According to the research report released by Tianfeng Securities, the demand for all-terrain vehicles is mainly in Europe and America, with an estimated retail industry space of over 10 billion US dollars. In addition, the market space for power sports accessories, clothing, and accessories is expected to reach 5 billion US dollars in 2021. Polaris (PII.US) has become a leader in the all-terrain vehicle industry through product innovation and self-made key components. In 2023, Polaris and Yamaha will account for more than 40% of the ATV market share, and Polaris will have over 30% of the market share in the utility task vehicle industry (UTV). Currently, domestic companies are rapidly catching up, increasing their market share and opening up the situation through cost advantages, cultivating their own brands, and narrowing the product gap.

The meaning of all-terrain vehicle is a "vehicle suitable for all terrains" and is more suitable for various terrains than other vehicles. According to the classification of vehicle structure, all-terrain vehicles can be divided into three categories: ATV with handlebar steering, UTV with steering wheel steering, and SSV with the same steering wheel but stronger performance and more entertainment attributes.

1) ATV: It is mainly used for leisure and entertainment, with development mainly relying on consumers' increased leisure time and upgrading of outdoor work methods and lifestyles. According to Polaris's 2001 annual report, the downstream demand for ATVs can be divided into hobbies of farms, outdoor sports, and equestrian, each accounting for about one-third.

2) Side-by-side vehicles (including UTV and SSV): According to Polaris's 2006 annual report statistics, the target audience of side-by-side vehicles is hunters, large all-terrain vehicle riders, and sporty riders. 65% of the demand comes from practical needs, 20% comes from commercial/industrial needs, and 15% comes from leisure and entertainment needs. Compared to ATVs, side-by-side vehicles can carry passengers, transport goods, and tow heavier loads.

The demand is mainly in Europe and America, with an estimated retail industry space of over 10 billion US dollars.

According to Polaris's annual report, global ORV retail sales have remained stable at 0.9 million vehicles or more since 2016. In 2023, global ORV (including ATVs and side-by-side vehicles) retail sales will reach 0.955 million vehicles, of which North America accounts for 84%, with ATV sales in North America accounting for 72% and side-by-side vehicles (UTV, SSV) accounting for 91%.

The global ATV/snowmobile market size increased from $10 billion in 2018 to $14 billion in 2021. The retail sales of ATVs increased significantly in 2020 and 2021, but fell back to around 0.95 million units in 2022 and 2023, still higher than the 2019 level. Tianfeng Securities expects the current ATV/snowmobile market size to still exceed $10 billion. In addition, the market space for aftermarket power sports accessories, clothing, and accessories reached $5 billion in 2021, accounting for about 36% of the retail scale for the year.

Reviewing Polaris, product innovation and self-made key components have made it the industry leader.

Polaris was established in 1954 and its main product is ATV. Overall, Polaris' revenue growth rate exceeds that of the ATV industry. In 1985, Polaris launched the first ATV made in the USA, and then took the lead in introducing many improvement technologies, such as automatic transmission, long travel/independent rear suspension (IRS), single-arm hydraulic brake, and the industry's first electronic fuel injection.

During the economic downturn, Polaris reduced inventory, streamlined operations, and launched new products to minimize the impact. In 2007-2008, global ATV sales were 1.25 million and 0.955 million units, a decrease of 7% and 24% respectively, while Polaris' revenue increased by 7% and 9% to $1.78 billion and $1.95 billion. In 2007, the slow economic development severely affected durable goods, and non-essential goods were even more affected. Polaris reduced inventory at the dealer and factory levels, streamlined operations earlier than competitors, and continued to launch revolutionary new products such as Ranger RZR and Victory Vision.

The Ranger off-road utility vehicle series has redefined the market with leading power and driving quality. The Ranger RZR was introduced in 2007 and is the lightest side-by-side ATV, with a width of 50 inches, making it the only side-by-side ATV that can be driven off-road. The design places the engine behind the seats, giving it the lowest center of gravity among all sport side-by-side vehicles and excellent off-road responsiveness, speed, and safety. The sales of Ranger RZR far exceeded the company's initial sales expectations.

