Interview with Mr. Stefan Pierer, CEO, KTM Group, Austria

Mar 2020 Interview with Mr. Stefan Pierer, CEO, KTM Group, Austria

Prisma Reports (PR): KTM is quite a success story in Austria and a prominent manufacturer. Under your leadership the group has officially become Europe’s biggest high-performance street and off-road motorcycle producer, with 9.6% market share. The group grew from 150 employees and 6,000 vehicles sold in 1992 to 4,300 employees and over 260,000 vehicles sold, and €1,6Bn in sales in 2018. Can you give us a short overview of KTM, how has the group evolved over the years, how has KTM stood out against other global leaders such as Honda or Yamaha?

Stefan Pierer (SP):The two Japanese companies you mentioned are our main competitors. All non-Japanese manufacturers are smaller than we are and are more or less “colleagues” in our niches. KTM stands basically for “ready to race”: we are a sport motorcycle brand and racing is our source of inspiration in innovation. Racing is the driving force of company. The most important thing for us is to prepare and to get started at the racing pit. It doesn’t matter how we achieve it or how long it takes but we must always be ready. It is the core success story behind KTM. Our success rests on several key factors. Firstly, the brand. A premium brand will always demand a premium price. Secondly, product innovation. In this industry, the product is the motivation. Third is globalization. Coming from a small country with 8 million people and with a company of that size, you have to go outside of Europe. 54% of our sales units are sold outside of Europe, and so we are really a global company. The fourth very important success factor is our employees. Austria has a good base of well-educated, highly motivated, dedicated employees. Together these four elements have written our success story over the last three decades.

(PR): : KTM has been breaking a series of records over the past few years. In 2018, KTM and Husqvarna increased their sales by 10% to 261,454 motorcycles – in comparison BMW Motorcycle sold “only” 165,566 units last year. The group’s turnover was 1.6 bn. What have been the key drivers which explain this recent growth?

(SP): Thirty years ago, when we started, we were focused on off-road competition and we didn’t have any street bikes until the 90s. In 1996 we grew very rapidly, looked for equity and we launched the first IPO. Street bikes were already big at that time, so from our core niche we expanded in the street bike market. Today we have a whole range of sport motorcycles from 125cc up to the peak 1300cc., were we are, also price-vise, in direct competition with our Japanese competitors. Thirty years ago, when we started off with 6,000 units, whereas my non-Japanese colleagues had almost a similar quantity to what they produce now. Now we produce 250,000 units. That’s the competition, that’s the benchmark and the competition you have to beat. Very helpful in becoming a global player and getting competitive entrance bikes is the strategic alliance with BAJAJ Auto Ltd., in India, which started in 2007. India is by far the biggest two-wheeler market with more than 20 million bikes. Bajaj is the second largest producer in India and at that time looking for a technology partner in Europe because the Japanese brands entered the Indian market., In order to better compete with the Japanese, Bajaj also had to bring four-stroke technology and KTM was a great match from the beginning. Since then the cooperation has been outstanding and enables us to manufacture competitive bike products. We deliver the technology and make the development for the KTM bikes, and Bajaj industrializes the engine platforms and produces the bikes in India. Bajaj also uses the technology for their own Bajaj products. Because of the cooperation we have been able to enter the emerging markets India, China, Latin America and other ASEAN markets. In 2018 we produced around 100,000 units in India; around 50,000 units were sold in India and the rest was distributed around the world.

(PR): Austria is the EU’s second biggest R&D spender, dedicating 3,19% of GDP to R&D activities in 2018, the Government aims to push that number to 3,70%. Can you tell me a little bit about KTM’s R&D efforts?

(SP): Concerning R&D spending, we are already on the podium: In Austria we are the third largest spender of R&D. Our R&D ratio is 8.6% from sales. We are 5 points ahead of the average which is very good in comparison to other countries. The high spending in R&D – highly supported by the Austrian government – is definitely one of the key success factors, not only for KTM, but many others Austrian companies.

(PR): How is the group working to remain at the forefront of innovation and participate to the transformation of industrial and transportation sectors? What are some of the coolest new projects, technologies or products that you have in your pipeline?

(SP):We are one of the pioneers in electro mobility. We began our first electro project 10 years ago. Since off-road racing or riding is already almost everywhere prohibited or restricted to special areas in Central European countries, we came up with the idea of an electric driven motorcycle. Our first electric motor bike or “electric powered two-wheeler”,” – the “Freeride e” – is on the market since 2014 and performs very well. On this specific project, however, we experienced the same as in the car industry; as soon you have a high performance, high voltage concept with a huge battery pack, you are not able to gain a margin. We recognized that the electro mobility takes place in the small displacements, electric powered two-wheelers and e-bicycles, on short distances where you have a small, manageable battery pack and a low voltage technology concept which is perfectly safe for the customer, for the dealer and for the production. The e-bicycle market has become a big business. For example, last year only in Germany, 1 million electric bikes (bicycles) were sold. We decided, besides our activities on the electric motor bike, to strategically step into the e-bicycle market with our brand HUSQVARNA, together with our Joint-Venture Partner Pexco in Germany. The trend is clear. Urban mobility will become electric on the basis of a low voltage technology.

