Both Aston Martin Lagonda (AML) & Ferrari reported their Q1 2022 results this week. One of the two had another excellent quarter and the other delivered a bit of a turd. Despite the results, AMLs stock price is only down slightly which I believe is more of a function of how lightly traded it is these days vs. anything else. First let’s take a look Aston Martin’s Q 1 before following up next week on Ferrari’s.
The Aston Martin earnings call was a very subdued affair this time with only CFO Doug Lafferty making an appearance. Doug’s delivery makes John Major look flamboyant. I have to admit really missing former CEO Tobias Moers’ vivacious personality. CEO Amedeo Felisa appears to have gone back into a witness protection program after his brief appearance at the FY 2022 results presentation. Lawrence Stroll, AML’s Executive Chairman, was nowhere to be found despite having done such a good job staying very much on script his last time out. It appeared that only a small number of analysts joined the call this time as only 4 questions were asked.
The Turtle’s Q1
The Q1 highlights according to the Aston Martin press release are:
This all sounds wonderful. What they fail to mention is:
The following covers highlights from the Q1 2023 Results, the Debt, 2023 Guidance, & the Specials.
Starting with the Q1 results, which according to Lawrence Stroll’s quote in the press release:
“2023 is set to be one of the most exciting years in Aston Martin’s history. In addition to celebrating our 110th anniversary and our exciting line-up of Specials, it will also see the start of our next generation of sports cars which will truly reposition Aston Martin as an ultra-luxury performance brand and enhance our growth.
“Since the start of the year, we have continued to see strong demand across our product range, with our current range of sports cars essentially sold out for the year. The DBX707, the first car developed under my leadership, continues to receive broad media acclaim and, with a growing number incredibly satisfied customers, is strengthening the DBX orderbook in our all major markets, as well as our overall financial performance.”
This doesn’t exactly square with what the number say:
Free Cash Flow
The strong demand that Stroll references is versus an incredibly week Q1 2022. In terms of cars wholesaled, Q1 2023 is actually the weakest quarter in the last 4 and even lower than Q 1 2021. Aston Martin is a company that has been in deep trouble and is being touted as being back on track by both the Chairman and CEO. When I look at troubled companies in the middle of a turnaround, I want to see consistent quarter to quarter improvements. That’s not at all the story the chart above tells. The one positive I would take away is given how badly AML loaded its dealers in Q4 2022, it’s encouraging to see that they sold any cars this quarter. AML did indicate that they returned to a “demand-led operating model” in Q1 this year but as they do not report retail sales numbers, it’s a bit like the 3 year old who says he deserves dessert now as he has finished all his vegetables but then refuses to let you see his plate.
Unpacking the one number that does look quite positive, Revenue of £296 mil., it is heavily driven by the Valkyrie. In Q1 2023, AML “delivered” 18 Valkyries. These would have been a mix of the Valkyrie road cars (estimate is 13) and the few remaining higher priced Valkyrie AMR Pro track cars (estimate is 5). The 18 Q1 Valkyries is half the number AML delivered in Q4 2022. A large number of the Q4 Valkyries were very likely to have been the AMR Pros which are both significantly more profitable and far easier to build as it doesn’t have the active aero or KERs system. In addition, the AMR Pro uses a different simpler carbon fiber tub. Assuming each one of the Q1 2023 Valkries was invoiced at a conservative £2.5 mil., and the AMR Pros at £3.5 mil., that’s £50 mil. in revenue. Take the AMP Pros out as all 25 have now very likely been delivered, and it drops to £32.5 mil. This will likely be the quarterly run rate (+/- £5 mil.) in terms of Valkyrie revenue contribution for the remainder of the year. Hmmm…..
In Q4 2022, Aston Martin did put up its best Sales & Revenue numbers of the year. Aston Martin also did the same in Q4 2020 & Q4 2021. Year end loading seems to be very much a part of Aston Martin’s commercial DNA and the bill for this inevitability comes due in the following quarter. In Q4 2021, Aston Martin achieved that number by shipping 815 DBXs. In Q1 2022, total cars wholesaled dropped by 40% vs. Q4 2021 with DBX wholesales down by almost half to 421. History just repeated itself again, only on an even larger scale. In Q4 2022, AML wholesaled 1,393 DBXs. In Q1 2023, DBXs wholesaled dropped 52% to 669 with total cars wholesaled down by 47%. As a reference Ferrari’s Q1 2023 cars wholesaled are up 6% vs. Q4 2022.
Objectively, this quarter is much weaker than what AMLs initial guidance suggested. Debt levels are up again and if you add in the roughly £80 mil. rise in payables over the last year, it is almost exactly where it was in Q1 2022. This would imply that all £653 mil. raised last year to, in Stroll’s words, “to deal with the god-damned debt” is gone and the debt is very much still here. The raging inferno that is their cash burn continues and to be that negative (£181 mil.) on cash flow in a quarter when no interest was due on the debt is highly concerning (interest is paid in the 2nd & 4th quarters). In the March Earnings Call, Stroll stated “as long as we execute on the plan, we do not see any liquidity needs whatsoever”. This seems like wishful thinking given both cash and debt levels in Q1 2023 (Cash £407 mil. & Net Debt £868 mil.) are very similar to where they were in Q1 2022 (Cash £404 mil. & Net Debt £957 mil.). Back in Feb 2022, Stroll was quoted as saying:
“Let me be crystal-clear, black-and-white: we do not need money.”
