Aston Martin Lagonda (AML) released their 2022 results on March 1. AML turned in a spectacular Q4 2022. In fact, they turned in even more impressive Q4 numbers in terms of percentage growth than even Ferrari’s on Wholesales, Revenue, Gross Profit, and Adjusted EBITDA. How did they do against their original 2022 Guidance? Has AML turned the corner? Have the underlying issues been addressed? Are they now set for a great 2023? What does the new 2023 Guidance tell us?
The earnings call and the two video presentations AML released along with the 2022 financials had a very different tone and focus vs. past quarterly results. AML’s Executive Chairman, Lawrence Stroll, for the first time stayed very much on script and avoided making any of the bombastic but highly entertaining statements that have characterized past calls. Also, all Stroll’s references to the Aston Martin Aramco Cognizant Formula One Team now refer to it as a “partnership” with AML and no longer as AML’s “Works” F1 Team. In the video presentation of the results, CEO Amedeo Felisa, set a new standard of excellence for deadpan delivery and CFO Doug Lafferty proved he could read a script off a teleprompter.
Instead of doing another deeply depressing deep dive into Aston Martin’s financials, I thought it might be more entertaining to again simply provide a few insights on the AML’s FY 2022 results presentations & the different statements AML leadership have made in 2022. As per past articles on AML, much of the commentary that follows comes from my discussions with industry insiders, suppliers, customers, and journalists. What has been interesting in almost all these discussions is that everyone wants to see Aston Martin succeed but the overwhelming consensus is that they continue to be their own worst enemy.
In the FY 2022 Earnings Press Release, Executive Chairman Lawrence Stroll commented: “2022 saw Aston Martin continue to build on the strong foundations that have been established during my three years as Executive Chairman.”
In terms of trying to understand AML’s 2022 results and exactly what “strong foundations have been established”, the journey starts in the Americas and using Ferrari as a benchmark. In the Americas in Q3 & Q4 2022, Ferrari wholesaled 905 & 831 cars respectively. The same quarterly numbers for AML are 432 & 828. Ferrari’s sales in 2022 were a bit over 2x Aston Martins’ so while the Q3 Aston Martin number looks very much in line with expectations, Q4 is a completely different story. To further put this into perspective, 25% of Ferrari’s global 2022 units (a number around 25% is what you would expect to see) were shipped in Q4, the same number for AML is 37%. Question is, did demand suddenly surge for Aston Martin in Q4? Was the DBX707 the must have present under the Christmas tree in 2022? Or was this huge push done for other reasons, which brings us back to AML’s original 2022 Guidance & the Results:
Close to target
Close to target
Capex & R&D
Close to target
Net net, to get near delivering against the 2022 Guidance, AML had to massively load dealerships in Q4. In fact, they shipped roughly 50% over what would have been the expected Q4 demand based on the prior 3 quarters of 2022. Given Stroll’s multiple past statements that AML now only produces to demand, this is very hard to square. Buried in the Financial Review is the following statement:
Aligned with its ultra-luxury strategy, the Company continues to operate a demand-led operating model. However, given the timing of deliveries towards the end of Q4, total wholesale volumes were temporarily ahead of retail volumes at the end of 2022. Many of those vehicles were retailed in early Q1, and the Company expects to see retails outpace wholesales in 2023.
So I guess, AML operates a demand led model unless they are well behind targets in which case they will push as many cars as they can into their dealerships. As for the statement that many of these vehicles were retailed in early Q1, I just did a random check of 10 Aston Martin dealerships in the US (AML has 44 dealerships in the Americas) and found 75 new DBX/DBX707, 41 new Vantages, and 8 new DB11s listed for sale on their websites. Assuming these 10 are a representative sample, there are in the neighborhood of 300 new DBX/DBX707 for sale in the Americas right now. In addition, the largest US Aston Martin dealer had the following statement on their website “We have a much larger inventory on site and in transit”. It looks like there were plenty of Christmas trees that didn’t have DBX 707s under them and the inventory glut is still very much a reality, two full months into Q1 2023.
I do question why AML did this as 2022 was already going to be another “annus horribilis”. Even with the huge Q4 push, AML’s 2022 losses more than doubled to £495 million (vs. a loss of £214 million in 2021). Personally, I would have tanked Q4 and set myself up for a very strong Q1 2023, not the other way around.
