“Race on Sunday, Sell on Monday” & My Ferrari V12 Hunt
March 21, 2023
Aston Martin’s 1st Half 2021 Results
Aston Martin reported their 1st half results last Wednesday. Aston Martin’s results were broadly in line with expectation and the stock finished up just under 3% on the day the results were released. Aston Martin also indicated that they are on track to deliver their full year targets. This raises a few questions. Is Aston Martin back on track? Are the full year targets really achievable? What do the Q2 and 1st half numbers really tell us?
The earnings call later in the day provided a quite a few additional insights. As per the Q1 call, it was just the CEO, Tobias Moers & the new CFO Kenneth Gregor on the earning’s call. Like at the Goodwood Festival of Speed, The Executive Chairman, Lawrence Stroll, was nowhere to be found. It was interesting listening to Moers on the call, he came across as having all the enthusiasm of an inmate who had just been denied parole.
The results Aston Martin presented all use the 1st half of 2020 as the main point of reference and show enormous improvement. While that presents a nice fuzzy feel-good story, it’s the equivalent of comparing the British Army’s performance at the Battle of Yorktown with Waterloo (where incidentally it was also the timely arrival of the Germans that swung the tide decisively in the allies’ favor). It isn’t really that relevant to understanding the current health and trajectory of the business today. 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.
| Q4 2020 | Q1 2021 | Q2 2021 |
Cars Wholesale | 1,839 | 1,353 | 1,548 |
Revenue | £342 mil. | £242 mil. | £274 mil. |
EBITDA | £48 mil | £21 mil. | £28 mil. |
Operation Profit | -£94 mil | -£15 mil. | -£22.7 mil. |
Free Cash Flow | -£26 mil. | £24 mil. | -£69 mil. |
Net Debt | £727 mil. | £723 mil. | £792 mil. |
This now is a very interesting picture. Just based on car sales and revenue, its looks like Aston Martin is gaining a bit of momentum after a weak Q1. However, if you smooth Q4 2020 with Q1 2021 as Q4 included the DBX pipeline fill of around 600 units, Q2 looks to be about where the quarterly wholesale run rate sits today. What is concerning though is the Operating Profit, Free Cash Flow, and Net Debt are all still heading in the wrong direction. Aston Martin today is still consuming vast amounts of cash, increasing its debt load, with profitability nowhere near in sight. Perhaps my favorite attempt at misdirection in the earnings announcement was the comment on the improved cash position of £506 mil. (up £17 mil. vs end 2020). When you consider Aston issued £77 mil. in new debt in the 1st half this just means you’ve already burned through £60 mil. of what you raised.
Unpacking the numbers in a bit more detail to see if they are on track to deliver the 6,000 units called for in the current 2021 guidance, the car sales need to be split into two very different parts, the DBX SUV and the Sport/GT cars. Aston has stated that they completed the dealer destocking in Q1 2021 and are now only producing cars to meet demand. In fact, Moers stated that Retail sales were ahead of Wholesale sales in the 1st half without providing any numbers to back up the claim. While I do believe Moers statement is technically accurate, it’s a bit misleading as the retail network had one last big push in Q1 on destocking the mountain of leftover Palmer era Vantages and DB11s while it also would have been working down some of the extra 600 DBXs which were wholesaled in Q4 2020. The number that would have been quite telling to have is the Q2 retail and wholesale units. If Aston Martin is truly matching supply to demand, these would be nearly identical. I am quite disappointed that none of the financial analyst who follow Aston demanded it. Eliminating this key piece of information gives Aston the ability to immediately revert back to old bad habits and start stuffing dealerships with cars to manage earnings and hit targets to prop up the share price (the May edition of BusinessF1 has a very well researched article on Aston Martin’s 2018 IPO, Andy Palmer, how the City held its nose, and the grim aftermath).