This was followed several month later by the announcement of the £653 mil. Equity Raise. It is very hard to see how Aston Martin will avoid needing another equity infusion in 2023 at the rate they are going.
Aston Martin’s 2022 results & 2023 guidance are:
Depreciation & Amortization
Capex & R&D
In terms of the 2023 Guidance AML just issued, the Wholesales number which represents 9.2% growth appears to be a massive stretch if AML truly reverts to the “demand-led operating model” Stroll so often references as they will first need to work through all those extra vehicles which were shipped ahead of demand in Q4 2022. In 2022, even with the Q4 loading, vehicle sales were only up 3.7% vs. 2021. In fact, when you read through the bullet points to the right of the guidance numbers, the indications are 1st half 2023 will be in line with same miserable period in 2022 but don’t worry, AML is going to have a stupendous 2nd half as they are rolling out a few facelifts and upgrades on the “7 year old Sports and GT cars” along with another new limited edition Special. Based on the assumption that the 1st half 2023 is in line with same period year ago, this implies that cars wholesaled will increase 50% in the 2nd half. As of the beginning of May, none of these new Sports & GT cars which are supposed to drive that 50% increase have been seen although the 1st in the series, the DB 11 replacement, is slated to be unveiled on May 24th. I do find this quite strange as most other manufacturers unveil new models months before production starts. According to the comments Doug Lafferty made on the analyst call, production has already started on the DB11 replacement (which was followed by his not exactly convincing claim that the production start up is going a bit more smoothly than the massive mess that was the DBX 707 production start up last year). While I do expect the 2nd half will be stronger than the 1st half, the Guidance Goals seems to be a massive stretch at best. Also, AML has never delivered against an EBITDA Margin growth target, and I see no reason why that will change in 2023.
Looking at a few areas of interest in a bit more detail:
Valhalla & Vanquish: All mention of the planned mid engine production series Vanquish disappeared in last quarters earnings materials. This time around it was the Valhalla’s turn to do the disappearing act. Which is quite surprising given just a couple of months ago, AML touted in its 2022 highlights, the Valhalla’s “Development upgrades which were showcased to customer acclaim at Pebble Beach”. I suspected the Vanquish’s vanishing act had a lot to do with the current litigation between AML and Nebula over all the mid engine cars (see: Saga of the Valkyrie) and AML wanting to limit their exposure to damages based on projected mid engine volumes should they lose the case. Looks like the Valhalla might have been caught up in this as well. Also, Aston may well be rethinking the wisdom of doing the Valhalla again especially as they admitted in the 2022 Financial Results, that after 3 years, only 50% of Valhalla build slots have been sold. AML did report that customer deposit dropped by £20 mil. in Q1 2023. This is roughly in line with the number of Valkyries delivered but also indicates that they haven’t been able to bring in much in new deposits for the Valhalla.
Formula 1 Team Partnership
In the March Earning Call, Stroll finally admitted that the Aston Martin Aramco Cognizant Formula One Team was a “partnership” with AML and is not AML’s “Works” F1 Team. Aston Martin Aramco Cognizant Formula One Team has had a very strong start to the F1 season this year behind several brilliant performances by Fernando Alonso. During the Q1 Earnings Call, AML CFO Doug Lafferty was asked how they planned to monetize the F1 success. The answer was “it’s all about amplifying the brand” followed by a comment around Aston Martin providing the safety car (where the “Turtle” name came from thanks to Max Verstappen) and the DBX 707 medical car. Clearly the F1 Team’s success has caught AML by surprise, and they need a bit more time to develop an even semi coherent plan on how to leverage it with customers.
Right now, it looks like AML is well on its way to running out of cash again. The £653 million Equity Raise in 2022 didn’t solve the debt issue and it appears to basically be gone. To get even close to the 2023 Guidance wholesale number, its likely there will need to be another rather large “temporary suspension of the demand-led operating model. The big bet this year is all on the next generation Sports & GT car that have yet to be publicly unveiled. The lack of any mention of the Valhalla this time just raises additional questions given that it appears the mid engine mainstream supercar (Vanquish) has been cancelled. Per Stroll’s comment:
“2023 is set to be one of the most exciting years in Aston Martin’s history”
2023 likely will be, just maybe not in the way he envisions.
Note: I do not and have never owned any AML shares.
Thoughts and comments? Please see the comments section below.
The sign up for new blog email notifications is at the bottom of the page.
F1 success has been a surprise. They’ve done this by giving up last year and diverting all the funds to this year’s car. Alonso has benefitted from Vettel being left driving a turtle. A shame because I rate Vettel higher than Alonso. Especially has Vettel won’t eventually fall out with the team.
