Instead of doing a deep dive into the 1st half 2022 numbers this time, it might be a bit more interesting to just share a few performance highlights before taking a look at each company’s strategy and development. Ferrari today has never been on more solid ground while McLaren is surviving due to the generosity of its owners. In many ways, McLaren today is the automotive equivalent of being a member of the lucky sperm club. Ferrari on the other hand, is more a case of the young playboy who has grown up and become a highly respected businessman.
Key Performance Highlights: Ferrari
Ferrari has been on a role for quite a few quarters now. 2021 was an outstanding year and if anything, the 1sthalf of 2022 has been even better. Finding any negatives in Ferrari’s 1st half 2022 results is even more difficult than identifying the positives in Aston Martin’s. After an extensive amount of shifting through the financial results, the only negatives are a 220 basis point drop in EBITDA margin percentage, an increase of Net Debt by €273 million vs. end 2021, and Cash has dropped by €138 million in the same period. However probably the most worrying thing that has happened in the first half is race strategy has become a foreign and quite mysterious concept within the Ferrari F1 Team.
On the highly positive side, Ferrari raised its 2022 guidance on all key metrics. This is both a huge vote of confidence in the health of the business but also underscores the flawless CEO transition to Benedetto Vigna. Cars sold were up 23%, Revenues increased 21%, and EBITDA was up €107 million. Ferrari returned €331 million to its shareholders in the 1st half via both dividends and share repurchases. In a show of just how agile Ferrari is, with the US $ continuing to strengthen against the €, Ferrari was able to take advantage by boosted shipments to the Americas by 62% in Q2 2022. Ferrari’s market cap of $36.6 billion, is now 177 times larger than the late Mr. Bond’s automotive provider.
Key Performance Highlights: McLaren
McLaren on the other hand, just put up 1st half numbers that they would like to put behind themselves very quickly. While the 1st half of 2021 wasn’t brilliant, the same period in 2022 was even worse as Ultimate car deliveries tapered off. When the first bullet point in the investor deck references an event that has yet to happen you know things are pretty bad:
In fact, it’s now the beginning of October and customer deliveries of the Artura have yet to start. As I don’t want to scare any young children who might stumble across this article, I will keep the summary on the figures short and at a high level. Cars wholesaled dropped 24%, revenue was down 26.3%, EBITDA swung -£120 mil. from a positive £95 mil. in 2021 to a £25 mil. loss in 2022. Liquidity was down £29 mil. to £50 mil. with an additional £80 mil. of new equity injected in July 2022. On the more positive side, gross debt was down £80 mil. to £530 mil. The other positive news was the order book is full for 2022, with 2,510 orders as of the end of June.
Strategy & Business Development: Ferrari
So how did this all come about? Starting with Ferrari, they certainly didn’t luck into this situation as it has now been far too many quarters of the same great results. In summary, Ferraris success is due to a great long term strategy covering the model portfolio, new income streams, and talent. As an organization, this has enabled Ferrari to executed consistently well while being agile enough to respond effectively to completive threats and changing market conditions.
Starting with car model portfolio, looking back, it all started with the launch of the California in 2008. As hard as it is to believe, this reengineering and rebadging of what was originally a Maserati project, launched Ferrari on its latest track to being a $30 billion plus company. The underlying concept wasn’t new to Ferrari. Back in the 1980’s Ferrari had introduced the Mondial as a softer, easier to drive 2+2, to attract a broader base of customers. While the Mondial today is viewed by Ferrari as better off forgotten, the California was a success and significantly broadened Ferrari’s appeal. From the California, which lives on today, 5 generations later, as the Portofino M, Ferrari next repositioned its flagship but traditionally low volume V12 2+2 GT as a more sporting “shooting brake” with four wheel drive capabilities. With the advent of the 4WD FF, Ferrari now had a car that owners could drive to St. Moritz in the winter. Like the California, the FF, went through multiple generations before officially coming to an end with the GTC4Lusso & GTC4Lusso T in 2020. The GTC4Lusso line is also the first time Ferrari has offered both a V12 and a V8 engine in the same chassis. While the FF has officially come to an end, it again broadened Ferrari’s market with both four season capabilities and enhanced daily driving accessibility. The Purosangue FUV (Ferrari Utility Vehicle), which is replacing the FF line in the Ferrari portfolio in 2023, takes this one step further and moves Ferrari into the high end soccer mom territory for the 1st time.