DBX
Looking at the DBX sales in a bit more depth, in Q4 2020 Aston wholesaled 1,171 DBXs against retail sales of 593. This left 578 DBXs sitting in dealerships’ inventory going into 2021. In Q1 2021, Aston wholesaled another 746 DBXs followed by another 849 in Q2. Adding the 578 DBXs left over from Q4 with the 1595 sold in the 1st half of 2021 totals 2,173 DBX’s floating through the Aston Martin retail network in the 1st half of 2021. Just checking the number of DBXs listed for sale at Aston Martin dealers in North America, it is currently 210. Ignoring the fact that dealerships often do not list all the cars they are holding in inventory on their websites, with North America representing 36% of Aston’s global sales, this projects to 580 DBXs for sale globally right now which neatly matches the inventory carry over from 2020 (about two months stock). At first glance therefore it does look like the 1,595 DBXs wholesaled in the 1st half will straight line to hitting the revised Stroll era goal of 3,000 DBXs in 2021 (the original Palmer era goal was 6,000 DBXs per year) and Aston is matching supply with demand. Only issue is there are probably another 300-500 DBXs sitting in dealerships’ inventory right now. (Most high dealers I know only list 1/2 to 2/3rds of their new car inventory on the website as projected scarcity is key to supporting pricing, the vast majority of Aston dealers have either 5 DBXs listed with a few of the larger dealers at 9-10. The consistency in the numbers speaks to adhering to a listing policy set and enforced by Aston). Taking the high and low numbers in that range and subtracting it from the 1595 1st half DBX wholesale number leaves you with range of DBXs truly retailed in the 1st half of 1,095 – 1,295. The only retail number Aston has provided on the DBX was 593 in Q4 2020. That number straight lined into the 1st half of 2021 would be 1,184 which is unsurprisingly right in the middle of the 1,095-1,295 range. This is where I believe DBX sales truly sit, especially as I keep getting increasingly generous offers from different dealers just to come and test drive one.
Sport & GT
With DBX already accounting for over 55% of the cars sold in the 1st half of 2021, its fast becoming the core of the Aston Martin business. This is helping to mask the collapse of the Sport & GT car sales. In 1st half of 2021 Aston sold 1,280 Sport & GT cars and in Q4 2020 the number was 629. This straight lines to about 2,500 to 2,600 Sport & GT cars per year. Comparable numbers from 2018 and 2019 are 5,862 & 6,441. These numbers do include the massive dealer loading at the end of the Palmer era and true demand was more likely in the range of 5,000 per year. Net net, sales of the Sport & GTs are now running at about half the level they were pre pandemic and this is unlikely to change anytime soon. In prior earning call comments, the CEO, Tobias Moers, referred to the Sports Car range as “aged” which may had been an unwise attempt at transparency.
2021 Targets
Aston Martin’s current 2021 guidance is:
| 2021 Guidance | 2021 Run Rate Based on 1st Half 2021 Results |
Cars Wholesaled | 6,000 | 5,802 |
EBITDA Margin | Mid Teens | Very Low Teens |
Depreciation & Amortization | £240-250 mil. | £255-265 mil. |
Interest Expense | £145 mil. | £135 mil. |
Capex & R&D | £250-275 mil. | £250-275 mil. |
The guidance does not include either a revenue target, which will likely be around £1 billion, or a profit (loss) target which is likely to land in the -£200 mil. range. It’s very hard to make money when EBITDA doesn’t cover your interest expense. In fact, the road to profitability is questionable even if Aston delivers against the 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. This is a tall ask as Aston Martin is sitting with £1.36 billion (and growing) in intangible assets on the balance sheet which will need to be amortized over the coming years. Moers even admitted that they will likely need to accelerate the write down for the planned model refresh and move to Mercedes supplied technology & powertrains. How they are going to be able to afford to do so is a major unanswered question. In fact, 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 capitalization of £2.3 billion, which sells £1 billion of cars annually at a loss of £200 million, is sitting on £1.36 billion (and growing) in intangible assets on the balance sheet that it needs to write down and has issued debt with a fair market value of £1.36 billion.
Looking at a few other areas of interest in a bit more detail:
- Manufacturing: One of Palmer’s many gifts to Stroll is the new factory in Wales (St Athan) which was built to produce the DBX and is currently running at under 40% of capacity. St Athan opened in December 2019 with 600 employees hired over the course of 2020. In March 2021, Aston made 1/3rdof the work force (200 employees) redundant which is not surprising as the factory is running at less than half capacity. In addition, the depth and breadth of options on the DBX is being cut back with most carbon fibre being eliminated to save money. These are not the actions you normally see taken to support a massive success and the changes in options go directly against Moers’ statement on driving ASPs. In addition, Aston Martin had taken £18.8m in grants from the Welsh Government for job creation, skills training and research and development. When the grant was given, full employment at St Athan’s was expected to reach 750. Needless to say, the Welsh Government is less than happy with the current situation.
