The Supercar Trio: Larry, Ben, & Mike
May 28, 2023
Analysis & Insights on Ferrari’s 2021 Results
Ferrari had an outstanding year in 2021. Every single key financial indicator is now headed in the right direction. They beat their guidance on every single metric and with a broad and fresh product portfolio, they are poised to deliver outstanding growth in the years to come. Ferrari enjoys an overflowing order book and seems to be navigating the move to hybrids seamlessly. Ferrari’s 2021 results are a case study in what a highly competent management team, executing a clear strategy, that’s supported by wise forward thinking ownership looks like. Despite the stock price being down recently, and well of off its 52 week high, Ferrari is still carrying a market cap over $40 billion. The recent share price drop is more a reflection of overall turmoil in the stock markets these days directly than a condemnation of Ferrari’s performance. The CEO transition to Benedetto Vigna has been flawless and Ferrari has done a superior job navigating through the pandemic vs. all of its major competitors. I believe this is reflected in the transparency that Ferrari demonstrates when it presents the results. As it has throughout 2021, not only did Ferrari provide the usual year ago comparisons (which due to COVID are irrelevant) but they also provided the comparisons to the same period in 2019.
Ferrari’s superior job of navigating through the pandemic has given it a highly advantaged competitive position moving forward. In the two main “volume” segments of Ferrari’s business, the Sports Range and Gran Turismo Range, two of its main competitors, McLaren & Aston Martin, have fallen back considerably. In the Sports Range, McLaren has reduced production significantly and while its current range is still highly competitive, McLaren is struggling with the transition to next generation hybrids. On the Granturismo side of the business, Aston Martin has effectively ceded the field to Ferrari. Aston Martin’s current GT range is, in the words of Aston Martin’s CEO, “overage” and with updates to Aston Martin’s models not coming until late 2023, Ferrari should have achieved complete dominance in the GT segment by then.
The Ferrari earnings call was a bit less insightful than usual which I believe will be the norm going forward as it is a reflection of the new CEO, Benedetto Vigna’s style. The CFO, Antonio Picca Piccon was also on the call and did his usual nice job of handling the various questions tossed his way. Vigna comes across as a modest man who holds his card closer to his chest than his predecessors. I do miss having John Elkann, Executive Chairman and former acting CEO, on the call as Elkann was always willing to provide a bit more color and insights into Ferrari’s longer-term strategy than the more reserved Vigna. The areas that I found interesting follow (note: in terms of the financial results, I am using 2019 as the reference quarter as it gives a more balanced picture on the strength/weakness of the numbers):
- 2021 Key Results: The key numbers for Ferrari in 2021 were 11,155 cars sold, (up 10.1% vs 2019), Net Revenues of €4,271 million (+13.4%), and EBITDA of €1,531 million (+20.6%). Free Cash Flow reversed 2020 negative trend and came in at a positive of €642 million which is +370% vs. 2020 and just -4.9% v. the record set in 2019. The huge turnaround in FCF in 2021 really highlights the strength of the business. In 2021, Ferrari returned €393 million to its shareholders via both dividends and the share repurchase program. Piccon stated that the order bank for all models stretches well into 2023 despite the order book being closed now on certain models that are being phased out.
Over the last several years, Europe received 46-48% of Ferrari’s production. This jumped up to 55% in 2020 and dropped back a bit to 49% in 2021 as more cars were sent to China and North America. North American deliveries accounted for 26% in 2021, down from a high of 32% in 2018 but still up 21.8% in terms of actual units. Ferrari seems to quite deliberately adjust supply to take advantage of currency movements. As the US dollar strengthened in 2021, the US received a higher allocation of new cars. Supply in the US, even with a 21% increase in units, is still short of demand. As a result, residuals on recent model are at an all-time high and in several cases 1-2 year old used cars are selling for over the original MSRP.
- Product Mix & Profitability: Ferrari’s 2021 profits were €833 million up 37% vs. 2019. Portfolio mix was a positive €130 million driven by the Icona range Monza SP1 & SP2, 812 GTS and the SF90 Stradale. Historically it’s been the big V12 GTs that have driven Ferrari’s profitability. This has now all changed with the introduction of the Icona range and hybrids. The SF90 range is highly profitable, and I expect the 296 GTB to fall into the same category. One area where Ferrari did get a bit of push back on was the guidance on profitability mix for 2022. Delays in the timing of a few of the new models is the one impact the pandemic has had on Ferrari. It now looks like Purosangue SUV & the next generation Icona SP3 Daytona deliveries will not be starting until 2023, while production on the Monza SP1 & SP2 is basically complete and the limited edition 812 Competizione & Competizione A deliveries are only starting in Q4 2022. Net net, basically 2022 will be year without an Icona or another Hypercar in production which pulls down the profitability of the product mix a bit. It’s a short term timing issue, not a long term problem and without the impact of Covid-19, I doubt it would have happened.
- Cash Flow, CAPEX, & Debt: 2021 Industrial Free Cash Flow came in at €642 million. This is a €470 million improvement on 2020 number and just slightly down vs. a record €675 million in 2019. The recovery in the FCF number to near the 2019 record high is massively impressive. Ferrari has very ambitious plans and is generating the cash needed to bring them to life as demonstrated by the €737 million in 2021 CAPEX spending. As per auto industry norms, Ferrari only capitalizes 50% of its CAPEX spending, with the balancing hitting the P&L in the current year (unlike certain other Supercar manufacturers which capitalizes a much higher percentage which helps inflate EBITDA). I don’t see any concerns with Ferrari’s current debt load. Total debt is down by €95 million vs. 2020 to €2.6 billion, cash and equivalents are flat at €1.3 billion with total liquidity of €2 billion. Ferrari does not have any major debt coming due until 2023 and has enough cash on hand today to retire all of the debt that is maturing up through 2024. In July 2021, Ferrari successfully placed €150 million in bonds due in 2032 with US institutional investors.
