It’s been a bit over a year since I did a general update on Aston Martin, Ferrari, and McLaren. During this past year all three have undergone enormous changes. Two of the three had near death experiences and all three have new CEOs since the start of 2020. All three are still facing major challenges both internally and with the coming transition first from ICE (Internal Combustion Engine) to Hybrid and then to Electric.
Starting with Aston Martin. Thanks to Yew Tree/Stroll’s multi million pound investment (Lawrence Stroll is now the Executive Chairman) and Mercedes Benz technology, Aston Martin has avoided an 8th bankruptcy, at least for now. Andy Palmer, the vast majority of Palmer’s team, and just under $5 billion in shareholder value are all long gone. What does remain is the new DBX (SUV) plus a new factory in Wales (St Athan) which was built to produce it and is running at around 40% of capacity, an epically delayed halo hypercar (the Valkyrie), a mountain of debt, and in the words of the current CEO Tobias Moers an “aged” sportscar portfolio. A comment that I’m sure was welcomed by all the Aston Martin dealerships globally as its sure to drive sales…………..
Speaking of sales, I got an email this week from an Aston Martin dealership in the US. They are offering 3 years free servicing with the purchase of a DBX. I checked the dealer’s website, and they currently have nine new DBX’s listed for sale and one used DBX. Based on past experience, if they are showing 9 DBXs for sale, they probably have twice as many in stock. 3 years free service isn’t something you offer on a new model that’s flying off the showroom floors. In the Q 1 2021 earnings call, Aston indicated that they would no longer be reporting retail sales. Eliminating this key piece of information gives Aston the ability to immediately revert back to bad old habits and start stuffing dealerships with cars if they are trying to manage earnings and hit certain targets to prop up the share price. I am surprised the financial analysts who follow Aston haven’t raised this as a major credibility issue given the history. It’s the financial equivalent of putting a recovering alcoholic in charge of guarding the wine cellar. It might be ok but there’s a big risk it doesn’t end well.
Unpacking the DBX saga a bit more, there are a few things that are hard to square. The new manufacturing facility in St Athan opened in December 2019 with 600 employees hired over the course of 2020. In March 2021, Aston made 1/3rd of 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. These are not the actions you normally see taken to support a massive success and the changes in options go directly against Moer’s 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 has to be less than happy with the current situation.
Moving onto the Valkyrie. If Aston Martin finally delivers a customer Valkyrie before the end of the year, it will have taken Aston longer to develop this car than it took Henry VIII to go through 4 wives or the Allies to defeat Germany in WW2. Both Moers & Stroll are on record as having promised the first deliveries will happen before the end of 2021, though Aston Martin also said the same for deliveries last year. From what I have gathered from a few different sources, that is likely to happen. These sources also indicated that given the massive problems Aston has had trying to get the electronics to work in the road cars, it’s now the track cars that are being prioritized as they will be built without the sophisticated electronics & hybrid system. Apparently, Aston has had major challenges getting the Valkyrie road car mules to run for more than 20 minutes at a time with the longest run being around 45 minutes so far. 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. How many owners will be able to drive the track cars anywhere near the limit without the sophisticated electronics systems will be interesting to see.
In terms of the track Valkyries, Aston has outsourced the development & production of the car to Mulitmatic (Multimatic also is building the latest Ford GT) with instructions to get it done as quickly (and if the rumors about Stroll’s instructions are true, as cheaply) as possible. Multimatic will also likely be doing the final development and most of the production on the road Valkyries with final assembly planned at Aston Martin’s Gaydon facility. Continual failed crash tests by Multimatic have not helped speed development along, and its believed they are struggling. 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. Needless to say, the relationship between Aston Martin & Red Bull (way back in the middle of the last decade, the Valkyrie was originally conceived as a joint project with Red Bull’s Adrian Newey as the chief designer) has turned bitter and toxic. Red Bull has not been involved at all since the end of last year. How this is going to end is anyone’s guess but I’m sure there will be plenty of finger pointing. Neither Stoll nor Moers have any “ownership” of the project and seem to view it as an unwelcome stepchild that they just can’t wait to get out of the house. Just to make it even more interesting, apparently there is no love lost between Moers and Multimatic. This might have something to do with Moers’ experience in his prior job on the almost equally delayed Mercedes AMG One, which Multimatic was also working on.
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. 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. 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.
It is also possible Moers could be warming up shareholders for a much bigger hit, given there is potentially more ugly news to surface with the Nebula dispute. That figure could easily be in the £50 million plus range, given that more deposit holders have also been refunded recently. In addition, you have the Valhalla depositors who have been requesting refunds as that project has gone badly off the rails. Based on Moers recent statements, if the Valhalla ever does see the light of day, it will be a far cry from what was originally presented. All this will likely put increasing strain on the Stroll – Mercedes relationship.