Strong Foundations or Muddy Bottom?
Stroll’s definition of “strong foundations” appears to be rather unique in the business world as it includes:
“our first quarter numbers we are 60, I don’t know if you heard me in my earlier statement, we are six zero percent ahead in our order book this year versus last year on DBX and those that 60% increase is roughly 50% current traditional DBX and 50% DBX707”
Last I checked 7% is a long way from 60%. AML has no line of sight to the original Palmer DBX target on 6,000 units.
I would summarize this as a Company that is still a long way of being in control of its business. Squaring the management’s statements with the results is an exercise in doctorate level creativity.
Its crystal clear at this point that the big bet on the DBX hasn’t worked and what they are selling to the financial markets is some vague hope that the turnaround is always just a couple of quarters away.
In Q1, Stroll’s excuse for missing the numbers was:
“in the first quarter we had a boat of another couple 100 DBX’s going to China that would have made the numbers roughly exactly the same as the previous year that we missed by a couple of days”
And in Q2:
“we ended June with more than 350 DBX707s that we had planned to deliver in Q2, still awaiting final parts, consuming tens of millions in cash and temporarily limiting our ability to meet the strong demand we have.”
And the Q3, the “dog eat my homework” excuse was:
“our Q3 growth was hindered by new supply chain challenges, impacting more than 400 vehicles that had been planned to be delivered in the quarter”
And for Q4 / FY 2022 Stroll both modified and backed off the long stated medium term goals:
“Over the last three years, I have consistently referenced our target to deliver around £2bn of revenue and £500m of adjusted EBITDA by 2024/25. but with significantly lower volumes than I originally envisaged.
The original volume target was 10,000 by 2024/2025. With the DBX doing no better a job of meeting the original expectations than a certain other Stroll is in F1, getting to the 10,000 volume target is a pipe dream right now. What’s equally interesting given the situation with the DBX, is the mid-engine Vanquish, which has been a key feature of the new product pipeline going back to at least 2020, has disappeared from the Product Innovation section of the 2022 results presentation. How AML hopes to get anywhere near 10,000 vehicle sales annually without a core mid engine supercar now that the DBX has failed to deliver totally escapes me. However I suspect the Vanquish’s vanishing act has more 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 (there will be a full separate update on the Saga of the Valkyrie coming shortly).
I also don’t see how AML is going to get to £2bn of revenue by 2024/2025. Revenue in 2022 is £1.38 billion which already includes roughly £220 million from the Valkyrie. AML likely has two more years (2023 & 2024) of similar Valkyrie revenue before that drops off significantly. Assuming they ever get the Valhalla built and out the door, that should deliver roughly £300 million in revenue for about 3 years starting in 2025. All in, this still leaves a gap in 2025 of £500 million in additional revenue that AML will have to coax out of other specials and base business growth. That’s almost 50% growth over what the base business is delivering today. I think there is a better chance of the French restoring the monarchy than AML hitting £2bn of revenue in 2024.
Despite all of this, Aston Martin did report a few key numbers that on face value look terrific. Revenue in 2022 is £1.38 billion, up 26% and Q4 was especially strong with 46% revenue growth. Gross margin on a YTD basis is also up 120 basis points to 32.6% despite being down 250 basis points in Q4 vs. prior year. While the revenue number looks great, its mostly due to delivering cars that still have issues (i.e the Valkyrie) and a lettuce with a blond wig (Liz Truss: Inside the Story of the Lettuce vs. Liz) who spectacularly tanked the value of the British Pound. Ex the Valkyrie’s roughly £220 million in revenue, 2022 revenue growth drops from 26% to 8%. As most of Aston’s sales are ex UK, Aston also got a huge currency conversion benefit when all the ex UK sales were converted back into pounds (UK market is 17% of AML’s sales). This benefit was worth +200 bps of gross margin in 2022. However, the downside of Trussonomics was a £156 million foreign exchange revaluation on the US dollar portion of Aston Martin’s mountain of debt.
The “God Dammed Debt”
Probably Stroll’s most famous quote in 2022 was made in February when he stated:
“Let me be crystal-clear, black-and-white: we do not need money.”
