Ferrari’s Q3 2023 Results: The Horse Flies

Back in August I wrote:

 

2023 Targets

The 2023 Targets have now been upgraded, as expected.  Given the strong 1st half 2023 results, even the upgraded guidance doesn’t look overly ambitious.  Given how Ferrari blew away its upgraded 2022 guidance, this feels a bit like another round of under promise and then over deliver.  It will be interesting to see if Ferrari further revises targets upwards come Q3.

 

In the recent Q3 earnings call, Ferrari management raised their guidance for 2023 again.  What makes this especially interesting is if you go back to the beginning of the year, Ferrari was downplaying expectations for the back half of 2023.  Ferrari has made under promise and over deliver into an art form.  All in, it’s the net outcome of having a clear long term strategy and then executing consistently against it.  The stock price is now sitting at an all-time high and the current market cap is $61 billion.

 

Benedetto Vigna, the current CEO, has been in place for 2 years now and it shows.  On the earnings call Vigna now comes across as confident and completely in command.   Vigna is a bit more loquacious now but still reveals very little that deviates from the prepared script.  The CFO, Antonio Picca Piccon, was also on the call and did his usual nice job of concisely handling the questions tossed his way.  Vigna & Piccon appear to have a strong, cohesive, relationship.

Highlights from Q3 and the strategies that help deliver the results:

 

  • Q3 2023 Key Results: The key numbers for Ferrari in Q3 2023 were 3,459 cars sold, (up 9% vs Q3 2022), Net Revenues of €1,544 million (+24%), and EBITDA of €595 million (+37%). Free Cash Flow was €276 million, up €88 million (+47%) vs. Q2 2022.  Mix and pricing contributed €170 million.  Ferrari returned €195 million to its shareholders via both dividends and the share repurchase program in the quarter. 

 

Probably the most impressive number here is the value (revenue) growth which continues to significantly outpace the volume growth, hammering home Ferrari’s credentials as a luxury brand.  A key contributor to the revenue growth was the increase in personalizations which now account for 19% of total car and parts revenue.  Ferrari’s ability to continue finding ways of extracting ever increasing sums of money from its customers it truly impressive. 

 

  • Product Mix & Profitability: Ferrari’s Q3 2023 profits were €332 million up 46% vs. Q3 2022. Mix & price was a positive €170 million driven by model mix and increased personalizations.  Historically it’s been the big V12 GTs that have driven Ferrari’s profitability, this has now been taken over by the hybrids.  In Q3, for the first time in Ferrari’s history, hybrids made up the majority of the sales at 51%.  In Q3 2023, it was the SF90, 812 Competizione, and Daytona SP3 that have driven the mix increases.  Both 296 GTS & Purosangue deliveries began ramping up in Q3 2023, which drove the volume increases.  When the first EV is delivered in late 2025, I would expect that will give margins a further boost. 

 

In his opening comments on the earnings call, Vigna mentioned that a rich country mix was also a key driver of profitability.  Ferrari’s ability to flex allocations based on both currency movements and demand is highly impressive.  In 2023, it’s been the America’s that have benefited from the largest increase in allocations, but all regions are up year to date.

 

In terms of Ferrari’s never ending new and creative ways of extracting money out of its customers bank accounts, they recently launched the new Sport Prototipi Clienti Program initially to support owners of the 499P Modificata.  I am sure it will be expanded to include more limited edition track only models overtime.  Ferrari also launched the Ferrari Cavalcade Classiche.  The first legacy tour under this new program was for 40 F40 owners.
  • CAPEX, & Debt: Ferrari has very ambitious plans and is generating the cash needed to bring them to life as demonstrated by the €205 million in Q3 2023 CAPEX spending, up slightly vs. Q3 2022 with a full year target of €850 million. On the earnings call, Vigna did state that future projects were on track which is critical as Ferrari has committed to launching 15 new models by 2026.  As per auto industry norms, Ferrari capitalizes around 50-60% of its CAPEX spending, with the balance hitting the P&L in the current year.  Ferrari’s debt load continues to be relatively modest and easily manageable given current Free Cash Flow.  Total debt is down slightly to €2.5 billion, and cash and equivalents decreased slightly to €1.01 billion (after paying out €195 million to its shareholders in Q3) with total liquidity of an impressive €1.6 billion.  Ferrari does have €152 million of debt coming due in the balance of 2023 but has enough cash on hand today to retire all the remaining 2023 debt plus all the debt that will mature in 2024.   

