Get Your Motor Runnin'

The future is unwritten, as the late Joe Strummer of the Clash used to say, yet we can be pretty sure that there will be many words in it about electric vehicles.

The inevitability of the transition away from combustion engine has prompted investors to pour billions of dollars into EV start-ups. ESG investors seeking to help the environment have joined in as well. Rivian Automotive, which went public just a month ago, has a market value of $101 billion, more than the market caps of General Motors or Ford Motor.

Those legacy companies don’t get Rivian-like valuations even if they have their own EV businesses.

One way to unlock value, of course, would be to spin off those businesses. The 118-year-old Harley-Davidson has now taken that route with a twist, announcing plans to split off its electric motorcycle brand LiveWire via a deal with a special acquisition company, or SPAC.

Karishma Vanjani of Barron’s has the details:

LiveWire, introduced as a stand-alone model in 2019, will merge with a sustainability-focused SPAC called AEA-Bridges Impact Corp. It will be the first publicly traded maker of electric motorcycles, according to a news release describing the deal.

LiveWire, in which Harley would take a 74% stake, would have an enterprise value of nearly $1.8 billion, the companies said, and a post-money equity value of roughly $2.31 billion at closing. That implied enterprise value is 1 times estimated sales for 2026, compared with a median of about 2.9 times for other electric vehicle original equipment manufacturers. (Tesla is valued at 8.9 times estimated 2026 sales.)

“We view this as an effective way for [Harley-Davidson] to unlock value in LiveWire while still maintaining a large stake in the business,” wrote analysts at Raymond James.

There is a hill ahead: LiveWire is aiming for sales of nearly 101,000 electric motorcycles in 2026; an estimated 387 bikes will be sold this year.

Shares of Harley-Davidson shot up more than 19% today before reversing to close up 4.7%. The company has a total enterprise value of $11.8 billion, according to S&P Global Markets. The SPAC, AEA-Bridges, ended the day up 3.6%. The deal is expected to close in the first half of next year.

This deal raises the question of whether Harley-Davidson is just shifting its main growth opportunity to a new entity, effectively cannibalizing the legacy business. That was in fact the first analyst question on the conference call about the deal. Here’s what Harley Davidson CEO Jochen Zeitz had to say about that, according to a Sentieo transcript:

Harley will continue to invest into the electrification, but... also benefit from LiveWire. So it's really accretive and a win-win for both companies.

LiveWire will spearhead the electrification. But if you look at the technology at this point, it's not ready to be implemented into the core segments of Harley-Davidson. So having a leader, building leadership, getting into the fast lane for the electrification of the sport, LiveWire will do...

If you look at the customer segments that we're appealing to, they are very complementary and not cannibalizing at all. Hence, while LiveWire is positioned more for the new generation of riders in the urban environment, and Harley-Davidson, obviously, is also going to expand from its traditional core, but the segments are very complementary.

Given the high multiples for anything related to EV, it may be tempting for others to go down a similar road as Harley. Rev up the deal making.