And yet in July 2022 AML announced a £653m Equity Raise to, in Stroll’s words, “deal with the god-damned debt”.
In this week’s earning call, in response to an analyst question, Stroll stated “as long as we execute on the plan, we do not see any liquidity needs whatsoever”.
It will be interesting to see if history repeats itself again. I believe the saying goes “fool me once, shame on you; fool me twice, shame on me”. The key word in Stroll’s statement is execute. Given AMLs recent past history, this is a bit like betting on a certain other Stroll not to have a single crash in this year’s F1 season.
Despite the 2022 £653 million Equity Raise, Net Debt (= Gross Debt – Cash) is down only £126 million vs year end 2021. Gross Debt now sits at £1.35 bil. and is actually up £37 million. Essentially 80% of the cash AML raised has already been vaporized. It’s a spectacular financial accomplishment and they really should name the next model the “Vanish”. Cash on hand was up £164 million vs. 2021 to £583 million at the end of 2022. AML’s free cash flow was a negative to £299 million in 2022, more than doubling from a negative £123 million in 2021. Had they held their payables flat vs. 2021, FCF would have been negative £382 million.
AML’s year end payables sat at £876 million, up to £82 million vs. prior year. AML’s payables are £77 million higher than Ferraris on 30% of the revenue (If AML was forced to drop their payables to a comparable level (£263 million) to Ferrari based on revenue, they would be essentially insolvent) Assuming that AML has to pay a few critical major suppliers (example Mercedes Benz) in 90-120 days, this would imply that there are a large number of AML suppliers with receivables aging close to a year if not more which has to put many of them under intense financial pressure. Cost of Sales in 2022 was £931 million and per Felisa’s comment on the earnings call that 70% of the value came from outside suppliers, this would imply AML generated about £650 million in payables in 2022. Felisa also referred to wanting to strengthen the cooperation with the suppliers and make them partners. I guess this would be a change from the current status of financial hostage.
My estimate on customer deposits is roughly £330 million. AML reported that customer deposits dropped £18 million in 2021 (however AML does not report the total deposit number). As the £1.25 million in deposits is taken off the books with each Valkyrie delivery, AML does not appear to be able to refill the deposit moat fast enough with new funds from the DBR22 or Valhalla. In the 2022 Financial Results, it was noted that after 3 years, only 50% of Valhalla build slots have been sold. Given AML’s rather precarious financial position, it isn’t surprising that AML is starting to find it more difficult to extract long term unsecured interest free loans from its customers. All in AML’s total net debt pile (Gross Debt + Payables + Customer Deposits – Cash) is £1.97 billion. There is also £1.4 billion (and growing) of Intangible Assets sitting on the balance sheet which will need to be amortized over the coming years.
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 stupendious 2nd half as they are rolling out a few facelifts and upgrades on the “7 year old sports and GT cars”. While I do expect the 2ndhalf 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.
Right now, it looks like AML has another year and a bit before they run out of cash again. The £653 million Equity Raise in 2022 hasn’t even begun to solve the debt issues. AML’s 2022 losses more than doubled to £495 million. To get even close to the 2023 Guidance wholesale number, it likely there will need to be another rather large “temporary suspension of the demand-led operating model. The Valkyrie continues to be a mess, but the damage here is all self-inflicted. Add this altogether and it’s no surprise that AML’s shares have dropped 74% in the last 12 months. Despite all of this Stroll declared in the 2022 Financial Results Release that:
“With the heavy lifting behind us, we are now poised to see the results of this transformation, starting in 2023.”
Given that AML has yet to launch a single hybrid (other than the Valkyrie), has pushed the EV launch back to late 2025 at the earliest, appears to have cancelled its mid engine mainstream supercar (Vanquish), still needs to develop new next generation models for the Sport/GT cars, and is years behind on the Valhalla, I believe AML still has a lot of heavy lifting ahead of them. These plus a number of other underlying issues need to be addressed before AML is “transformed”.
Note: I do not and have never owned any AML shares.
Thoughts and comments? Please see the comments section below.
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P.S. It would be appreciated if the AML Investor Relations Team would repost the Q3 2022 Results on the AML Investor Website. They seem to have been taken down when the FY 2022 Results were posted.