If the California broadened Ferrari’s customer base, and the FF the usage occasions, the next three major initiatives, the Icona, Roma, & the hybrid SF90 along with the 296 GTB both filled the coffers and put a fork solidly into Ferrari’s two key competitors. With the Icona Range, Ferrari found a clever way to turn the “once every decade” high margin hypercar business into a regular on-going profit gushing product line that has helped provide the funding needed to invest in hybridization. With the Roma, Ferrari fired a competitive shot right into the heart of Aston Martin’s core V8 sports car business. While Aston Martin has been threatening to get into Ferrari’s core mid-engine supercar business for years now, Ferrari now has both a mid-front engine V8 and a V12 that deliver superior performance to any of the competitive models in Aston Martin’s core portfolio. After playing catch up to McLaren in terms of performance on mid engine V8 supercars for most of the last decade, the early entry into main line hybridization with first the SF90 and later with the 296 GTB, has allowed Ferrari to seize leadership back as we go into the next generation of supercars. All in, Ferrari today has a portfolio of models no competitor can come close to matching.
In parallel to the model line expansion, Ferrari has also done a great job of both opening up new income streams and broadening existing ones. The Classiche Program is a great example of taking a small idea and turning it into a significant recurring income stream. Classiche started off as a simple authentication program and has evolved into both restoration, classic parts, and on-going service. The only leg it is missing at this point is classic sales. In fact, no other car manufacturer comes even close to monetizing its past production the way Ferrari has been able to. With the F1 team and merchandising, licensing and royalty income, Ferrari will pull in an estimated €450 million this year. On top of this you can add in another €120 million from the Mugello Race Track, the Challenge Racing Series, and other “sporting” activities. All in, the “non-car” bucket at Ferrari is equivalent to more than half the total revenue of most of their competitors at margins that vastly exceed those generated by selling automobiles. In addition, it highly synergistic and helps bring new customers into dealerships.
When it comes to talent, Ferrari has blessed with wise forward thinking ownership under Executive Chairman, John Elkann’s leadership for the past decade and a bit. Elkann has been the steady hand behind the scenes as Ferrari has gone through five CEOs in the past ten years. During this period Ferrari has gone from being a jewel within the Fiat empire, to becoming a fully independent company in 2015 with a market cap on par now with its former corporate parent. I believe one of the keys to this success has been Elkann’s bringing in CEOs, starting with first Sergio Marchionne, then followed by Louis Camilleri and Benedetto Vigna who came originally from non-automotive backgrounds. This has allowed Ferrari to think outside the traditional automotive box and expand into new areas. The diversity in backgrounds at Ferrari extends well beyond the CEO’s office. A few examples from the executive roster are the always entertaining on earnings calls, CFO, Antonio Picca Piccon, who came from the Ariston Thermo Group, Carla Liuni, the Chief Brand Officer, has worked for Pandora, Bulgari & Procter & Gamble, Ernesto Lasalandra, the Chief Research & Development Officer joined Ferrari from STMicroelectronics and finally Enrico Galliera spent 20 years at Barilla S.p.A before becoming Ferrari’s Chief Marketing and Commercial Officer. Overall, Ferrari has a balanced talent pool with a range of both automotive and non-automotive backgrounds that its competitors are hard pressed to match.
