fact that, and we have a lot of folks that are on our air and just in the press in general, who say tariffs automatically translate to a tax on the consumer. I think just by what you laid out here today that's not necessarily the case. It affects someone, someone has to pay those additional levees. But given the fact you haven't necessarily raised prices in your key markets but you are selling-- you're pushing forward with More Roads to Harley-Davidson, what is your take on the consumer, whether it's here or abroad?
MATT LEVATICH: I think similar to business, consumers are -- have a high degree of alert about what's happening in their economies, whether it's here in the U.S. or Europe. They're spending but they're spending, I think, cautiously, pulling back maybe on some big ticket discretionary items. I think you see some of that in housing and I think you see a little bit of that in the motorcycle cycle industry in the United States. So while there are a lot of markers that suggest the economy is very strong, there are aspects of it that I believe the situation impacts as well.
MORGAN BRENNAN: Matt, thanks for sitting here with us at post-nine. Matt Levatich, the CEO of Harley-Davidson. We are not done. After the break we're going to take a closer look at Harley's latest models that are right here behind us at the New York Stock Exchange. That's next. Stay with us.
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