Going back to Tobias Moers and Lawrence Stroll, it doesn’t seem like it is all smiles in paradise anymore. After lots of bold and bombastic claims in 2020 about creating a great luxury brand, the “British Ferrari”, Stroll has kept a much lower profile in 2021. In Stroll’s most recent comments to the Times of London, he mainly focused on making Aston a proper luxury brand, aligning supply with demand, and expounding on the tie up with Mercedes Benz: “A company of this size needs a big brother — to think they don’t is wrong,” Stroll said. It’s a fascinating statement given his two closest and more successful competitors, Ferrari & McLaren, are both completely independent. Reading between the lines, it appears that Mercedes are now calling the shots at Aston Martin whether Stroll likes it or not. This is not that surprising as Aston Martin can’t really survive without Mercedes support and Stroll’s Racing Point/Aston Martin F1 Team is also heavily dependent on Mercedes for technology. Basically, Mercedes has Stroll over a barrel as any profitable exit for Stoll is going to be heavily dependent on Mercedes support.
Tobias Moers, who came from Mercedes, appears to be more of a Viceroy, than trying to settle in as an indigenous CEO. Moers has not moved his family to the UK, and he is still commuting from Germany. In the last earning call, he seemed tired and uninterested in sparing with the financial analysts. The nicest thing Moers has said about Aston’s current lineup is they are “OK” but he has also called the current portfolio “aged”. Moers has granted very few interviews and has done little to become the public face of the company. All of which are indicators he is not planning to stay. What he has done is streamline the manufacturing side of the business and kill off the V6 engine project, leaving Aston totally dependent on Mercedes for its powertrains going forward. Stroll’s vision of becoming the British ‘Ferrari’ is clearly not shared by Moers and I don’t recall him ever referencing it. My guess is Moers will stay through the end of the year, declare that he has stabilized the business, then go back to Mercedes. For Mercedes this is a win win, they will have a true inside view on if they should acquire Aston Martin and if they decide not to, they can walk away without having put £1 into the business.
While the machine keeps on powering ahead, it hasn’t been all smooth sailing for Ferrari in the past year. Ferrari navigated the Covid disruptions incredibly well, however they did lose their highly regarded CEO, Louis Camilleri, who retired suddenly in early December after catching Covid-19. Post Louis Camilleri’s departure, Ferrari seems to have taken a more aggressive stance on moving into EVs. John Elkann, the interim CEO post Camilleri, moved quite quickly on pushing forward an EV (electric vehicle) agenda (John Elkann is head of the Agnelli family, Chairman & CEO of Exor, the holding company for the Agnelli family’s main investments). Ferrari is one of Exor’s largest holdings and a key source of Agnelli’s wealth & income). When the question came up on the Q4 2020 call, Elkann was very explicit that in the coming decade that there would not be a fully electric Ferrari. Hybrids yes, but fully electric no. In the Q1 2021 earnings call, Elkann announced that Ferrari would be launching its first fully electric car in 2025. That’s quite a change in strategy in just 6 months. This does raise the question if Camilleri’s departure might have been partially driven by a disagreement on EV strategy. Now with Camilleri out of the way, Elkann is pushing the EV agenda forward hard.
This theory is supported by the recent appointment of Benedetto Vigna as the new Ferrari CEO effective September 1. Vigna is seen as a highly unexpected choice as he has no experience in either the automotive sector or luxury goods. Vigna has spent the vast majority of his career in electronics and is currently the head of the sensors group at semiconductor firm STMicroelectronics. Vigna will have the massive, high risk task of leading Ferrari through the hybrid and EV transition.
After all the drama around McLaren’s near-death experience last spring, the past twelve months have been relatively quiet. The two most recent models, the 765LT and the V6 hybrid Artura, have been well received. McLaren seems to have taken a go slow and make sure it’s perfect approach on the Artura which should help put to rest the noise around reliability. Despite mixed press reviews on the 765LT, owners speak very highly of the cars, and they are trading hands at well over sticker. There have been a few management changes, a new CMO for the McLaren Automotive is now in place, and Tony Joseph, the President of McLaren North America, recently departed. I have met Tony on several occasions and he will be missed. Tony did an excellent job building the McLaren NA business and network up from basically nothing to what it is today.
The lawsuit with McLaren’s bond holders on if McLaren’s historic F1 cars had been pledged as collateral has been resolved. As a result, the sale and lease back of the Woking Headquarters was able to go ahead. The HQ sale plus the sale of a minority position in the Race Team have put McLaren back on sounder financial footing.
In summary, all three supercar manufacturers have their challenges. For Ferrari these are not outside what one would expect for a highly successful company in a challenging environment about to go through a major technology transition. McLaren is stable right now but can’t afford any more missteps. The first couple of years post the Artura launch will be critical. What happens to Aston Martin is anyone’s guess. Its last several years would definitely make for a compelling mini-series. It’s doubtful the DBX will be the savior it was originally touted as, and the Valkyrie has been a massive PR mess for years now with potential to get even worse. How Stroll eventually extricates himself (and his wallet) from this will be interesting to watch.
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