Third Avenue: Harley-Davidson ($HOG) Investment Case

In their Q1 2026 shareholder letter, Third Avenue Management — a New York-based deep value firm rooted in the late Martin J. Whitman’s asset-based investment philosophy — introduces Harley-Davidson, Inc. ($HOG) as a new Fund position. The firm describes the investment as consistent with its core approach of buying businesses facing near-term headwinds, investor pessimism, and depressed valuations. Third Avenue views Harley-Davidson as a deeply discounted opportunity where multiple strategic missteps and temporary financial drags obscure what the firm sees as a well-capitalized industrial franchise with meaningful recovery potential.

Investment Highlight: Harley-Davidson, Inc. ($HOG)

Business Overview

• Harley-Davidson manufactures motorcycles and accessories, sells financial services, and earns brand licensing revenue
• The company specializes in heavyweight motorcycles, a segment the firm notes has experienced stagnant-to-declining demand for years
• Third Avenue highlights that 100% of bikes destined for the U.S. market are manufactured in Wisconsin and Pennsylvania plants
• The firm views the Harley-Davidson brand as iconic but operating within a challenged core market

Strategic Missteps Under Prior Management

• Third Avenue identifies a key strategic error in prior management’s decision to exit lower-priced entry-level bikes in favor of higher-margin, premium models
• The firm argues this approach ignored the pipeline logic of entry-level sales — that starter bikes drive incremental demand for high-margin accessories, customizations, and financial service originations
• According to the firm, overstocking dealers with expensive inventory relative to demand damaged dealer economics, led to frustration and discontent, and ultimately required significant price discounting to clear stale inventory
• Third Avenue believes new management’s strategy changes create the opportunity for meaningfully better operating performance and notes that significant progress has already been made in clearing old inventory from dealer floors

LiveWire Drag and Path to Resolution

• Third Avenue describes Harley-Davidson’s electric motorcycle venture, LiveWire, as a significant drag on the company since its inception, with electric motorcycle sales falling far short of expectations
• The firm notes that as recently as 2022, LiveWire projected sales of more than 50,000 electric motorcycles in 2025 but achieved only roughly 1% of that target
• Because Harley-Davidson owns nearly 90% of publicly traded LiveWire, the firm explains that LiveWire’s substantial operating losses are consolidated into Harley-Davidson’s financials, creating what Third Avenue characterizes as a significant optical drag on operating performance
• Management has indicated that LiveWire has received its final financial lifeline from the company, and Third Avenue views an eventual LiveWire insolvency as highly probable — an outcome the firm believes would remove both the earnings drag and the distraction of a failing non-core business

Financial Services Restructuring

• Third Avenue highlights a significant capital release transaction executed by Harley-Davidson Financial Services (HDFS), in which a substantial portion of existing financial receivables were sold and a future flow agreement was created for most retail motorcycle loans with partners KKR and PIMCO
• Harley-Davidson also sold a 4.9% equity stake in HDFS to each partner
• The firm notes HDFS will retain roughly one-third of new retail loan originations going forward and earn ongoing servicing fees, resulting in a less capital-intensive, more fee-generative business with higher returns on capital
• Third Avenue views the transaction as highlighting the underlying value of HDFS, which it believes has historically been underappreciated by the market

Tariff Headwinds

• Despite manufacturing all U.S.-bound motorcycles domestically, Third Avenue acknowledges that tariff expenses have created a major financial headwind for Harley-Davidson
• The firm declines to predict when the situation may improve but characterizes the tariff burden as one additional temporary headwind among several the company currently faces

Valuation

• Third Avenue observes that market expectations for Harley-Davidson remain very low, with shares trading at a sizeable discount to tangible book value and a modest multiple of what the firm characterizes as very depressed earnings
• The firm highlights a sizeable net cash position in the company’s industrial operations, which it views as providing financial flexibility even as management finalizes its operational improvement strategy
• Third Avenue also notes the company’s dividend offers a near-double-digit yield at the present share price, currently supported by ongoing cash generation

Risks

• Third Avenue acknowledges that demand for heavyweight motorcycles has been stagnant-to-declining for an extended period and does not predict a specific timeline for recovery
• The firm recognizes ongoing uncertainty around tariff impacts, though it views the expense as potentially non-permanent
• Multiple recent activist campaigns, board turnovers, and management changes introduce execution risk around the turnaround
• The firm notes that a LiveWire resolution, while probable in its view, has not yet occurred and continues to weigh on reported financials

Third Avenue Management views Harley-Davidson as a deeply undervalued industrial franchise where a confluence of temporary headwinds — strategic missteps, a failing electric vehicle venture, tariff expenses, and a depressed end market — has created a significant disconnect between the stock price and the firm’s estimate of underlying business value. The firm believes new management’s operational improvement strategy, combined with an anticipated LiveWire resolution and the restructured financial services business, positions Harley-Davidson for materially better operating and financial performance over time. With shares trading below tangible book value and a net cash industrial balance sheet, Third Avenue sees the current valuation as reflecting limited credit for any recovery.

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