Ferrari is every billionaire celebrity’s favorite sports car and its profitability continues to accelerate while its rival and financial basket of Aston Martin the losses worsen. But despite these contrasting fortunes, the struggling supplier of the James Bond film’s secret agent wheels could quietly stage a comeback rally.
Leadership in the electric car revolution is a must for serious players in this premium sector. Ferrari hasn’t exactly set the world on fire with its plan to unveil its first all-electric vehicle in 2025. Aston Martin’s credentials aren’t terribly impressive either, but some of its major shareholders are leaders in the transition to a electric world. Investors who have latched onto the recent turmoil may well think this could be the key to transforming Aston Martin’s future.
British car analyst Charles Tennant says huge hurdles must first be overcome.
In Q3 2022, Ferrari’s adjusted profit after amortization and amortization of interest taxes (EBITDA) increased by 17% to 435 million euros. It raised its expectation for the whole of 2022 to more than 1.73 billion euros after forecasting an increase between 1.7 and 1.73 billion euros three months ago. Everything is progressing well. No surprise there.
Meanwhile, Aston Martin’s operating loss widened to £58.5m in the same period, from a loss of £30.2m a year ago. Perhaps the heavily indebted British luxury sports car and SUV maker Aston Martin was closing in on the 8th bankruptcy in its 109-year history. So far this year, Aston Martin shares have lost around 80% of their value. Aston Martin’s red ink tripled in the first half, with a pre-tax loss of £285.4m ($347m), compared to the same period last year. This led to more restructuring, and pchat a takeover was necessary to survive.
Ferrari has gone from strength to strength since its split from Fiat Chrysler Automobiles about six years ago. It has no trouble living with a stock valuation, meaning it’s rated alongside big-money makers like luxury players Hermès, LVMH, Prada, Ferragamo, Moncler or Richemont.
Aston Martin has been steadily destroying shareholder value since its IPO in 2018 with an expected valuation of over $5 billion. Many restructurings, refinancings, CEOs and a lot of shareholder angst later, it’s publicly valued at just over $1 billion. It is trying to get its £833million debt under control, while being rocked by supply chain difficulties, as is much of the industry.
Yet through the turmoil it has attracted impressive shareholders who see past the current losses. There’s Mercedes, with nearly 12% of Aston Martin rising to 20% in 2023, and Zhejiang Geely Holding Group of China, which recently acquired a 7.6% stake, and expects an increase. Mercedes offers an impressive range of electric cars. Geely owns Volvo and its electric subsidiary Polestar. European investments include a nearly 10% stake in Mercedes and ownership of sports car maker Lotus. It plans to launch its electric brand Zeekr in Europe next year. Saudi Arabia’s Public Investment Fund owns 16.7%. Canadian billionaire Lawrence Stroll now owns 23.3%.
Mercedes and Geely are leaders in electric car technology. State-of-the-art battery-electric technology is essential for long-term leadership in this high-end premium sector. Could this boost Aston Martin’s prospects and allow it to close the gap with Ferrari?
Tennant says there are big problems to overcome first.
“Supply chain shortages have created a backlog of 400 unfinished cars burdening the business with £106m in inventory costs, exasperated by inflation, and a weaker outlook of 6,200 vehicles expected to be delivered this year. Meanwhile, Aston Martin competitors are having a much rosier time. Volkswagen’s Bentley posted record third-quarter profits of $568 million, double last year, fueled by the popularity of its new models – it has already sold 11,316 cars this year,” Tennant said. in an email exchange.
Aston Martin had said more than 6,660 vehicles would be sold in 2022 and 10,000 a year by 2025.
“And at Ferrari, customers drove 3,188 cars in Q3, 16% more than last year, which generated a profit of $223.1 million. The company expects production volumes to increase for the full year – it has produced 9,894 cars so far – and says its entire lineup is already sold out for the year,” Tennant said.
“So in a history of three luxury car makers, two are profitable, well-financed growth brands and one is in soft mode and I fear the future for Aston Martin is anything but rosy,” said Holding.
Analysts say Aston Martin’s relatively small size amplifies share price volatility when bad news arrives. They say the company needs to prepare investors for the hiccups of the financial plan, rather than waiting to explain itself after surprisingly bad news hit the stock markets.
Aston Martin’s powerful shareholders suggest deep financial pockets and top-notch engineering with ambitions to stick around for the long haul. No one questions the power of the brand or the quality of beautiful sports cars and SUVs. But if Aston Martin is to survive and thrive, expect to see its electrical credentials improved. Currently, Aston Martin’s first plug-in hybrid – the Valhalla mid-engine supercar – will go on sale in early 2024. By 2026, all new Aston Martin product lines will have an electrified powertrain option, with aiming for its core portfolio to be fully electric by 2030. If the bottom line is to be revitalized, expect that menu to be accelerated.
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