Polaris has multiple sub-brands that cater to different consumer needs. These include: RZR (performance off-road vehicle), Ranger (used for farms, estates, hunting grounds, etc.), Sportsman (a powerful tool for exploring the outdoors), and Youth (safe for children over 6 to start exploring). In terms of product categories, Polaris has more variety than domestic ATV companies, with 1-6 seat models. Taking the SSV near the 1000cc displacement as an example, the Polaris Ranger 1000 starts at $20,999, the No. 9 UT10 Crew starts at $15,999, and the CFMoto ZFORCE 950 Sport starts at $15,299.

Polaris has strong operational efficiency: 1) In terms of distribution: Since 2010, all North American ORV dealers have adopted the MVP process, and orders are incorporated into the production plans of each product; 2) Supply chain: Self-made key components to build competitiveness, assembly plants are located worldwide, bringing advantages to the company in terms of cost reduction, speeding up product launch time, innovation, flexibility, etc.

Breakthroughs in domestic enterprises

In 2023, Polaris and Yamaha together accounted for more than 40% of the ATV market, and Polaris had over 30% market share in the UTV industry. Domestic companies quickly caught up and gradually increased their market share. Domestic companies have obvious product differentiation:

Taotao: Mostly small displacement, with most products below 120cc. There are more youth-oriented products compared to companies like Polaris and Zhejiang CFMoto Power.

Jiuhao: Establish a high-end product image from brand to performance. There are fewer product categories, but the performance of each indicator is benchmarked against the best products on the market, and the pricing ensures the cost-effectiveness and competitiveness of the products, providing riders with a rich product experience.

CFMoto: Focuses on cost-effectiveness, with a wide range of product categories, offering a variety of choices from entry-level to professional models.

How can domestic companies open up the market?

Cost-effectiveness & cost advantages: Taking the youth models near 110cc as an example, the Polaris 2024 OUTLAW 110 EFI starts at $3,599, CFMoto CFORCE 110 starts at $2,999, and the Taotao brand Mudhawk 6 ATV is priced at $1,099. Domestic company products have lower prices but higher gross margins than overseas companies. In 2023, Polaris had a gross margin of 21.9% for ATVs, while CFMoto and Taotao had gross margins of 39.5% and 34.1% respectively.

Cultivating own brands: Jiuhao ATVs use Segway, Taotao has high-end brand Denago and its own brand Tao Motor, and CFMoto also uses its own brand CFMOTOR. During the epidemic, high demand and supply chain issues of established companies may provide opportunities for domestic companies.

Narrowing the product gap: After years of accumulation, domestic companies' product performance is gradually approaching that of overseas companies. CFMoto, Taotao, and other companies have self-made engines and other core components.

In terms of tariffs, starting from January 1, 2021, the United States re-imposed a 25% tariff on imported ATV products from China, with a tariff rate of 27.5%, while the UTV tariff rate remains at 10%. The tariff rate for all-terrain vehicles imported from China by Canada is 6.1%, and Canada and Europe do not have trade barriers for Chinese products. For domestic companies, Jiuhao, Chunfeng, and Taotao have all established factories overseas to reduce the impact of tariffs.

Related symbols

Jiuhao Company (689009.SH): Two-wheeled vehicles are entering a period of rapid growth, and the scale effect is obvious. In the first half of 2024, Jiuhao's electric two-wheeler sales volume was 1.2 million units, a year-on-year increase of 122%. The previous investment has shown initial results, and the two-wheeler business is expected to become a major profit sector. Categories such as lawn mowing robots and all-terrain vehicles are entering the harvest period. With the manifestation of the scale effect, profitability is also expected to exceed expectations.

Chunfeng Power (603129.SH): The company is accelerating market retail destocking and tapping into the potential of regional markets, adjusting the proportion of high-end markets and high-end products. In 2023, the company's all-terrain vehicle exports accounted for 71% of the domestic exports of similar products, firmly occupying the leading position. The distribution network in the U.S. market continues to expand, and the market share in Europe continues to increase.

Taotao Vehicle (301345.SZ): The company's localization operations mainly include a localized team that has been deeply cultivating North America for many years, a warehousing sales model that integrates geography and time efficiency, and a fast-response full-process pre-sales and after-sales service system. Some of the company's products exported to the United States are subject to tariffs ranging from 7.5% to 25%, but the company, with its own brand and sales channels, takes advantage of the initiative to negotiate with customers and intensively explores new channels and markets.

Risk reminder: The demand for all-terrain vehicles is lower than expected, the expansion of channels is lower than expected, raw material prices have risen sharply, industry competition has intensified, there are risks in dealer management, and there are risks in product research and development, etc.