It was just a couple of years ago that Pierer Mobility-owned KTM celebrated 12 straight years of record growth. Now, the company is in a dire crisis that requires a halt in production and the sacking of more than 300 employees. How did it get here?
Overproduction and quality issues are two of the main reasons for KTM’s state of affairs. In an emergency announcement released this past week, Pierer Mobility AG disclosed that KTM AG's liquidity strategy for the 2025 fiscal year will require additional funding to the tune of a "nine-figure sum in dollars." That's in the hundreds of millions for those not wanting to count zeroes.
To cut inventory, a production halt is planned in Mattighofen in Austria. This will result in around 300 layoffs. KTM states that investor talks are in progress and that it remains to be seen if these "measures are sufficient." The KTM AG group accounts for more than 95% of Pierer Mobility AG’s revenue.
For a while now KTM has been announcing layoffs and job relocations to China. The managers at Mattighofen have previously downplayed the situation, claiming that Europe's biggest motorcycle manufacturer could handle its current financial crisis on its own. However, that crisis has worsened.
It all started towards the end of last year when KTM AG decided to shift production of its “mid-range models” and certain R&D from Austria to China (CF Moto) and India (Bajaj Auto) – all of which resulted in job losses for some 300 employees in Austria. At that point, the board of directors cited discouraging economic conditions in Europe, slowing economic growth, increasing inflation, and higher interest rates as the reasons behind the moves.
It has been a long, tiring year for KTM AG since then. The group announced a profit warning and significantly lowered its 2024 projections as early as June of this year. Its financial report followed at the end of August, and things were considerably worse than anticipated. Compared to the first half of 2023, the group announced losses in excess of €172 million (~ US$182,130,800). Pierer Mobility AG's share price plummeted as a result and its net debt increased by 89.3%.
“We damaged the KTM brand with overproduction and quality problems and now we have to iron that out,” said Hubert Trunkenpolz, Pierer board member, in an interview with Motorrad a couple of months back. COVID was one of the primary reasons for the crisis, according to Trunkenpolz, who explained that the pandemic led to a huge demand for quarantine-friendly recreational vehicles like motorcycles, bicycles, and RVs.
But sadly, by the time the company had increased production to catch up, the demand had started to decline sharply. Post-COVID, there were suddenly a lot of goods in the showrooms, but far fewer customers – partly due to post-pandemic inflation.
Back in September, Trunkenpolz emphasized that Pierer felt confident enough to handle this issue and guaranteed that none of the company's brands are "even remotely at risk." Well, what a difference a couple of months can make.
All this bad news seemed to take a back seat with EICMA 2024 in sight, and sure enough, KTM did more than enough to get people off their seats with their upcoming bikes. But even that excitement was short-lived as the Austrian bike maker found itself marred in quality controversies once again.
There have been widespread reports of cam failures in its LC8c parallel-twin engines used to power early 790 Duke and Adventure models. KTM did acknowledge the complaints and even offered to repair all affected bikes, whether still in warranty or not, but it proved too little, too late.
As Trunkenpolz admitted to Motorrad, such quality issues were the result of a ramp up in production during COVID to meet apparent demand. Output at the Mattighofen plant in Austria has now been adjusted, which will hopefully address the QC problems.
Pierer Mobility Group, which owns KTM, GasGas, and Husqvarna, has also had to take drastic steps to curb its cash flow problem. As a result, both Husqvarna and GasGas will miss out on the 2025 Dakar rally, and KTM will only field a three-person team.
To make matters worse, KTM confirmed that the new 1390 Adventure lineup, its top-of-the-line adventure motorcycles, will not make its way to North America as 2025 models, but rather in 2026, a year later than in Europe. The reason? “Production timelines.”
It’s tough to see one of the world’s biggest bike manufacturers hit hard times like this. There’s no doubt that KTM produces some of the most thrilling motorcycles on the road and off, but this situation is proof that bad supply-chain decisions and lax quality control can land you in murky waters.
Pierer Mobility has already announced a decrease in production to aid in clearing dealer stocks as part of a comprehensive restructuring plan. "The primary objective is to align costs and sales by the 2025 financial year," reads the press release.
Source: Pierer Mobility
