Pit Stop for the Future: Strengthening KTM

In the early 1990s, Austria-based motorcycle maker KTM was a small-scale motorbike producer turning out just 6,000 machines per year from a small workforce. Prospects for the company were dim against competition from a resurgent BMW and other euro bike makers.

Following a large investment from Indian scooter and vehicle maker Bajaj Auto and a few ownership changes, KTM grew to become one of Europe’s most successful motorbike brands, including fielding a team in MotoGP, the top tier of international motorcycle racing. Until recently, the company was producing nearly 1,000 motorcycles per day and is considered a top maker of ultra-popular “adventure” motorcycles preferred by intrepid riders looking to venture far off the beaten path.

With year after year of successful sales and acquisitions of iconic moto brands like MV Agusta, Husqvarna, Husaberg and Gas Gas, it looked as though KTM was poised for even more success under the guidance of Pierer Mobility CEO and enthusiast Stefan Pierer. But in the last several months, the company seems to have suddenly unraveled.

Sales are down 27% compared to the the first half of 2023, and a controversy over a perceived drop in build quality due to a camshaft gremlin and the general drop in sales across the industry has resulted in layoffs, a sudden production pause and a new co-CEO for Pierer.

According to ADVpulse.com, KTM has now entered into “self-administration,” a European market measure that allows for a 90-day effort to reorganize and secure financing to continue operations before the company falls into insolvency. In a video (below), Pierer and new co-CEO Gottfried Neumiester are calling the restructuring window a “pit stop” on the road to recovery.

KTM North America issued a statement for the North American press saying the legal restructuring procedure primarily affects only KTM AG. According to ADVpulse.com, officials said “North America and all other KTM subsidiaries are not included” in the European action, however if KTM AG fails to find a solution, all KTM sellers would most certainly be affected.

ADVpulse.com says efforts in increase involvement (and investment) with longtime partner Bajaj Auto have not materialized as hoped. KTM has also worked closely with energy drink and extreme sports sponsorship company Red Bull for many years, but the $20-billion beverage company has apparently been unwilling to invest in or buy the company outright. Pierer Mobility AG’s share price has fallen from €89.60 in September 2021 to €9.50 as of the most recent trading day, leaving it with a €345 million market cap and €1.4 billion in debt, with another €136 million set to come due in 2025. The company had posted a €53 million profit in mid-2023.

Meanwhile, along with the precipitous drop in sales, the company has laid off nearly 600 workers in two waves this year. At present, production will pause while the executive team looks for backers, and under the statutes of the reorganization, workers will receive “pre-negotiated partial wages” according to ADVpulse.

Adding to the company’s woes is a controversy around different warranty coverage for different models, a backlash against KTM for building engines in China with partner CFMoto, and reports of a camshaft wear issue with popular 790, 890 and 901 models.

Some in the industry have blamed Pierer/KTM’s response to the covid pandemic, which saw motorcycle makers get a big boost while social distancing was in effect, but increased production reportedly left the company with unsold stock as the pandemic waned and sales slowed. Meanwhile, majority stakes in sub-brands like MV Agusta - which was also owned by Harley-Davidson for a short time - has added to the company’s debt load. Some have called for the company to sell its MV Agusta stake and sell off other sub-brands including recently acquired Gas Gas and Husqvarna.

The company has until the end of February to remedy the situation. If it cannot find new sources of funds or a buyer, the company assets could be sold to satisfy creditors.