Aston Martin: Earnings Warning & Potential CEO Exit

Aston Martin: Earnings Warning & Potential CEO Exit

I wasn’t planning on writing another article on Aston Martin until they released their full 2021 results in February.  Friday’s Trading Update announcement, along with the rumors of Tobias Moers imminent departure, have thrown a wrench in those plans.  I’ve gotten quite a number of requests for comment on these latest developments, so I’ve tried to pull together a few thoughts.

As a bit of background, the last article I did on Aston Martin was back in December after Kenneth Gregor, the CFO, suddenly resigned (CFO Jumps Ship), an event that rarely signals that a company is in great shape.  The article before that was a detailed analysis on Aston Martin’s Q3 results (Analysis of Aston Martin’s Q3 Results).  This included a section on the likelihood that Aston Martin would deliver against their 2021 Guidance. At the time, hitting the 2021 EBITDA number was heavily dependent on Aston Martin delivering a double digit number of Valkyries before the end of the year.  Tobias Moers, the CEO made the following statement in the Q3 Earnings Call in November:

 

“Valkyrie, we’re chasing to have a double-digit number delivered this year, and accompanying that, we have a parallel assembly of the track- only Valkyrie as well, where we chase for a single-digit number to deliver to customers.”

 

Multiple reports going into December indicated that Aston Martin has continuing to struggle with Valkyrie production, and it was viewed as unlikely that they would be able to deliver any before the end of the year.  As of last week, there was no indication that any Valkyries were now in customer hands.  There had also been no official announcement one way or another and nothing in the press.  All that changed last Friday, Jan 7th when Aston Martin released the following:

7 January 2022

Aston Martin Lagonda Global Holdings plc FY 2021 Trading Update

Aston Martin Lagonda Global Holdings plc (“Aston Martin” or the “Company”) today updates on FY 2021 trading.

  • Wholesales grew 82% to 6,182 as planned

  • 3,001 DBX units wholesaled in first full year of production taking estimated 20% market share of the luxury SUV segment
  •  
  •  Retails (dealer sales to customers) greater than wholesales for both GT/Sport and DBX as aligned supply to demand and as we operate as a true luxury brand
  •  
  •  Following an extensive and challenging development and testing schedule which has now successfully completed, the game-changing Aston Martin Valkyrie hypercar programme is in production and deliveries to customers have commenced
    • With a quality focused production ramp-up, 10 Aston Martin Valkyrie and Valkyrie AMR Pro vehicles were shipped in Q4. This was fewer than previously planned and accordingly, adjusted EBITDA is anticipated to be c.£15m lower than expected. The impact is timing only, all Aston Martin Valkyrie Coupes are sold and remain allocated to customers with significant deposits
    • An associated reduction in 2021 depreciation and amortisation is expected to result in a broadly net neutral impact on adjusted operating profit
    • This timing change will see deliveries and the associated EBITDA continue through 2022 as planned and now through 2023
    •  
  •  Year-end cash balance of c.£420m, higher than previously anticipated
  •  
  •  Preliminary results for the twelve months to 31 December 2021 will be announced on 24 February 2022

and simultaneously, Autocar Magazine published an article indicating that Tobias Moers, the CEO was likely on his way out Future of Aston Martin CEO Tobias Moers in doubt.

First unpacking a bit of the Aston Martin “Trading Update”, this is basically an announcement that they missed on Valkyrie deliveries and therefore have a major hole in the EBITDA number.  Back in November, Moers promised a “double digit” number of Valkyrie coupes along with a single digit number of Valkyrie AMR Pros.  The above Trading Update references:

 10 Aston Martin Valkyrie and Valkyrie AMR Pro vehicles were shipped in Q4

which would seem to be very close to the number Moers originally referenced.  What is interesting is how this statement is worded.  In the statement, Aston Martin declares that the 10 Valkyries were “shipped” in Q4. “Shipped” is very different from “delivered to customers” and as the Valkyrie is a direct sale from the factory to the customer, unless the car is delivered, the revenue from the sale should not be recognized.  “Shipped” simply indicates that the cars have left the manufacturing facility and are now likely sitting in a warehouse or storage facility.  This would explain the £15m miss in EBITDA.  In fact, nowhere has Aston Martin stated that a single Valkyrie has been delivered to a customer.  For Moers to have made the original statement during the November earnings call, 7 weeks before the quarter end, on the number of Valkyries Aston expected to deliver in 2021, with making the EBITDA number heavily dependent on hitting that number, he had to have had a very high degree of confidence that Aston could achieve this goal.  To miss it, and miss it badly, is highly concerning.  Aston also references a “quality focused production ramp-up” which is basically shorthand for “slow and with major challenges”.  