Moers has also cut staff and reorganized production at Aston’s other factory, Gaydon with all Sport & GT car production now being done on one line. This makes sense given the collapse of Sport & GT volumes. Moers also did mention that Aston Martin has plenty of available capacity should demand increase. He 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 developed and built by Multimatic (Multimatic Road Cars) now and it’s likely the Valhalla will be as well. In fact, there is no mention of Multimatic anywhere in the earnings release materials.
- 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. When Moers was asked if the newly announced Mercedes AMG EA (high performance electric powertrain) technology was included he completely fudged his response. It was a question I expected a simple “yes” answer to and Moers non-answer raises a significant number of questions as to how Aston Martin will be able to make the transition from hybrid to electric now.
Valkyrie: There was little discussion on the Valkyrie this time and the impression I had is it’s a subject Moers would rather avoid which is not surprising given what happened at the Goodwood Festival of Speed. Moers did reiterate the commitment that the first delivery will happen before the end of the year. If Aston Martin finally does deliver a customer Valkyrie before the end of the year, it will have taken Aston longer to develop this car than it took the Manhattan Project to develop the first atomic bomb. Apparently, Aston has had major challenges getting the Valkyrie road car mules to run consistently and according to a few ex Aston Martin employees, Stroll/Moers are apparently putting immense pressure on Multimatic to produce the car as cheaply as possible. These sources also indicated that given the massive problems Multimatic has had trying to get the electronics to work in the road cars, it’s now the Valkyrie Pro AMR track cars that are being prioritized as they will be built without the sophisticated electronics & hybrid system. Last I heard, neither Valkyrie variant had passed crash tests yet. In addition, Aston has only bought 30-40 of the Valkyrie’s Cosworth V12s to date so the actual number of cars that can be produced right now is fairly limited. What is unclear is if the Q4 delivery commitment is for the track car, road car, or both.
Aston Martin has parted company with just about everyone internally who was involved in the Valkyrie’s development starting with Fraser Dunn, the Chief Engineer. Moers apparently has been happy to blame Red Bull for the faults and delays resulting in a relationship with Red Bull that is now fairly toxic. Multimatic also has its own additional challenges as they currently are in court over multimillion pound payment dispute with Supernatural (a specialist carbon fiber component manufacturer) which is Valkyrie related. On a more positive note, I have heard that the Valkyrie is by far the quickest car (road or track) a few of the drivers have ever experienced.
- Regarding the Valkyries performance at the Goodwood Festival of Speed, whatever Aston Martin is paying its PR agency, it’s not enough. Per Aston Martin’s original press release, the plan was:
- The highly anticipated Aston Martin Valkyrie is due to make its Goodwood Festival of Speed debut at the show. The crowd will be delighted to see – and hear – Valkyrie take on the famous Hillclimb past Goodwood House in the ‘Supercar’ batch. Accelerating from 0-60mph in under 2.5 seconds and powered by an almighty, naturally aspirated 6.5-litre V12 engine producing 1160bhp, Valkyrie – which will be driven by Aston Martin Cognizant Formula One Team driver Lance Stroll on Saturday – is surely set to be the star of the show.
- This isn’t exactly what happened. Originally Aston had planned for the Valkyrie to complete 11 runs over the 4 days. The final count was less than half that number. On Thursday, the Valkyrie did complete a run on the Hillclimb but a close look at the video seemed to indicate that the active aero had been turned off, the car was quite skittish, and not particularly quick (there is no official time for any of the Valkyrie’s runs but per the video it looks to be around 1 minute 15 seconds, as a reference the McLaren 720S GT3X did it in 45 seconds). Inboard video footage that Aston posted indicated that the check engine light was on, the active aero was off and so were all the ECS systems. This is very much in line with information I have gathered that Aston Martin was having major difficulties getting the Valkyrie to run properly. If the situation was bad on Thursday, it got worse on Friday when the Valkyrie broke down on the hill (apparently with the influencer Shmee as a passenger in the car) resulting in a red flagging of the session and Lawrence Stoll (Aston Martin CEO) cancelling his appearance at the last minute. This was actually the second time the Valkyrie had broken down at Goodwood.
- Post the Valkyrie’s Friday fiasco, Lance Stroll’s Saturday appearance was quietly cancelled, and Tobias Moers suddenly showed up likely with a Lawrence Stroll size shoe print on his posterior. While Moers did successful get the Valkyrie up the hill fairly slowly on Saturday, it broken down again on its way back to the paddock. Just to cap the mess of a weekend off, while the Valkyrie did officially win the Michelin Supercar Paddock Showstopper award, it did so only after Marek Reichman, Aston’s Chief Creative Officer, in a move Kim Jong-un would approve of, personally intervened after he found out it was about to go to the SCG 004S.
