Aston Martin reported their full year 2021 results this past Wednesday. According to the Executive Chairman, Lawrence Stroll. “we delivered as promised on all our core numbers.” This rather neatly ignores the 2021 earnings warning Aston Martin issued on Jan 7th (see: Earnings Warning). While the 2021 Earnings Presentation, Press Release, and Analyst Call all tried to present both Aston Martin’s 2021 performance and future outlook in the best light, the stock markets are no longer buying it. Aston Martin’s stock price is down 60% over the last 52 weeks and it hit a new all-time low this week. Aston Martin also released their 2022 guidance which presented an equally rosy outlook for this year. The following covers highlights from the Analysts Call, 2021 Results, 2022 Guidance, and a few other areas of interest including the DBX, Sport & GT cars, Manufacturing, Mercedes Tech Agreement, Valkyrie, and the “Works” Formula 1 Team.
The question is, what’s really going on? On face value, Aston Martin did present improvements across a number of key performance indicators. Wholesales, revenue, and EBITDA all moved in the right direction vs. both 2020 and 2019. The issues lie in the numbers behind these numbers and the continued raging inferno that is their cash burn. While the earnings calls a year ago where a bit of a nauseating love feast, Wednesday’s call had more the feeling of a hostile divorce proceeding. As per the last several calls, both the CEO, Tobias Moers & the recently resigned CFO Kenneth Gregor were on the earning’s call. However in a stark departure from recent practice the Executive Chairman, Lawrence Stroll, was not only on the call, but he very much led and dominated the discussion. Stroll came across as both irritated and defensive with a healthy dose of arrogance on top. Gregor was fairly calm and detached. However, regarding Moers, I’ve seen more engaged and excited performance in hostage videos. Moers also took his “word salad” answers to a new level of indecipherable excellence. Stroll leading the call was a major red flag that all was not well and he would be selling his standard speech of “we have made strong progress already and are well on plan to achieve our ambitious goal to recreate Aston Martin as the world’s most desirable, ultra-luxury British performance brand”.
Before getting into the numbers, there were a few extraordinary exchanges from the earnings call that I thought I would share. These are all directly from the transcript:
Lawrence Stroll: By the way, in the fourth quarter, we even had to ramp up our inventories a bit more in order to get the dealers more stock because their inventory levels were too low. So, we’ve never been in a better place, and that’s part and parcel of only manufacturing vehicles to order, which is what I said when I took over almost 2 years ago.
Not sure how you square only manufacturing vehicles to order and ramping up inventory in dealerships.
Lawrence Stroll: Firstly, the miss last year was caused by one issue only, which was the Valkyrie. Let me be crystal clear. All these Valkyries are sold. They have deposits, both Coops and Spiders. We have received no cancellations. So, by delivering them slightly later, is simply a timing issue. And the timing issue arise because we want to deliver these vehicles with no compromises. I think you’re having trouble understanding, this is the most complex vehicle ever made to be driven on the road. Being the owner of a Formula 1 team, I can testify, that it’s more complicated than building my Formula 1 car. So, we want to deliver them to perfection. They’re all sold. They all have deposits. We’re taking our time to deliver them perfectly. We’ve assembled a new group of Formula 1 mechanics to actually manufacture and put in place this and produce these cars. So, it is a project that we are extremely proud of, very ambitious. We’re the only ones to undertake such a project.
The Valkyrie project predates Stroll’s involvement in Aston Martin by almost five years and this statement reveals more about Stroll’s blood pressure and selective memory than anything else. It also conveniently ignores the existence of the GMA T.50, Mercedes AMG Project One, SCG 007S, and Czinger 21C.
Tobias Moers: Headwind for regarding supply chain, yeah, absolutely. We faced that as well, like everybody. But we have — you gave us the clear task and we are on a journey there to reduce our costs further on this year. We are likewise either to overcompensate that. There is no — there is always a danger so on for a margin, but this is not business. And we’re pretty confident that we can achieve that, that we can overcompensate in everything, what is comes in as raw material, price lift. We face that every day with every supplier, almost. But it’s a normal business. That’s our industry and every industry at the moment face the same issues.