Strategy & Business Development: McLaren
Moving on to McLaren, other than the core supercar line, the model portfolio has been a bit of a mess for the last couple of years. Back in 2018, it consisted of a fairly easy to understand Sportscar, Supercar, Ultimate Series, and Motorsport lines with a number of models being produced in each of those segments. Today the official model portfolio is GT, Supercar Artura, Supercar 720S/765LT, Ultimate Series, and Motorsport. Trying to identify the logic behind this segmentation is brain damaging and near impossible to explain to a new customer. McLaren would be far better off taking a similar approach to Ferrari and grouping the GT, Artura, and 720S as their range or Supercar models, with the 765LT, Elva, and Solus as the Special or Limited Edition Models. The attempt to broaden the line into the GT segment has been a very modest success as mid-engine and GT don’t really fit together. Putting a softer suspension and a longer body on a 720S tub so you can fit a golf bag on top of the engine, doesn’t really transform a supercar into a GT. In addition, while McLaren has been highly aggressive at churring out Ultimate Series Models in the last 5 years (as they were paying the bills and keeping the lights on) with the Senna, Sabre, Speedtail, Elva, and Solus, they have all been different one-off exercises without a common theme along the lines of what Ferrari has knitted together with the Icona series. The Speedtail in particular was a marketing miss. While McLaren originally tried to pitch it as the F1’s spiritual successor, what they delivered was 4 cylinders short, 400 kg heavier, close to a meter longer, and unlike the F1, the Speedtail has zero chance of ever winning Le Mans. What has saved McLaren though is while the marketing has been highly tactical and more than a bit muddled at times, the actual cars McLaren produces are normally best in class and well ahead of the competition at launch.
When it comes to parallel non car income streams, McLaren has always trailed Ferrari significantly and Covid put a huge dent in the modest gains McLaren had made in this area. It is however an area of great opportunity. With the original 12Cs now over a decade old, plus over 2,000 even older Mercedes McLaren SLRs out in the wild, it makes since to now start some sort of Classic Program. Many of the McLaren “lifestyle” events used to be in high demand and these should be brought back now that the majority of the world has opened up again. While McLaren does have its own customer racing program, its limited to Europe and only has a modest number of participants leaving room for significant future growth.
In terms of talent, McLaren has pivoted from being very auto industry myopic to bringing in external talent with broader backgrounds in the past several years. It started with the Executive Chairman, Paul Walsh. He certainly has a background as impressive as any having been the CEO of Diageo for 13 years. Kate Ferry, the new Chief Financial Officer also came from the outside the auto industry as her prior role was CFO at TalkTalk Telecom Group. The new CEO of McLaren Automotive, Michael Leiters, is an auto industry veteran and came from Ferrari most recently and prior to Ferrari, worked for Porsche. For McLaren’s current challenges, at least Leiters’ experience is far more relevant than either of his two prior predecessors (I covered this in a bit more detail in an earlier article: A Few Suggestions For The New McLaren CEO). One area where talent has been noticeably short has been in the HQ driven marketing. The Senna launch was a mess and the European Artura press launch has been even more of a fiasco. The only bright spot in terms of marketing is the US where McLaren has done a better job on launches and communication. Certainly, here McLaren has a lot to learn from its chief competitor.
The Ferrari machine keeps going from strength to strength. It’s executed another major CEO transition flawlessly and Ferrari’s still hefty $36.6 billion market cap reflects this. Ferrari announced its latest 5 year plan in June and it will be Vigna’s job to deliver both the growth and portfolio laid out in that plan. In 2021, Ferrari beat their guidance on every single financial metric and for 2022 they have just raised the guidance on across the board. It certainly appears that Ferrari has the strategy, portfolio, and talent to continue this highly successful run.
McLaren on the other hand is still stuck in neutral. Until customer deliveries start on the Artura, the situation will not be getting any better. While the hypercar and LT pipeline carried McLaren through Covid, its run its course and other new models are starting to look well overdue. This being just another unintended consequence of the Artura delays. McLaren today does seem to be getting the funding they need to survive until the core development issues are sorted and the recent cars that have been delivered are all excellent. In fact, I would rate the 765LT as the best car McLaren has built since the brilliant and future icon, the 675LT. Work on the strategic front and in marketing clearly needs to be done. On a positive note, McLaren should now have the majority of leadership talent they need to succeed.
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