Piaggio, the Italian maker of the iconic Vespa scooter, has clearly been encountering difficult conditions in its major markets of Italy, France and, to some extent, India, where the company generates more than 25% of its revenues. In Asia, Piaggio has a manufacturing facility in Vietnam supplying that market and with potential to further their entry into the significant Indonesian market. It is relatively easy to be optimistic about their opportunity in a reinvigorated India or even the scale of the South-Eastern Asian markets. However, with 45% of revenues from Europe, it is the Italian and other major European markets that will determine the company’s near-term returns.
Interestingly, within Italy (and likely equally applicable to France and other European markets), the size of the registered fleet of two-wheel vehicles has not declined anywhere nearly as fast as the decline in new registrations. Other analyses of usage and the second hand market also suggest that the two-wheeler has not suffered the decline in popularity or usage that Piaggio’s revenue might suggest. The explanation for the apparent inconsistency may be found in the ageing of the fleet and the deferral of the replacement decision. Over the ten-year period from 2003 to 2013, the proportion of two-wheelers in use that are less than five years old has halved from 75% to 35%. Encouragingly, Italy’s number of insured two-wheel vehicles is approximately 7 million, presumably in use and not “mothballed” at the back of the garage, whereas new registrations in 2014 amounted to a mere 180,000. If this paltry rate of renewal continues, it would require nearly 40 years to renew the fleet. The iconic Vespa is renowned for its durability, but that is beyond even the most optimistic owner’s expectations!
If there had been a decline in the measures of usage or a significant decrease in the overall number of registrations through scrapping, i.e. without replacement, then we might be concerned that the “scooter” had lost its place in the Southern European lifestyle. However, things may be more optimistic in the short term – the age of the fleet and the progressive introduction of periodic bans in major cities (like Rome) on the older two-wheelers that fail to meet the newer emission standards suggest that a pent-up replacement cycle is developing.
Piaggio has some new models to launch over the next two years along with an “E-bike” that may encourage some renewed interest in the replacement market. This, together with the signs of growth in India, uplifts in the company’s margins, management changes and a more favourable exchange rate, suggests that there is scope for the stock to perform well over the next few years without requiring the difficult European markets to return to growth – they merely need to show some activity in the replacement market.
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