I am not even going to try to figure this one out.
Moving on to the numbers, the results Aston Martin presented in the financial press release all use the 2020 as the main point of reference and show enormous improvement. While that presents a nice feel good story, it’s the equivalent of comparing Norway’s performance in the Winter Olympics to Jamaica’s. While the 2020 figures might be moderately interesting, its 2019 that provide a better comparison. As such, what is relevant when looking at Aston Martin’s results is how they were doing both pre pandemic and over the last several quarters.
Free Cash Flow
This now tells quite the story. Based on car sales, revenue, EBITDA, and Operating Profit its looks like Aston Martin two years into the Stroll era looks exactly like Aston Martin in the late Andy Palmer era, just burning through even more cash. The number of Cars Wholesaled, Revenue and EBITDA at basically the same level as the final quarter of 2019, which is right before Aston Martin’s last financial implosion which resulted in Stroll coming on board. If you just compare Q4 2020 with Q4 2021 to see what the progress in the last year has been, Aston Martin sold a few more cars, made a bit more money but burned through a lot more cash to do so and blew its debt up by another £165 mil. With Debt still going up and Operating Profit & Free Cash Flow still heading in the wrong direction it doesn’t look like a turnaround is anywhere on the horizon. In addition, payables are up by £142 mil. to £721 mil. while receivables sit at £243 mil., an increase of a more modest £65 mil. Aston Martin produced 5% more cars in Q4 2021 vs. Q4 2020 but payables are up by 23%, setting a new all-time high. This could be an indication that Aston Martin has been slow to pay its suppliers in order to preserve its dwindling cash. As a reference point, Ferrari’s payables were £670 mil. at year end 2021 on a business more than 3x the size.
In Q4 2021, Aston Martin did put up its best Revenue and Sales numbers of the year. Aston Martin also did the same in Q4 2019 & Q4 2020. Year end loading seems to be very much a part of Aston Martin’s commercial DNA. In Q4 2020, Aston Martin achieved that number by shipping 578 DBXs for dealer pipeline fill. While the mix of models for the Q4 2021 push isn’t clear, Stroll in his comments in the analyst call did admit to shipping more cars and increasing dealer inventory (right before he again stated that they only build to order). The Q4 number also includes the 10 Valkyries that were “shipped” and deposited in a warehouse in Southern England. If they did this to get a few Valkyries in the books, it does raise the question if they also took this approach to hit the 3,000 DBX wholesale goal. Both Stroll and Moers continually claim that retail sales are running ahead of wholesales but refuse to actually provide any numbers to back it up. For the record, Andy Palmer did the same and we all know how that turned out.
Putting the sales and profit number to one side for a minute, perhaps the most concerning two numbers in the whole report are the Free Cash Flow, and Net Debt. If you want to survive in any business long term, positive free Cash Flow is a must. In the last two years Aston Martin has burned through £663 mil. including £123 mil. in 2021, in fact going back through all of Aston Martin’s publicly released results (2017-2021), there isn’t a single year in which they have delivered positive Free Cash Flow. Even more worrying, Aston Martin doesn’t anticipate this getting any better any time soon. During the analyst call, the CFO stated that they expect a similar level of cash burn in 2022. With the cash burn, it’s no surprise that Net Debt is again up. The £165 mil. increase in Net Debt to a record £892 mil. is a result of the £123 mil. Free Cash Outflow plus £77 mil. gross proceeds from new notes issued plus £15 mil from the exercise in warrants. Gross debt now sits at £1.3 bil. with the cash balance dropping from £490 mil. in 2020 to £419 mil. in 2021. This number also includes £70 mil. in new customer deposits that Aston Martin took in in 2021 bringing the total deposit balance to £340 mil.