(PR): KTM has a large global presence, on all 5 continents, and has built a large sales network with 31 international sales subsidiaries that attend over 2,800 dealers and importers worldwide. How is the group working to further enhance its network and global partnerships?

(SP):We have over 45 self-owned subsidiaries, there of 31 international sales subsidiaries, focusing on developed markets. We are present in almost every country in Europe. Our biggest single market is North America (U.S. and Canada). There are a lot of motorsport activities in the United States and so that’s the most exciting market for us. The U.S. subsidiary is by far the biggest subsidiary we have. We employ around 220 people, who serve around 500 dealers in the North American area. We have smaller branches in Japan, South Africa and India in cooperation with our partner. We also have some assembly plants (“CKD operations”) in some emerging markets. In Asia: in Malaysia, Philippines and China, as well as in Latin America: in Colombia, Brazil and Argentina – we set up a local operations source local partners and assemble the parts locally. With the CKD’s we are able to save costs because import duties in some countries can be very high. Do to the long year successful partnership with Bajaj we are now a global player and present on the biggest markets. Even if we employ 4,500 people, we are still a little company compared to other big manufactures.

(PR): What does the US market represent for KTM?

(SP): The KTM-Group has an 8,9% market share on the U.S. market. Currently we see an interesting trend: the car market goes down for several reasons, but the motorcycle market goes up. It also seems that the customers are interested in individual and autonomous driving. The two-wheelers are becoming a very popular way of transportation in urban areas; scooters, motorcycles and small displacement motorcycles are more and more popular. They are cheaper, quicker and you don’t need much parking space. We plan to sell around 60,000-65,000 electric bicycles this year.

(PR): You mentioned in a recent interview that “Building premium-quality performance vehicles is only half of the task. Connecting customers with these vehicles is equally important.” What is your strategy to position the brand as leader on its segment, and promote your products on the global scale?

(SP): Our brand means “ready to race”. We like competition, we look for high performance engines. In the engine technology we are for sure on the leading edge and very competitive. Motorcycling is a niche activity, what we are doing is extreme and not everybody understands it, but we like it. It is for the whole life, from the cradle to the grave. This is what KTM stands for. ‘Racing’ is the driving force also for technology development and the mindset of the company. In racing, we reach the youngest customers. Comparing to other brands like Harley or even BMW are more focused on an older costumer segment, early retired or retired people.

(PR): To what extend is KTM benefiting from the ‘made in Austria’ image, and how important is for you to leverage an Austrian image of quality and technological leadership?

(SP): Austrian industries are heavily linked to Germany, especially in the automotive industry. Austria’s quality is very similar to Germany, so on the global basis the product quality is perceived as European-German quality which is optimal when you compete against the Japanese manufacturers. In the US we are perceived as top-quality European manufacturer. Our Austrian mentality helps to enter foreign markets because we are very respectful with other cultures and not as harsh as maybe other countries are when working in regions like India or China. This is not welcome. Respecting other people and their cultures is in our Austrian DNA, because we stand at the crossroads between 8 countries and because we host so many tourists.

(PR): How would you assess Austria’s strength and competitiveness in regards to the automotive supply segment? What do you view as the key elements to preserve Austria’s industrial power and competitiveness?

(SP): The success of the austrian industry can be explained by several factors. The first one is the education and our tradition of apprenticeship. Germany, Austria and Switzerland have a long-term culture of apprenticeship that value and brings to the market highly skilled employees. And that’s the reason why Germany, Austria and Switzerland still have a high ratio of industries compared to other countries. In KTM, we have almost 200 apprentices. If they pass their exams successfully, they get a job Secondly, Austria has a R&D tax refund of 14% for highly innovative companies like ours. This helps encourage innovation within corporations and enables us to be quicker than our competitors. That’s one of the key success factors of the company. Another success factor is the access to export financing, for entering into an export market. If you go to export markets and you need financing for working capital and setting up a subsidiary or branch, companies can get a backup on the financing by the Austrian Control Bank. This mechanism helps small companies that lack the liquidities to go into foreign markets. Last but not least, the new government has introduced a very helpful measure (a new labour act), which is the introduction of the flexible working hours reform, which allows employees to work up to 12 hours a day and 60 hours a week. It’s a huge deal for companies that gives us more flexibility when it is needed.

(PR): What are your biggest priorities and also your biggest challenges that you are faced with as CEO with such rapid and strong growth?

(SP): It is difficult to recruit good employees in Austria, as we are running out of people. This applies to big and small companies. There is a demographic problem, and the education system doesn’t always fit the needs of the industry. Immigration is a separate issue that I think is being taken in the right way.

(PR): What would be your final message to the readers?

(SP): I travel a lot and when I come back home I realize what a stable and nice country Austria is. For me it’s the best place to live and for my company and the product we are doing, it is the best country you can find in Europe.