Excellent review. Yes, I own a Vantage, and yes, heart ruled head and a bought shares when it IPO’d. Which are now worth about one and a half tanks of petrol. It’s such a shame that the last ten years of management have not delivered either good strong focussed management, or cars that are truly beautiful.
JLR have a problem. The damage done by the world’s worse automotive CEO, Thierry Bollore. A surprise entry on the list after Tobias Moers before he quit Aston Martin. Bollore wanted to kill off Jaguar and used the semiconductor shortage to that end. Building Range Rovers instead of Jaguars, and he could have been building both if he’d secured a supply of those chips. That’s what he should have done instead of his vanity project of moving Jaguar to become the next Tesla. Whilst rivalling Bentley, his main target. Replacing £30k cars with £100k ones and then wondering where the customers have disappeared to…
Why is this important?
Even with the mismanagement by Bollore JLR have over a year of pre-orders waiting to be built, and they’d have sold even more if they could have delivered cars within a time frame. 220,000 pre-orders that include very expensive Range Rovers. Ones very close to, and sometimes, even more than a DBX.
Aston Martin struggle to sell 3,000 DBX models, and even have had to add the run-out unusable powerful model to boost sales. A smart person would be asking why can’t they sell enough DBX? Ferrari instantly sold out with theirs. Lamborghini’s used values are ridiculous. Why is Aston struggling?
Why have Aston struggled to sell the DB11, new Vantage, and the DBX?
These sales numbers have been boosted by the run-out specials of the V12 Vantage. For some reason there’s a core who’ll buy any limited edition that Aston produces. I don’t understand it, because there’s nothing that special about these cars. Even their specials haven’t been that special when you realise they’re rebodied Vantages mainly.
DBX is said to have superb engineering and packaging inside for passengers. Yet, it doesn’t get the sales Aston needs.
If only someone in Aston management was smart enough to ask the question?
I’ll even give him / her the answer. Marek Reichman designs don’t sell. To save Aston find a competent designer.
Right now Aston are burning through what cash they have re-tooling for Reichman’s updates to the DB11 and Vantage. Updates which will do little to help sales then stumble along. Nothing to dramatically increase desire for their cars, nothing. Look at Lotus with the Emira and the demand they’ve had. So much demand they had to completely rethink how they were going to produce the cars. All to the benefit of Lotus of course.
Everybody wants to see Aston survive. Everybody on the outside is SCREAMING at Aston telling them why their cars aren’t selling! Yet nobody is listening. You’d think the billionaire Stroll wants to become a millionaire. Someone needs to save Aston from Stroll and sack Reichman.
Really enjoy these. Great work.
Not sure it’s necessary to have the little digs at Stroll jr though.
Actually after that 1st lap tag of Alonso, Im standing by my Jr. dig.
Pushing-out of inventory is also visible from quarterly core ASP – before it was growing, with reduced financing mentioned as one of growth drivers. Not so in Q4: Q1 151 kGBP; Q2 174 kGBP; Q3 189 kGBP; Q4 184 kGBP.
P.S. Looking forward to your next chapter of Vakyrie Saga.
Thanks as always for the review.
With the F1 Team off to a good start, lets hope there is a ‘sell on Monday halo’ generated by some positive progress with the F1 program.
May be an Alonso Limited Edition coming? Yes there must be .
Great analysis, SSO. Thank you.
Aston Martin needs to sell fewer cars, at higher margins on a lower cost base.
It’s a coachbuilder. It still is. Volume destroys brand equity. Here’s a suggestion for AM’s shareholders:
• There will be ugly write-downs.
• Build the next equity/debt restructuring around on a lower volume, higher margin, lower cost business model.
• Work out where AM’s costs and margins really are.
• Sell the DBX platform to Mercedes (rights, tooling, the lot). Mercedes could do with a sporty SUV and could sell them at higher volumes at a lower price point. Take a royalty or a capital payment. Apply the proceeds of the disposal to AM’s debt pile or the payables it owes MB.
• Close St Athan completely. Concentrate everything at Gaydon (and, by the way, open a modest visitor centre there that washes its face financially).
