Can “Ferrari-fication” help Aston Martin turn the corner?

In the weeks before Aston Martin’s (AML) calamitous stock market float back in 2018 the then CEO, Andy Palmer, told investors the company didn’t make cars – it made dreams. Well, the dream has become something of nightmare with the value of shares down a whopping 93% between then and now. Its latest set of results did little to calm jitters: pre-tax losses in the first quarter of 2022 almost tripled compared to the same period the year before; crucially, deliveries fell back by 14%; and net debt soared to an eyewatering £957 million – for context that’s a little over its current market valuation and an increase of £65 million on December levels.

Supply chains have been shaken and stirred and key components have been in short supply

Aston Martin’s stock market horror story

Source:Refinitiv

The man behind the car maker’s 2020 bailout is convinced the company can be transformed into “the world’s most desirable ultra-luxury British performance brand,” but then Lawrence Stroll has a lot of skin in the game and it’s clear from the last set of financials that his turnaround strategy hasn’t exactly gone to plan. To be fair, the last couple of years have delivered the kind of market environment no one could have predicted. Supply chains have been shaken and stirred and key components have been in short supply. His decision to bring in two Ferrari veterans to spearhead a “new phase of growth” could be viewed as either a stroke of genius or a considered gamble.

Ferrari accelerates after IPO

Source:Refinitiv

Ferrari-fication

And when you compare the two brands it’s easy to see why Stroll would look to emulate the Italian company. Since its float in 2016 Ferrari’s market cap has jumped from £5 billion to £30 billion, whilst the British business has only found reverse gear. A Ferrari driver could just as easily fall for Bond’s motor. Exclusive, sporty and very, very expensive, both businesses are chasing the same electric dreams, and are now operating in very similar ways after Stroll’s previous management team delivered both cost savings and a pipeline of new models.

But markets only gave a lukewarm welcome to the new team in Aston Martin’s driving seat. No-one doubts that Amedeo Felisa has the chops for the job: the former Ferrari boss understands cars and delivering consistent quality must be the hallmark of Aston Martin’s next chapter. But Felisa is in his 70’s and he’s come out of retirement to work his magic, which suggests he’s not exactly in it for the long haul. And the way the changing of the guard happened has set tongues wagging. Tobias Moers had only just begun pushing through his transformation plans, plans which had the very public backing of the company’s Executive Chairman. Yet mere months later the business was ready for its next phase? There are some wondering if that’s code for there’s much more wrong with the business than anyone is letting on.

There is ongoing criticism that for such a high-end brand it fails to sufficiently update its popular models in the same way its rivals have perfected.

In the plus column the brand is undeniably stronger than it was a couple of years ago. Aston Martin is back on the F1 grid after a 50-year absence, pitting its performance credentials against the very best that motor fans can dream of, and a potential tie-up with Audi is intriguing. Pricing has been stronger as issues of over-supply have been dealt with. But problems delivering the much-heralded limited-edition Valkyrie have cost the business dear both in monetary terms and in consumer confidence. Pandemic job cuts have created gaps in manufacturing, and there is ongoing criticism that for such a high-end brand it fails to sufficiently update its popular models in the same way its rivals have perfected.

Electric dreams

But the race could yet be won if Aston Martin can deliver a heart-stopping EV. Sports cars are about performance, they’re about the drive, and enthusiasts will tell you no-one has quite delivered the ultimate electric ride just yet. Both Felisa and returning teammate Roberto Fedeli could make the difference here, but they’ll need to work quickly. Aston Martin’s chairman recently pledged the business would only sell hybrid or electric options from 2026 and delivering that is going to take a unified team and a whole load of cash. At the moment details on how it will deliver that promise are fairly sketchy, but it says it is on track for delivery of its first plug-in hybrid by the beginning of 2024, and its first fully electric option is due to be launched in 2025 – right around the time Ferrari is scheduled to unveil its own BEV.

And that’s where the dream really starts to unravel. The cost of living might not be such an issue to an Aston Martin customer, but anticipated price hikes might slow demand and narrow margins. However, it’s the cost of servicing all that debt that’s the real worry – particularly when you consider how far in the red the company is. Not exactly the kind of a calling card you want if you need to refinance. Whilst its tie-up with Mercedes should help keep development costs down, the shift to EVs is an expensive game that all motor companies are caught up in.

Aston Martin seems like it’s finally heading in the right direction, but as the song goes, the road is long!

Past performance is not a guide to future performance and some investments need to be held for the long term.