 

  • Portfolio: Ferrari’s current portfolio is by far the most complex in its history with four new models launched year. The strategy that has delivered the current portfolio was first articulated back in Q3 2018.  It was then that Ferrari changed the way it segmented its portfolio from V8s & V12s to Sport Range, Gran Turismo Range, Special Series, Icona, and Hypercar.  This change in thinking gave Ferrari the license to build out its portfolio in a way it never had been able to in the past.  With the Icona, Ferrari has brilliantly created an avenue to leverage the nostalgia around its back catalog while spinning out an ongoing series of high margin multi-million dollar limited edition specials utilizing existing platforms (the SP3 Daytona is basically a La Ferrari minus the hybrid system). 

 

In terms of the order book, on the call Vigna stated that the order book now stretches to late 2025.  In Vigna’s words, “less model to offer to the clients because they eagerly took everything we offer them”.  It’s a great problem to have.  For the first time, Vigna did make a few more in-depth comments on the pre-owned Ferrari market.  With a full order book helping to support residuals, Ferrari clearly sees the pre-owned market as another opportunity to drive additional revenue.

 

  • Hybrid & Electric Cars: While Ferrari remains committed to launching its 1st EV in Q4 2025, the first shipments will likely not be until at the end of 2026. Vigna indicated that he has driven a prototype of the EV but refused to say more.  A new building to house EV production is constructed and will open in June 2014.  Post 2025, Ferrari seems very committed to offering three drive train options, ICE, hybrid, and EV with hybrid likely being the majority of the volume.  812 successor prototypes have been spotted running around Maranello and it will be interesting to see if it comes with a naturally aspirated V12 in the nose, a hybrid V12, or something completely different. 

 

  • Racing: Almost all the discussion on the earnings call this time was on the F1 Team. Its underperformance again this year is clearly a sore point.  Ferrari has just opened a new facility for F1 to increase development speed and quality.

2023 Targets

The 2023 Targets have been increased again, as expected.  Given the strong year to date results, even the upgraded guidance doesn’t look overly ambitious.  Given how Ferrari blew away its upgraded 2022 guidance, this feels a bit like another round of under promise and over deliver.  It will be interesting to see by how much Ferrari beats this latest revision while managing 2024 expectations.   

 

 

Summary

Ferrari continues to execute its long term strategy brilliantly and its hefty $61 billion market cap reflects this.  Italy hasn’t seen a cash machine quite like this since the heydays of the Banco dei Medici. of Ferrari’s strong balance sheet allows it to continue to reward its shareholders handsomely and retire debt ahead of schedule.  Vigna must lead Ferrari seamlessly through the evolution to a three powertrain platform business while managing an increasing broad and complex portfolio of models.  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 has no impact on car sales. In 2022, Ferrari beat their guidance on every single financial metric for the 2nd year in a row.  It looks like they will do the same in 2023.  Ferrari continues to come up with new and creative ways of increasing revenue while driving margin and does so in a manner that is true to its ultra-luxury positioning. 

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November 2023

 

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One Thought on Ferrari’s Q3 2023 Results: The Horse Flies
    John
    16 Nov 2023
     9:21pm

    Ferrari really does have a unique position in the automotive world. Strong sales, strong brand, strong residuals. I’ve said it before, all of this was put in place by Luca De Montezemolo. Taking nothing away from the management since then, for the automotive branch anyway.

    For the F1 side, bit of a different story. Big mistake deconstructing what Ross Brawn had left and they’re still suffering from that, even if they couldn’t have matched the Mercedes engine and Newey’s aero. I get the impression they’re backing Leclerc in the team, which seems a mistake when Sainz is the one bringing home the points. Where the automotive side shows exemplary management, the F1 team doesn’t.

    Transition to EV is going to be a huge challenge, one where it would be easy to get wrong. Too much range means too heavy and you lose sportiness. Too little range you get the sportiness back but then automotive journalists will moan about no range. Unlike Jaguar, who have completely F* up because of the world’s worst automotive CEO Thierry Bollore, Ferrari are going through a hybrid period. Walking the cars through hybrid whilst keeping an eye on EV advances is the right idea. Dumping all your product like Jaguar did is insanity, and continuing with an insane plan shows absolute inept and incompetence in management. The difference in management is stark.

    Uptake on the Purosangue clearly shows what the market wants in addition to sports cars from Ferrari. And it’s a V12, not an EV.

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