- Portfolio: Ferrari’s current portfolio is by far the most complex in its history with still more to come this year. The strategy that’s delivered the current portfolio was first articulated back in Q3 2018. It was then that Ferrari changed the way it segmented it’s portfolio from V8s & V12s to Sport Range, Gran Turismo Range, Special Series, Icona, and Hypercar. This change in thinking gave Ferrari the license to build out its portfolio in a way it never had been able to in the past. Redefining the old V8 segment to Sports Range has allowed Ferrari to counter the threat from McLaren’s emergence in the past decade while redefining the old V12 GT segment to Gran Turismo has really put a fork in Aston Martin’s core front engine Sport & GT car business. Ferrari has promised two new road car models in 2022, one is the worst kept secret in Supercar history, the Purosangue SUV and the other is most likely a Spider version of the 296 GTB. A replacement for the recently discontinued 812 Superfast is not likely to emerge until 2023.
- Hybrid & Electric Cars: Back in Q3 2021 analysts call, Ferrari indicated that they will be launching the first fully electric Ferrari in 2025. The Executive Chairman, John Elkann is clearly driving the strategy and Vigna now needs to deliver it. What was interesting in this analysts call was very little was said about the move towards EV, and Vigna indicated that Ferrari would continue to produce internal combustions engines for as long as there was customer demand for them.
- Racing & Stores: The Formula 1 team has been a major drag on Ferrari’s finances over the last couple of years. While finishing 6th in 2020 was a drag on 2021, given the timing of the payouts from Formula 1, the Ferrari F1 Teams 3rd place finish in 2021 does point to a more financially rewarding 2022. The F12 Teams driver line up is now settled for the next several years, and the major rule changes coming into effect in 2022 provide an excellent opportunity to get back to the very front of the grid. With Covid store closures ending in 2021, total “brand”, which includes both racing, licensing and stores, was up by €6.5 million in 2021.
2022 Targets
Other than Net Revenue, the 2022 targets do not look overly ambitious, even taking into account the headwinds on product mix due to the phasing on the Icona model transitions. My guess is Ferrari is under promising and will then over deliver, helping to build credibility for the new CEO with investors. The next Capital Market day will be on June 16th in Maranello where Ferrari will unveil its next major multiyear business plan. Vigna will want to have plenty of tailwind at his back going into that event. The other call out is 2022 is Ferrari’s 75th anniversary. In honor of this I would not be surprised if Ferrari announces a new very limited highly margin enhancing model that will have been presold to a handful of its best clients.
Summary
The Ferrari machine keeps going from strength to strength. It’s executed a major CEO transition flawlessly and Ferrari’s hefty $40 billion market cap reflects this. It will now be Vigna’s job to lead Ferrari seamlessly through the transition to hybrids and EVs, launch the Purosangue SUV, and park the F1 Team on the pointy end of the grid. In 2021, Ferrari beat their guidance on every single financial metric, now they just need to repeat this in 2022, which given the current model portfolio, bruised competition, and overflowing order book, they should be able to do.
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February 2022
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An outstanding analysis, thanks. My only observation is regarding Aston Martin, as a reader could leave this article thinking their window of opportunity has closed. Not so. I’ve always believed there is a market for a GT car to which 911 buyers aspire: something more bespoke, more expensive, but equally useable. Aston has the right brand and heritage: James Bond, Le Mans (both historic and current with the Prodrive cars), DB5, etc, the right customer group and even the right dealers. The key thought is that this is a market for people who would never buy a car that is flashy, noisy and vulgar, however unnecessarily astonishing it is on the road. They might own a classic Ferrari, but nothing from the last 30 years. Globally, its a surprisingly large market. Sadly, while Ferrari has clearly identified this open opportunity and is introducing tasteful, more restrained models, Aston Martin has decided to abandon it and ease itself painfully into the most congested, highly competitive sector of the luxury car industry. A crazy strategy that makes me question my holding.
Agreed.
The Ferrari Roma really is the Aston Martin you want.
AM has gone down that flashy, noisy and vulgar road unfortunately, not matching with their brand and customers. Stroll said during the new F1 car presentation that they will introduce new front engine designs based on current models in 2023 (probably end of 2023). It will be interesting what design route they will take. The split between front engine and rear/mid engine is good but those sports cars got all the focus while it should have been a mix.
Many thanks for the insight and summary. Truly a remarkable successful business and truly knowing what their customers want from the brand.
In addition their brillaint engines and ever developing technological expertise and execution stand head and shoulders above all competitiors.
Just to make my position clear, I have NOT won this weeks Euromillions, and if I had, I dont think I’d be off to Maranello here in the UK .
But really enjoy you commentry and experiences.
M.
https://www.autoblog.nl/files/2022/02/Ferrari-Purosangue-gelekt.jpg
Purosangue leak?
Not sure what is going on with the wheel arches and those lines between Ferrari logo and side mirror. Especially that very small panel but maybe that is the angle.
Looks a bit odd to be production ready model. Maybe ongoing study body? I hope so because this is not good looking..