Ferrari reported their Q2 2021 results last week. It was another excellent quarter for the Maranello based supercar manufacturer, and the stock market rewarded Ferrari by pushing the stock price up $10 in the past week. While the stock market can be quite irrational at times, this was a well-earned vote of confidence in a company that has successfully navigated multiple major challenges in the past several years. I believe it also reflects the transparency that Ferrari demonstrates when it presents the results. In this case, not only did Ferrari provide the usual year ago comparisons (which do to COVID are irrelevant) but they also provided the comparisons to the same period in 2019. It would be helpful if certain of their competitors learned from this.
If you had been in a coma for the last 18 months, just woke up, and were given Ferrari’s Q2 2021 results to review, you would likely conclude they had a very good quarter and were continuing the successful run that started many years ago. The only things that would have raised an eyebrow are the Free Cash Flow and CAPEX numbers. While many of Ferraris rivals ended up being pushed by COVID into the financial intensive care unit, Ferrari was almost asymptomatic. As an example of just how well they are doing, Ferrari returned €244 million to shareholders in Q2 via dividends and share repurchases.
The Ferrari earnings call was insightful as usual. As per the last call the acting CEO, John Elkann, led the discussion and was very actively engaged with Antonio Picca Piccon, the CFO providing support (the incoming CEO Benedetto Vigna doesn’t start until September 1). Both did a nice job and handled the various questions tossed at them by the analysts quite comfortably. It’s clear they are on top of their business and clearly understand the issues and concerns. One message that did come out loud and clear is that Elkann is pushing Ferrari into Electric Vehicles more quickly than what was planned under the prior régime. I also go the feeling Elkann was quite enjoying his brief tenure as the Ferrari CEO. The areas that I found interesting follow (note: in terms of the financial results, I am using Q2 2019 as the reference quarter as it gives a more balanced picture on the strength/weakness of the numbers):
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 50% in Q2 2021 as more cars were sent to China. The prioritization of European and Chinese deliveries vs. the Americas, which were down to 24% in Q2 from a high of 32% in 2018, looks to be a deliberate move to maximize profitability as the dollar has been weakening since late 2019. The tightening of supply in the US has also helped support residuals.
For Ferrari, a fully electric car is perhaps a bigger challenge than for any of its competitors given how sound is such an integral part of the Ferrari experience. Even though it’s only a quarter of the sales today, the symphonic 12 cylinder engine is still the heart of the Ferrari essence but likely to go the way of the Dodo bird very shortly. I was talking to a Ferrari dealer earlier this week and he expects the 812 replacements will be a V8 hybrid based on the SF90 powertrain. If the current V12s are transitioning into hybrid V8s, then I fully expect the current range of twin turbo V8s will evolve into hybrid V6s as the portfolio is rolled forward. Elkann basically confirmed this with his comment on V6 hybrids being the common engine across Ferrari’s different racing activities including the planned return to Le Mans in the hypercar class in 2023. The romantic image of crossing continents behind the wheel of howling V12 Ferrari has driven sales for decades. How they keep the romance, when the most significant sound the car is generating is tire noise, will be a huge challenge.
Ferrari is a highly successful company doing a great job navigating in a challenging environment. The stock price reflects this, and the company currently carries a $56.1 billion market cap. Ferrari continues to execute well, and the only change is a minor Covid driven delay on some of the new models. The new CEO, Benedetto Vigna, will now need to lead Ferrari through perhaps the most significant transformation the business has ever undertaken. It will be Vigna’s job to lead Ferrari seamlessly through the transition away from the V12, to hybrids and EVs, launch the Purosangue SUV without diluting the Ferrari equity, and get the F1 Team back regularly on the podium. With a $56.1 billion market cap, this all needs to be done absolutely seamlessly or the Agnelli Family’s wealth is going to take a bit of a hit.
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Awesome breakdown, thank you!
ST Microelectronics are a good company and I’ve used their parts for many years. I’ve designed their parts in to circuits for clients, and our own products. But that’s the electronics industry, not automotive.
Yet, there is a cross-over because more and more of cars is electronics. Not just ECUs for drivetrain or even window lift control, but infotainment. When I presented at ISATA it was on how microcontrollers (small single chip computers for control applications) could be affected by noise, now the cars have full blown computers inside them processing data from mobiles and satellites! The level of complexity is huge.
Benedetto Vigna is probably more used to supplying clients with electronics rather than being the client. I buy my electronics depending upon the function they do. When designing there’s two main parameters – function and cost. The electronics industry is infamous for shaving pennies off the costs of circuits. Save a cent on something you build a million off, or on one of a few hundred parts you buy for that circuit, and you see where profits can be made. When I transition to buyer mode I hunt down the best prices on the most expensive parts and ignore the ones that are only a few cents each. It’s a strategy that works as I’ve had people offering to provide a buying service and none have come close to my price after their markups.
Ferrari are a luxury brand. If I applied my engineering buyer skills to Ferrari I’d buy something else, something “sensible”. However, my emotional side would buy a Ferrari, or a pre-Reichman Aston Martin, or a McLaren. The question is does Vigna understand the different needs of emotional luxury customers over logical engineering customers?
But more importantly for a CEO, can Vigna set out a vision for the future of Ferrari to follow?