Unpacking the customer deposits in a bit more detail, of the £340 mil., which Gregor stated in the earnings call that Aston Martin is currently holding, an estimated £238 mil. is from the Valkyrie Coupe & AMR Pro Track cars, an estimated £32 mil. would be left over 1st deposits from Valhalla 1.0 that were not pulled by customers (I believe Aston Martin initially received deposits for about 400 of the 500 original build slots on the Valhalla, when Aston’s dire financial situation emerged in early 2020, about 300 of those early depositors requested refunds), and you have the £70 mil. Gregor confirmed Aston Martin collected in 2021. While that £70 mil. looks like an impressive haul, it’s important to remember that Aston Martin went on a deposit collecting bender in the 2nd half of 2021 with the Valkyrie Spider, Valhalla 2.0, and Vantage V12 Final Edition all being launched. On the Valkyrie Spider, Aston was originally trying to get both Valkyrie Spider deposits (I believe the deposits were £750k each across 85 units) in by the end of 2021. If Aston Martin got all the 1st deposits in it would be £64 mil. and if both £128 mil. Clearly, they didn’t get both in sets of deposits in during 2021 on the Valkyrie Spider, and if you throw in a few deposits from the Valhalla 2.0 and Vantage V12 Final Edition, it looks like the Valkyrie Spider was a tougher sell than Moers would like everyone to believe. Can’t say this is terribly surprising considering the original depositors on the Valkyrie coupe (who were the main target for the Valkyrie Spider) basically floated Aston Martin an unsecured multiyear interest free loan, and might just have hesitated a bit to risk doing it again. For the original Valkyrie depositors, the reality is they have lost 6 years of income on those funds which at a 6% rate of return roughly equates to £550k.
2021 & 2022 Targets
Aston Martin’s results vs. their 2021 guidance & 2022 guidance are:
Original 2021 Guidance
Revised 2021 Guidance
Depreciation & Amortization
£225-235 mil. (re-phased into 2022)
Capex & R&D
£215-235 mil. (re-phased into 2022)
For 2021, the final numbers tell us that Aston Martin beat the car wholesaled target by 3%, missed the original EBITDA Margin target by several hundred basis points, cut investment in Capex by at least £65 mil. while also rephasing D&A into 2022. While the top number is a positive, none of the rest of it falls into that category. The 2022 guidance does not include either a revenue target, which will likely be around £1.2 billion, or a before tax profit (loss) target which is likely to land in the -£250 mil. range after the increases in D&A. It’s impossible to make money when EBITDA doesn’t cover your interest expense and in 2022 if they miss the EBITDA Margin goal by the same delta that they did in 2021, it will not. In fact, the road to profitability is questionable even if Aston delivers against Stroll’s 2024/2025 target of £2 billion of revenue. To get to profitability under its current debt load, Aston will need to at least double its current EBITDA margin while holding Depreciation and Amortization and other expenses at current levels which would take a minor miracle to happen. This is a tall ask as Aston Martin is sitting with £1.4 billion (and growing) in intangible assets on the balance sheet which will need to be amortized over the coming years. If you take a step back and try to evaluate the true value of Aston Martin today, you have a car company with a market value of £1.3 billion, which hopes to sell £1.2 billion of cars in 2022 at a likely loss of £250 million and has issued debt with a fair market value of £1.3 billion. Given the debt load, “junk” rating on most of the debt, huge ongoing losses, and limited growth, it’s not hard to understand why the stock price has dropped 60% in the last year. In fact, the stock price is already well below the price Stroll guaranteed Mercedes Benz when he gifted them 20% of Aston Martin as part of the strategic technology agreement signed in Q3 2020. While this will not trigger a payment in 2022, it might in 2023 when the next tranche of shares is now due.
Looking at a few areas of interest in a bit more detail:
Looking at the DBX sales in a bit more depth, in 2021 Aston has wholesaled 3,001 DBXs. This breaks down into 746 DBXs in Q1 followed by 849 in Q2, 591 in Q3, & 815 in Q4. This just barely beats Moers’ modest stated goal of shipping 3,000 DBX’s in 2021 (the original Palmer target was 6,000 units). While Aston Martin refuses to provide retail sales numbers, assuming that there hasn’t been an increase in dealer stock since the original pipeline fill, I would estimate that Aston Martin sold 3,036 DBX’s in 2021. This equates to the Q4 2020 inventory carry over of 578 units + Q1 – Q3 2021 sales of 2,186 units, plus 1/3 of the Q4 2021 wholesales which is 272 units (cars shipped in Nov & Dec would be for retail sales in 2022). This would represent a modest reduction in dealer inventory of 35 DBXs and is consistent with Stroll’s claim of matching supply to demand. Why Aston Martin will not release both wholesale and retail numbers if this is true is hard to rationalize but most likely has to do with what is happening in the balance of the portfolio.