The cash burn will be to do with the new tooling required for the 2023 updates. What is also shocking is how little there’s been seen of this new model. Of the few shots there are, there’s very little to report. Headlights might be updated (they need it) but without any panels being changed. Front bumper is probably updated, but is so heavily covered it’s hard to say, but does look to be doubling down on the awful designs of the Aston Martin grill that Reichman hasn’t a clue how to do. The only shot of an interior and it seems they’re going with the Vantage look, but with haptic buttons of the DBR22. I suspect much of the refreshed interior will look like the DBR22, which isn’t exactly a looker either.
And the final insult is they’re apparently going to call this the DB12. Even Aston previously decided the DB6 wasn’t updated enough for a new name and called a later one the MKII. It kept the DB7 name free for Ian Callum’s car, which saved the company and started one of its most beautiful periods all based upon his work. With so little being updated, shouldn’t they go with the historic MKII name?
I’ll also add I too have see no news on Valhalla or Vanquish. Aston did start promoting the Valhalla a bit, then stopped and resorted to showing the DBX707 again. It was just glossy videos of the cars without any detail. Nothing to say when it would be delivered. The DBX707 is probably the only car they can sell at the moment with the GTs being updated. Maybe one problem is they’ve got too many of their GTs sitting in stock at dealers around the world they can’t give any details of updates for fear of being left with old stock? They’ve got to wait for those to finally find a new home.
Of course, being me, I can’t leave without getting at least one more Reichman bash in. The trouble that Aston find themselves in is simply down to lack of sales. As I’ve said, a smart person would ask why that is? I’m not even sure you have to be that smart either, just willing to listen to the answer: Reichman designs don’t sell. Certainly not enough to keep Aston afloat. Any other company would have, after their first rescue, not the second or third, have realised this. Aston are still waiting on that enlightenment. Until they realise they need a competent designer they’ll continue to bounce from one rescue to another. Aimlessly.
To save Aston Martin, sack Marek Reichman. Simple.
I’m getting a feeling that investors are fed-up with the smoke and mirrors deployed by Aston Martin and it’s advisors. The call was badly attended, last year’s AGM attendance was dismal. A company that opens it’s Financial Highlights with ‘Retails outpaced wholesales’ as it’s major achievement of the quarter, when building for order is something they claimed to have solved two years ago, feels duplicitous. Another bulleted highlight, ‘95% of current range GT/Sports sold out for 2023’ is also difficult to interpret as it sounds great, but production of these cars either has been or will soon be stopped, so to be ‘sold out for 2023’ might be just a handful of orders. And they might be heading unsold to dealers. The problem with the way that Mr Stroll communicates is that he has encouraged investors to be suspicious. We are now searching for the real meaning, reading between the lines instead of taking statements at face value, and when putting together the complete picture becomes too challenging, we sell.
Not that retail investors losing confidence (and money) worries Mr Stroll. At the last AGM he said “I only worry about the share price when I buy or sell.”
Another good analysis of an evolving train wreck SSO, thank you. The answer seems to be AML needs to be a brand rather than a company.
I wonder if Stroll will be able to get another capital raise away in 6 months or so? It looks unlikely to me and end 2022 could be crunch time.
I’ve commented before how Stroll only talks about “Brands”, not product. He’s a brand man, where Aston needs someone product focused.
A new pizza shop opened up locally to me, a new chain starting out in the UK. They’ve got the fancy website, the catch phrase of not cooked for more than 3 minutes (I’m not sure that’s enough!), all the branding on packaging, and everything. So I went in for pizza. First thing I discovered, they didn’t do any type of ham. Hawaiian pizzas are out. They only do one size. I ordered pepperoni and peppers. Few minutes later I had my pizza. Three people to make the pizza in an empty pizza shop. One to take the order, one to prepare the pizza, and one to cook it. What was it like? Awful. You couldn’t taste any of the base sauce at all. The crust was tasteless, no taste at all to the bread. And whilst you could taste the peppers and they were nice, the pepperoni tasted artificial. That it wasn’t a real pepperoni. Even the cheese was poor.
The branding was fantastic, they even had one of their catch phrases about love and pizza on a bit of paper lining the box, but the product was awful. Which of those do you think is going to keep me from returning? Branding or product?
Build a great product, give fantastic customer service, and your brand builds itself.
Saw this https://www.businessinsider.com/aston-martin-f1-safety-car-sales-lawrence-stroll-2023-5?r=US&IR=T – not sure I believe the hype ?
When it was seen that 2005-2017 Vantage owners weren’t queuing at the door to swop theirs for the latest and greatest then alarms bells should have started ringing back then. Sure they have made the car more palatable over time but I’ll never forget the silence when my gang saw it first, and after all the hype. It was all a bit wtf..? I think the sales numbers by now say it all. Don’t make Astons that look like Japanese roadsters with iPads slapped on the dash.. Make changes, despite it being 2023 and having waffled yourself down to being on your arse… If only as my beautiful iconic Aston will need parts!