This bares repeating, and so this column repeats it: in times of economic distress, be a motorcycle manufacturer. A Japanese one. Market leader Atlas Honda’s financial performance in the latest quarter ending Sep-24 only confirms this belief. While the company is nowhere near its peak volumes during the quarter, its revenues have climbed (see illustration).
Certainly, compared to last year’s quarter (up 18%), but compared to when volumes were at their visible peak in Dec-21, revenues in Sep-24 are up 26 percent. In Dec-21, Honda sold nearly 400,000 motorcycles, which is the highest volume achieved in any quarter. In Sep-24, they are down 27 percent. It wasn’t volumes then that led to circles moving up and in fact, the frequent price hikes between then and now which allowed for revenues to “balloon” so impressively. Estimated revenue per unit sold for Honda between Dec-21 and Sep-24—a measure that could depict the net price increase—is up 71 percent. Illustratively, costs did not rise that much for Honda despite the economic slowdown as costs per unit sold fell 1 percent.
Perhaps December 2021 is far too long ago and it’s better to compare Honda’s performance over the span of a year alone. At this time, the volumes are certainly up—by 17 percent to be exact. Compared to the current quarter and the same period last year, Honda’s prices remained more or less stable which leads to the conclusion that the revenue growth (18%) is almost single-handedly pushed by greater demand. And demand is certainly growing as cars and fuel become more expensive, and roads are becoming busier. A major portion of the demand comes from rural areas where motorcycles are primarily used in travel and transport of goods while the agriculture sector too relies heavily on motorcycles to carry out business activities.
After facing competition from a few Chinese brands—and still winning—this Japanese manufacturer continues to lead the market with its 40-odd-year-old motorcycles like CD70 or the rugged 125 that are reliable and built to last giving incredible value for money to its customers. This is why Honda’s market share in the past year alone averaged 89 percent. The other major competitive edge that Honda enjoys is the localization of its motorcycles which allowed the company to roar past despite L/C issues facing the automobile issues. This also makes it easier for Honda to price its products more competitively to assemblers that are importing the majority of their parts.
There is a sweet spot where demand and price meet. In a poor economic environment, motorcycles have been shown to perform poorly. Major price increases have to take into consideration that a price hike would invariably lead to demand falling but because nearly all players increase price at the same time, one or another is not left out in the lurch. When the economic environment improves, companies are standing at a better standpoint by way of prices. In the last year, Honda’s revenue per unit sold went up only by 1 percent, but it is still making much more money because price hikes were well and frequent in the two years preceding that.
In 2QMY25 (ending Sep-24), earnings are up 61 percent year on year. Controlled overheads (3% of revenues), virtually no finance costs, and decent other income (6% of revenue) contributed significantly to the bottom line. In an industry that does not lean too much into innovation and design, Honda may just be reinventing the wheel with its motorcycles, but it has customer loyalty, decades of experience, and a financial model that works, even in a bad economy.
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