Ferrari had a spectacular year in 2022 and that momentum has continued to build in 2023. Every single key financial indicator, bar one, grew double digits vs. Q 1 2022. The only hiccup, Free Cash Flow, was down by 9.9% but even there are good reasons for the decline which can be seen as a strong indication for more upcoming growth. The order book is very healthy, extending now into 2025, and Ferrari indicated that Q2 will be another strong quarter. Ferrari management then indulged in a bit of sand bagging and tried to downplay expectations for the back half of the year by indicating they expected Q4 to be the weakest quarter in 2023.
In Q3 2022, Ferrari raised its guidance on every single key metric and then went ahead and beat even the raised goals last year. I have no reason to believe they will not do the same this year and the Q1 results certainly point in that direction. To a certain extent, they have to given the current market cap of $54 billion and the stock sitting at an all-time high (as a reference Ford’s current market cap is $46.5 billion and they do sell a few more cars than Ferrari, another way to look at it is Ferrari is valued at $4.1 million for each car sold, while Ford has a value of $11k per car sold). Ferrari is valued by Wall Street as a super premium luxury company and not as a car company. The moment it fails to continue to execute brilliantly and beat expectations, Ferrari risks being seen more as a car company which will be ruinous for the stock price (as another reference, Aston Martin’s market cap is $1.9 billion or $296k per car sold). These dynamic plays themselves out both in the way Ferrari acts and the messages it is sending.
Benedetto Vigna has been the CEO for over a year and a half now and it shows. In the earnings call Vigna now comes across as more confident and in command. Vigna still holds his cards very close to his chest but is a bit more loquacious and comfortable providing deeper insights into certain areas while pushing back in others. The CFO, Antonio Picca Piccon, was also on the call and did his usual nice job of handling the various questions tossed his way. Vigna & Piccon appear to have a strong relationship and work well together.
The areas that I found interesting follow:
Over the last several years, Europe received 46-48% of Ferrari’s production. This rose to 54% in Q1 2022 but dropped back to 43% in Q1 2023 with a 12% decrease in deliveries. North American deliveries accounted for 27% of the total in Q1 2023, up 46% vs. Q 1 2022. Ferrari seems to quite deliberately adjust supply to take advantage of currency movements. As the US dollar has remained quite strong vs. the Euro going into 2023, the US has continued to receive a higher allocation of new cars. This is likely to change if the dollar weakens in the back half of the year. Supply in the US, even with a 46% increase in units, is still short of demand. As a result, residuals on recent models are still quite strong, even if they have receded a bit post the COVID used car bubble.
Where Vigna seems to be more hopefully and excited is with the 499P, Ferraris new Le Mans Hypercar. The 499P was on the podium in each of its first three races and it should do well at Le Mans.
The 2023 Targets remain unchanged for now. Given the strong Q 1 2023 results, none look overly ambitious. Given how Ferrari blew away its initial 2022 guidance, this feels a bit like another round of under promise and then over deliver. I would expect to see at least a few of the target revised upwards come Q3.
In a Bloomberg Interview in Feb 2023, Ferrari CEO, Benedetto Vigna was asked “What is the biggest threat you see for Ferrari?” His answer, “I can’t see any specific threat for Ferrari.” Complacency is Ferrari’s biggest risk. Ferrari’s vast market cap puts it in a position where it has no room for executional error while needing to drive its top line well ahead of any increases in volume. With Geely now looking like it will be in control of Aston Martin in the not-too-distant future, a rejuvenated and well funded Aston Martin could prove to be a formidable competitor in the front engine Gran Turismo & SuperSUV segments. Likewise, a resurgent McLaren led by Ferrari’s former Chief Technology Officer could be a serious threat again. Longer term, given the success of the T.50 & T.33 there is also a serious threat from Gordon Murray Automotive if it continues to expand its portfolio. Add GMA, with other emerging boutique manufacturers, SCG, Czinger, & Praga, and they could pull a few hundred high ticket sales a year out of Ferrari’s core. While Ferrari might have plenty of space in-between itself and nearest competitors right now, that gap can close quickly, especially as both Aston Martin & McLaren’s futures look more promising today than they did even a few weeks ago.
The Ferrari machine keeps going from strength to strength and Ferrari’s hefty $54 billion market cap reflects this. Vigna must lead Ferrari seamlessly through the transition to a three powertrain platform business with all the additional complexity that brings with it. Getting the F1 Team back to the very front of the grid doesn’t seem likely to happen anytime soon but the reality is, the F1 team performance only has a minor impact on Ferrari’s finances and none on car sales. In 2022, Ferrari beat their guidance on every single financial metric for the 2nd year in a row, now they just need to repeat this in 2023, which given the current model portfolio, momentum, and overflowing order book, they very likely will.
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