- Valhalla, and other “Specials”: The “new” Valhalla launch has been declared a success. Other than the awkward name (per Nordic mythology, one must be dead to go to Valhalla), this iteration has little in common with the car originally unveiled in 2019. Per Moers comments, the new Valhalla will have cutting edge superior technology, and will be a hybrid powered by a V8 Mercedes-Benz sourced powertrain (per the target stats Aston has provided, the Valhalla will have less bhp and be 50% more expensive than the similar Ferrari SF90, not to mention it being launched 3-4 years later. By 2023/4 Ferrari likely will have moved the game on again). Deliveries will start in Q 4 2023 with the target of 1000 units over a 2 year production run. Given Aston Martins history, the 2023 delivery start dates seems about as likely as Boris Johnson combing his hair or Donald Trump admitting he lost the 2020 US Presidential election. What came out clearly in Ken Gregor’s (Aston Martin CFO) comments was the timing of the “new” Valhalla launch has everything to do with getting deposits in now. He stated that Aston currently is holding £270 mil. in customer deposits and intends to sustain that level going forward. With deliveries of V12 Speedster having started and the Valkyrie scheduled for Q4 (and the associated deposit unwind on those cars), Aston needs to start refilling that cash bucket now.
- Nebula: The recent lawsuit Aston Martin filed against the Swiss company Nebula, is quite interesting. Nebula had helped to finance the development of the Valkyrie and sign-up customers in return for future royalties. Aston is claiming Nebula withheld customer deposits on the Valkyrie and is writing down £15 million against 2021 earnings as a result. This would be roughly equivalent to the deposits on 30 Valkyries, but it’s very unclear how Aston Martin came up with that number. Nebula is claiming that it has done nothing wrong. Needless to say, this has the potential to get very messy and drag out over an extended period. What is clear is Aston Martin wants out of the royalty agreement and my guess is Aston can’t afford to pay both Multimatic to build the Valkyries and then pay Nebula a royalty on them. From a purely business perspective, Aston is taking the risk that the cost of litigation and potential settlement will cost less in the long run than the royalty payments. Gregor did indicate in his comments that Aston expects getting out of the Nebula agreement will be a net positive starting in 2022. Whether this happens is very much up in the air as Nebula are looking to fully enforce the contract’s original terms. The information that comes out both in this litigation and the Multimatic – Supernatural dispute should be quite interesting and is unlikely to be particularly flattering for Aston Martin.
- (the not exactly) Works Formula 1 Team: In interviews both Stroll and Moers continue to make quite a big deal about the Aston Martin Works F1 Team and the value it is bringing to the brand. The only data they have shared to support this claim is that it drives brand awareness and has delivered over 1.4 billion social media impressions in the year to date. For the first time, buried in the financial statement notes under related party transactions, Aston reported a net marketing expenditure of £12.2 million for sponsorship of AMR GP Limited (formerly Racing Point) year to date (£24.4 million annually)
The use of the word “Works” is certainly a creative one as there is currently no shareholding relationship between the two companies. It is just a marketing relationship with Aston Martin paying AMR GP Limited a sponsorship fee of £24 million a year. On an appearance basis it’s highly questionable as Stroll is having a public company, he controls pay a private company that he also owns, and his son drives for.
Summary
Moers and his new leadership team are still a long way from being out of the woods. Going back to the three questions I laid out up front:
Is Aston Martin back on track?
Are the full year targets really achievable?
What do the Q2 and 1st half numbers really tell us?
On the first I would say, Aston Martin has found a way to survive but it’s not sustainable over the longer term. Aston is still burning through too much cash too quickly. On the second, they will likely make the top (cars sold) but not the bottom line (EBITDA) and on the third, even taken advantage of the “fog” of only reporting wholesale numbers, Aston is still having major challenge selling cars. While the DBX is helping keep Aston afloat right now, it’s a far cry for being a runaway success. Best case Aston DBX sales will be less than 60% of what Bentley will do with the aged Bentayga or Lamborghini will do with the polarizing Urus. In other areas, the Valkyrie would make for a great Harvard Business School case study on how not to develop a car. For Aston Martin to have risked putting the Valkyrie on the Goodwood Hillclimb course knowing that there was a good chance it would break down points to either desperation or incompetence. Toss in the litigation with Nebula and the Multimatic/Supernatural lawsuit and things are likely to get quite spicy for Moers and Co. in the coming months. At this point, Stroll’s dream of creating the “British Ferrari” feels like it’s just that, a dream.