• Keep the existing model line on sale for longer. Make the best of it. Consider halting production of the Vantage.
• Enforce build-to-order. Stop begging customers to buy cars (eg DBX707).
• Cut the number of dealers.
• Separate sales from service (consider consolidating service centres at key location with a liveried transport service). Exceptions could be made for AM Works and HWM.
• Create two routes to market:
o A highly bespoke route; and
o A strictly limited number of standard, non-bespoke cars off the same chassis as the bespoke items for ordinary mortals (still built to order).
• Upgrade “Q” beyond colour and trim. Offer flexible power and torque outputs and physical chassis specifications (not modes). Enable customers to specify their new and existing cars according to local conditions and personal preference (within reason).
• Draw a line under Valkerie.
• Develop a modular GT chassis, and a modular mid-engine chassis ensuring that the modularity is flexible enough to enable customers to have maximum choice over powertrain, chassis specification and electronics. Some of that work has already started.
• Take a leaf out of Ferrari’s book on customer patronage (not entirely but it’s important for Aston to manage demand and supply more effectively). It’s too easy to buy an Aston Martin at the moment.
• Next, support the existing customer base better. Support used values, improve the customer experience (its largely just talk at the moment), do something for the community, support specialists better, buy up the rattiest Gaydon and Bloxham cars (scrap them or recondition/upgrade them), get away from the red trouser mentality, recognise that people love owning these cars but need support from the factory). Basically, attend to the grassroots – it’s not expensive and, in the long run, it will pay dividends.
• Look hard at the market for used Astons. Buyers won’t come back if they have difficulty moving cars on.
• Offer customers upgrades on cars they already own.
• Restructure the F1 deal so that it’s linked to margins (the advertising either works or it doesn’t. there’s value in an F1 deal but it must be two way.
• James Bond is fine but it’s important to broaden the appeal – especially with women. Think about a specifiable package for women (eg. closer pedals, smaller, more adjustable seating, seatbelts, mirrors). Women don’t drive Astons. No reason why they shouldn’t.
Anyway, those are the basics.
At a high level, Aston just needs to accept that it must produce fewer cars, at higher prices, off a lower cost base whilst supporting its customers better (with all that implies) and get on with doing it instead of talking about it.
Finally, the business needs some energetic leadership with imagination and courage.
Mr Felisa could be remembered as the leader who forged the remarkable Ferrari business we see today, or the CEO who was the helm when Aston died again. Why did he take the Aston job? What does he see that we don’t?
What difference does it make changing suppliers to partners, financially, anyone?
Point of order! This “John” isn’t me who posted above.
Other Johns exist and your mileage may vary.
What a ridiculous article again, your hate for everything Aston Martin related is unbelievable, to a point it almost gets funny…
Watch the sp going, I hope you covered your short positions or it will getting really ugly for you in the next month’s/years…
There is also something strange about AML’s inventories figure at Y/E. Inventories were £m 286.2 million up from £m 196.8 (YoY). On a Gross margin of 33% and an average selling price of £177k (or an average production cost of around £133k per sold vehicle), this is equivalent to 2,150 completed vehicles being held as inventory – 4 months of average total vehicle sales. Difficult to understand how this squares with AML’s supposed ‘demand-led operating model’. Has AML not heard of ‘just in time’ manurfacturing?
At half year, the excuse for the rise in inventories was that this is “reflecting a significant number of ordered vehicles awaiting final parts at the end of June”. However, despite an (unbelievably) good Q4, when 2,352 vehicles were ‘wholesaled’, in the second half, inventories only decreased by £m21.4 million (equivalent to the cost price of approx. 160 vehicles). Given that AML’s working capital situation is absolutely dire (current ‘trade and other payables’ of £m876.3 is roughly the same as the entire year’s ‘cost of sales’ of £m930.8m – creditors are waiting one year for payment!), it’s hard to believe that AML has consciously decided to hold inventories at such a high-level. I suspect that demand is probably a lot softer than AML expected and, in addition to pushing a lot of vehicles onto its wholesalers, AML is also holding too high an inventory of stock that it will want to quickly offload.
There appears to be a total disconnect between the AML narrative accompanying the final results and the actual numbers themselves. A Kafkaesque appraoch when reporting financials never ends well.