On February 1, 2022, Aston Martin announced a new more powerful version of the DBX, the DBX707. The imagery that name evokes is an interesting one as my memories of the Boeing 707 are of a loud, dated, & quite uncomfortable airplane. In different interviews with the press on the DBX707 launch, Stroll and Moers stated at different times that they expect to sell 4,000 DBX707s per year and that the DBX707 will make up 60% of total annual DBX sales (which would be 6,600). Considering Aston Martin had to make a major Q4 push to get to the 3,001 DBX SUVs shipped in 2021, that seems like quite the stretch. On the earnings’ call and in the related materials released alongside of it, there is now no mention of the 4,000 DBX707 target and Gregor refused to even give a volume split for the 6,600 wholesale 2022 goal.
Sport & GT
With the DBX accounting for over 49% of the cars sold (ex “Specials”) in 2021, its fast becoming the core of the Aston Martin business. This is helping to mask the utter collapse of the Sport & GT car sales which through 2019 were 95% of Astons sales, represent its core and heritage. The Aston brand was built around the beautifully designed front engine GT. James Bond drives a DBS or a DB5, not a DBX designed for the school run. In 2021, Aston sold 3,068 Sport & GT cars. This is just over half the number Aston Martin sold in 2019 and this is unlikely to change anytime soon. In the past, Moer’s actually has stated that the current Sport & GT models are “overage” which is unlikely to generate a stampede of customers heading to the showroom. During the earnings call, Stroll announced that there would be a major relaunch of the Sport & GT cars in 2023 (Stoll originally promised it for Q3 2021):
“It’s a full, new generation of sports cars. New exterior styling, brand new interiors, brand-new infotainments, new power units, higher horsepower, better vehicle driving dynamics. So, it’s truly a new generation of sports cars for us.”
The new generation Sports/GT cars will likely not arrive until sometime in the 2nd half of 2023. The raises the question on why would anyone bother to buy one of the current Sport or GT models now or in the next 18 months? While Moers stated that they have an order book covering between 8-12 months (he didn’t seem sure) nothing is stopping any of those customers from delaying their orders until the new models are available.
Manufacturing: Aston still is carrying manufacturing capacity for 14,000 cars annual with zero plans to get anywhere near that number. Gaydon where all the Sport & GT car production is done, is now only running one line. St Athans where the DBX is produced is running at 40% of capacity and 2022 plans will not get this to even 50%. Moers has admitted multiple times that Aston Martin has plenty of available capacity should demand increase but carrying all that addition capacity is becoming an on-going major financial burden that Aston can ill afford. Moers has also stated that Gaydon is where the Valkyrie and other “Specials” will be produced. This is more than just a bit misleading as the Valkyrie is being largely built by Multimatic (Multimatic Road Cars).
Mercedes Tech Agreement: Back in Q3 2020 Aston Martin signed a strategic technology agreement with Mercedes-Benz. Simplistically, the agreement allows Aston Martin to buy powertrains, software, and components from Mercedes-Benz through to 2027 in return for 20% of Aston Martin. As part of that agreement, Aston Martin guaranteed Mercedes Benz a minimum stock price of 1,260p. AML stock has now closed below 1,000p for the last couple of days which is well below the price Stroll guaranteed Mercedes Benz. However, with the push back on the Sport/GT relaunch (which will be based on new Mercedes supplied powertrains) until 2023, this has allowed Aston Martin to delay the next tranche of shares from 2022 to 2023. Unless Aston Martin can get its stock price back up in the next 12 months, this is just another lurking major liability.