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August 2021
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One thing I should have said. The self congratulatory actions on the DBX sales should also be viewed in the context that fundamentally nothing has changed from the Palmer plan; it was his project. I’d say his idea, but Dr Bez had it already and it would have been ahead of so many other brands like Bentley, which does have a bit of similarity to the Lagonda concept that was shown.
I can only believe that the amount of cash being burnt through is to try and get the Valkyrie finished, in to production, and payment collected. Not sure that the Valhalla would need as much, especially when production of it is still quite far out.
Guys…. Realize the hand they inherited and what has happened in a year since Moers arrived.
You make no mention of the highly improved ASP. The variable marketing costs are through the floor as dealers are running out of inventory and I know for a fact that Stroll/Moers have a religious fervor to maintain this imbalance.
Moers has increased productivity by 40% in Gaydon and honestly, do you ever think he sounds exciting?
New configurator was introduced and options simplified and it simply made sense to delete options that were rarely chosen.
Consider that lots of current investment going into sports car refresh leading to high cash outlays. Moers is intent on new, high tech UI for range not from MB.
Additionally, read Moers recent interview in design magazine and you’ll understand that the DBX platform has tremendous derivative potential with small capital investment. A great deal of admiration on his part as opposed to his comments re sports cars being dated.
No true insight to Valkyrie but Valhalla is a hit.
When I think it can’t get any worse for Aston Martin you do a report on them. And my jaw hits the floor again.
The short version – Aston aren’t selling enough cars.
The reason – Marek Reichman designs don’t sell.
The solution – Sack Marek Reichman.
The problem – Second worst CEO in automotive, Tobias Moers, hasn’t done the one job that could save Aston Martin and sack Marek Reichman.
The ultimate conclusion – Mercedes has already been gifted 20% of the company, and they’ll wait until it fails again and then take it over. And that Aston will be completely reliant upon their technology, and all deals null and void by then, they’ll have all the leverage they’ll need.
Epilogue – Lawrence Stroll finally learns that you can’t simply shout “brand” in automotive circles and expect people to buy it like he does with his fashion brands. In this market substance counts.
https://www.automoto.it/news/aston-martin-valkyrie-ed-il-partner-misterioso-af-racing-chi-sono.html
https://squaremile.com/gear/cars/andreas-baenziger-r-universe-interview
Seemingly, Baenziger and Kamelger brought a Valkyrie mobile service vehicle and a Valkyrie to St. Moritz last summer, and the vehicle is/was visible outside their dealership. There is a video online of Nico Rosberg specifying a Valkyrie with Baenziger at Aston Martin St. Gallen. So Nebula project certainly wasn’t just ‘handling some customer deposits’.
I reckon Palmer made a deal with Nebula Project to finance the Valkyrie, then take deposits from Valkyrie AND Valhalla AND Vanquish to recoup the investment.
Stroll finds out 18 months after buying AML and is furious at the loss to AML’s profits going forward, so sues them.
““The financial impact of not having received all the deposited funds is expected to be outweighed by the benefit from the termination of the Nebula agreement and associated potential royalty payments,” Aston said.
So if AML lose the court case, they stand to lose more than £15m in future years.
Imho, Stroll is only just realising now how much thick brown stuff AML are in.
Very insightful and well researched article. I think that there is one single figure to look at when analysing AML and that is cash flow. And AML simply cannot generate enough cash flow to service ( let alone repay ) their debt with even the most positive forecasts of future sales numbers. This will be the achilles heel going forward. Companies do not go bust because they loose money. They go bust because they run out of cash. I think AML is only a whisker away from a rights issue which will wipe out all non Stroll shareholders as it will be heavily dilutive and Stroll and his consorts will take AML private again. Because why would they try to turn AML around with that many minority shareholders benefitting from the ride. ?
Is there actually any proof with regards to Reichman intervening when the award was supposedly going to the SCG 004S? As far as I was aware it was an accusation, which is very different from fact
[…] details on the Nebula Lawsuit and the AML AMR relationship are covered in: Aston Martin’s 1st Half . AML is now caught up in the Supernatural – Multimatic dispute and there is a very strong […]
[…] Chairman and largest individual shareholder, has been on shaky ground for some time now (see: AML Q2 & Goodwood FoS). While Stroll denied he was looking to replace Moers in a statement to the Financial Times Aston […]