brian melka president, kohler engines€¦ · kohler hybrid electric platform •ice (internal...
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Brian Melka – President, Kohler EnginesPresentation to OPEESA • Monday, March 4, 2019
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Agenda
• Kohler Company overview
• Trends and issues affecting the Outdoor Power
Equipment industry
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Strong Legacy
KOHLER has
manufactured
engines for nearly
100 years.
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KOHLERPOWER.IT- 6
Commercial Focus
Committed to commercial
applications
Highest investment in new product
development
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Technology Leadership
KOHLER pioneered the use of EFI
technology in commercial lawn
mowers and no-DPF solutions for
Tier IV equipment.
Today, we power a wide variety of
equipment from lawn mowers to skid
steers.
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Diesel Expertise
KDI line launched in 2011
Tier 4 Final without a DPF
Enhanced power and torque
in a compact footprint.
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Committed to
Independent Distribution
Distributors and dealers play a vital
role in our success.
We are dedicated to providing the
tools and technology needed for
everyone to win in the market.
#1 Commercial focus is on
improving distribution and dealer
relationships
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KOHLER Engines Today
• #1 producer of 20-40hp commercial gasoline engines in the world
• #1 producer of commercial twin engines for commercial turf markets
• #2 producer of premium consumer ride mower engines
• #1 brand among NA service dealers
• #3 volume producer of Diesel engines in the world
• Market leader in gasoline Electronic Fuel Injection (EFI) and no-DPF Diesel technology
• Broadest offering of engines from 3.5hp to 40hp air and liquid cooled gasoline and 3hp to 133hp air and liquid cooled Diesel
• Vitality is >30%
*sources: OPEI, OPE Magazine, Kohler research
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Leading Global Brands
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OPEI 10-year Shipment History – Gasoline Powered
Source: The Stevenson Company for OPEI
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019(F)
Consum
er
& C
om
merc
ial R
iders
/ZT
Rs (
thousands u
nits)
Tota
l, H
and-H
eld
& W
alk
(th
ousands u
nits)
Hand-Held (Gas) Walk-Behind Rotary (Gas) Total (Gas) Consumer Riders & ZTRs Commercial Riders & ZTRs
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US Residential Housing Starts
0
500
1,000
1,500
2,000
2,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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Industry Macro Trends
Regulatory Compliance
Alternate Technologies
Channel Influence
Trade & Tariffs
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Industry Macro Trends
Regulatory Compliance
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Industry Trends - Regulatory Compliance
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Emissions Compliance – US Diesel
Significant reduction in off-road diesel emissions requiring new technologies
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Emissions Compliance – US Gasoline
• California implementing stricter testing & reporting methods for small off-road engines
• New evaporative emissions testing requirements
• Moving from design-based certification to testing-based certification
• Exhaust - potential 80% NOx & 40% HC reductions in CA, as soon as 2023
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Emissions Compliance - Europe
• European Stage V significantly tightening emissions beginning in 2019
• No provisions AB&T credits
Diesel Emissions Comparison
0
2
4
6
8
10
12
14
16
18
Class I - <225cc Class 2 - ≥225cc
Spark Ignited Non-Hand-Held Emissions Changes –HC+NOx
Stage II Stage V
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Emissions Compliance - China
Implementation of China Emissions Standards
• Diesel Tier IV proposal is equivalent to Europe Stage V
• Adds engines with net power >560kW and <37kW
• Stage II for spark ignited engines added NOx limits for non-hand-held engines
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Material Compliance
REACH & RoHS 2
• European directives to reduce harmful
chemicals/substances in products
• REACH
– Registration/notification procedures for
hundreds of harmful chemicals
– Full implementation in 2018
• RoHS 2
– Applies to electrical and electronic equipment
– Restricts 10 specific substances
• e.g. lead, cadmium, mercury
– Fully through channel by July 2019
California Prop 65
• Passed in 1986 as the Safe Drinking Water &
Toxic Enforcement Act of 1986
• New label requirements August 30, 2018
– Any product containing any of nearly 900
specified chemicals
– Must be visible at point of purchase
All steps of the distribution channel carry responsibility!
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Industry Macro Trends
Alternate Technologies
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Electric vs. Gasoline Trends
Source: The Stevenson Company for OPEI (includes corded & battery)
• Growth in electric continues to outpace gasoline in smaller applications, driven primarily by battery
• Electric has now surpassed gasoline in hand-held equipment
• Increasing investment in robotic technology. Expected to be $2B globally by 2022, with 20% CAGR
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2013 2014 2015 2016 2017 2018 2019(F)
Th
ou
san
ds U
nits
Walk-Behind Rotary (Gas) Electric Walk-Behind Electric Hand-Held Hand-Held (Gas)
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Electric vs. Gasoline Trends
• While battery-powered equipment is trending up quickly, the majority of consumers are still not strongly
considering battery over gas
• Consideration of battery-powered OPE is not increasing
• Approximately two-thirds of consumers have concerns about the length of an OPE’s battery charge and
power
*Source: The Farnsworth Group
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Electric vs. Gasoline Trends
• Mass commercial acceptance of battery will require a step-change in cost/technology for
larger equipment
• In the short-term, automotive battery usage will outpace much of the supply chain
*Source: Bloomberg New Energy Finance, Techno Systems Research Co.
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Kohler hybrid electric platform
• ICE (Internal Combustion Engine)
downsizing with e-boost
• Noise and gas emission reduction
• Improvement of transient response
• Lower Total Cost of Ownership:
– Better fuel economy
– Better power management for traction and for
the auxiliaries
– Higher electrical power availability for engine
auxiliaries and machine implements (e-PTO)
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Industry Macro Trends
Channel Influence
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Independent dealers continue to increase market share
Data Source: OPEI, Traqline, Kohler Marketing
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Home Depot/Lowe's Sears Independent Dealer Others
Ride Mower Sales by Channel (Units)
2013 2018-1.4% Combined CAGR
3.4% CAGR
-12.5% CAGR
4.5% CAGR
4.3% CAGR
• Home Depot & Lowe’s
gaining some of Sears’
loss, but not all
• Independent dealer
growth outpacing other
channels
• Growth in “Others’ led
by TSC, Walmart & e-
commerce channels
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4.5%
30.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2001 2017
% of Dealers >$2m Rev
Dealer Trends Percent of Total Dealer Sales
• Dealer are getting bigger and their mix is shifting
• >15% increase in reliance on whole good sales
• 14% reduction in parts/service as a percent of total sales
Data Source: OPEI, Rural Lifecycle Dealer, Kohler Marketing
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Dealer Trends
Source: Rural Lifestyle Dealer
• Dealers challenged to find good labor
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Industry Macro Trends
Trade & Tariffs
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US tariff landscape presenting cost pressures
• United States Trade Representative tariffs on China imports
– Section 232 – effective May, 2018• 25% tariff on steel & 10% on aluminum – effective May, 2018
– Section 301 Lists 1 & 2 – effective July 6, 2018
• ~$50B in imports affected
• 25% on items including small spark-ignited engines
– Section 301 List 3 – effective September 24, 2018
• ~$200B in imports affected
• Currently 10% with threat to go to 25%
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Q&A
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KOHLERPOWER.COM / 36