Valkyrie: I just finished an article on the Valkyrie ( The Saga of the Valkyrie ) which covers its development from the original idea to first customer delivery. Unsurprisingly, the Valkyrie was a key discussion point between a number of analysts and Stroll during the earnings call. If you are looking to increase Stroll’s blood pressure, all you need to do is ask him how it’s all going. Equally of interest was Moers did not mention the Valkyrie once. If I had to guess, all the issues with the Valkyrie have become a major point of friction between Stroll and Moers and at this point, Stroll has stepped in and taken direct control of the situation. My guess is Stroll gave Moers his shot to get it sorted coming out of the Goodwood Festival of Speed fiasco, but with Aston Martin badly missing its year-end target of delivering a “double digit” number of Valkyrie coupe road cars this year alongside a “single digit” number of the track only AMRs which resulted in Aston Martin having to issue the earnings warning in early January, Stroll has now pushed Moers aside. This also neatly ties into the report by Bloomberg that Stroll is looking to replace Moers.
Back in November 2021, Moers stated that he expects to build 3 Valkyries a week in 2022 and deliver 150 Valkyries. In the earnings’ call, Gregor advised that the number is now 70-90. Back in November, I estimated that 40 was the more likely number given the current production capability and tooling. If Aston Martin halves their estimate again, they will be spot on my estimate. It will be interesting to see where this one lands.
The other issue with the Valkyrie is while there now have been a few customer deliveries, there is still no evidence that it runs properly. Stroll stated: “that it’s more complicated than building my Formula 1 car.” which does explain why Aston Martin has continued to struggle with it as it is infinitely more complex than any other car they have even developed. Perhaps at this point Stroll should go hat in hand to Red Bull and ask them to take the project back over. Red Bull at least has the capabilities to build the car and at its core, most of the depositors originally put their money down not because of the Aston Martin name, but because it was going to be designed by Red Bull’s Adrian Newey.
“Works” Formula 1 Team: Listening to Stroll, you would think that Aston Martin (AML) and Aston Martin Racing (AMR) were one company. In his opening remarks, Stroll states:
The return of the Aston Martin name to Formula 1 grid has dramatically increased our brand exposure, desirability, global awareness in line with our growth ambitions.
Which rather conveniently ignores the fact that Aston Martin was Red Bull’s title sponsor from 2016-2020 and its name was very prominent on the grid and in fact much better placed as it was at the front end of the grid, not in the back half.
While its highly debatable whether the Aston Martin “Works” F1 Team brings anywhere near enough value to cover the £24 million annual fee AML is paying to AMR. The use of the word “Works” to describe the team is certainly a creative one as there is currently no shareholding relationship between the two companies. It is just a marketing relationship which Moers admitted to in the Q3 2021 Earning’s Call:
“Totally two separate legal entity, a private-owned company doing the racing business, and the PLC, which is a totally different company with a different ownership.”
Stroll’s has explicitly stated that Aston Martin Racing was able to sign “hundreds and hundreds of millions of dollars of sponsorship” off the back of the name change from Racing Point to Aston Martin Racing. If this was the case, Stroll is using AML’s most valuable asset, the Aston Martin brand, to fund his private company (which his son also drives for). If AMR was truly able to raise those sorts of funds just off a name change, then why isn’t AMR paying AML for the use of the brand? As Executive Chairman of AML, Stroll’s first responsibility is to act in the best interest of the AML shareholders. I would love to know if AML’s Board of Directors independently reviews and approves all contracts and payments between AML & AMR.
Aston Martin is still a long way from being out of the woods and it’s questionable if they ever do find a way out. So far, they have found a way to survive but it’s not sustainable over the longer term. Aston Martin is still burning through too much cash too quickly and at the current rate will not make it through 2023 without another cash injection. They have been living off customer deposits, but that play has run its course and will need to be unwound in the next several years. While the DBX is helping keep Aston afloat right now, it’s a far cry for being a runaway success. The Sport/GT is a shadow of its former self and is likely to have another tough year in 2022. The Valkyrie would make for a great Harvard Business School case study on how not to develop a car. A new CFO is starting shortly, and if reports in the press are to be believed, he will be joined by a new CEO in the not too distant future. Add this altogether and its no surprise the stock price is down 60% in the last year.
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