The other statement of immediate interest here is:

Year-end cash balance of c.£420m, higher than previously anticipated

 

which is quite disingenuous. I can’t find any guidance Aston ever issued on year end cash on hand.  In fact, it is down £69m from year end 2021.  Regarding the statements on total number of cars wholesaled and retailed, I will come back to these when Aston Martin releases their full 2021 Earnings Report, and more information is available.  

Coming back to the Autocar article on Moers future at Aston Martin being in doubt, Moers relationship with Lawrence Stroll, the Executive Chairman and largest individual shareholder, has been on shaky ground for some time now (see: AML Q2 & Goodwood FoS).  While Stroll denied he was looking to replace Moers in a statement to the Financial Times Aston Martin chair denies he is looking for a new chief executive.  Stroll’s denial rang pretty hallow when shortly after the FT article came out,  Bloomberg Aston Martin Approaches Ford Executive identified the individual Stroll had approached about replacing Moers and indicated several discussions had already taken place.  I’ve never thought that Moers was going to last long term under Stroll, and it would appear we are now very close to the end of Moers regime. While I do feel for Moers, being made to publicly “twist in the wind” has to be incredibly uncomfortable, it is par for the course for Stroll.  The last Aston Martin CEO, Andy Palmer, found out he had been fired when a reporter from the Financial Times called him up and ask for a comment (see:

).

Summary

Within basically a month now, Aston Martin has had a well-regarded CFO suddenly resign, and now it looks like the CEO will be following him out the door shortly.  Stroll’s denials on his looking to replace Moers are borderline comical at this point. He would have been better served just to have had his PR department issue a statement that Aston Martin does not comment on rumors.  In addition, Aston Martin has had to issue a special Trading Update to basically admit that are continuing to have problems with the Valkyrie program and as a result will miss the EBITDA number by £15m. Looks like Kenneth Gregor, the ex CFO, was wise to, as the Times of London put it (Aston Martin deserves the ejector seat from your portfolio), hit the ejector switch.

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January 2022

 

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Continuing Saga of Aston Martin: CFO Jumps Ship

Continuing Saga of Aston Martin: CFO Jumps Ship

I wasn’t originally planning on writing another article on Aston Martin until they released their full year 2021 results in Feb 2022 but two things this week changed that plan.  First off, the CFO Kenneth Gregor, resigned, secondly, Business F1 published an article in their December edition stating that it is now unlikely that Aston Martin will deliver any Valkyries before the end of the year.  Neither of these bode well for Aston Martin and I have to believe that they are at least partially linked.  There are two executives in any company that have a complete picture of the health of the business.  They are the CEO & CFO.  Hence why these two tend to be on every quarterly earnings call.   In Aston Martin’s case, one of these two just decided to jump ship.  Since Aston Martin Lagonda (AML) reported their Q3 earnings on November 4th, AML stock has dropped 24% and is 40% off its 52 week high. (for the record: I do not currently own, have never owned, and have no intention of ever owning shares in AML).

Starting with the announcement on Kenneth Gregor’s departure, the usually boisterous Aston Martin PR department buried it on the Regulatory News tab of the AML Investors web page which is quite telling (as a reference, in November Aston Martin issued a Press Release to announce the hiring of a new President for the Americas):

 

Chief Financial Officer to step down for personal reasons

02 DEC 2021, 07:00           Directorate Change

 

The Board of Aston Martin Lagonda Global Holdings plc announces that for personal reasons Kenneth Gregor will step down as Chief Financial Officer and as an Executive Director of the company no later than 30 June 2022. As a result, the Board has initiated a process to appoint a new Chief Financial Officer and will provide an update once that has concluded.

 

Lawrence Stroll, Executive Chairman of Aston Martin Lagonda, said: “Over the last 18 months Ken has played a significant role in rebuilding Aston Martin Lagonda’s financial position and setting the business on a strong pathway for the future. Whilst sad to see him leave the business, I understand Ken’s reasons and wish him the very best for the future.”

 

Tobias Moers, Chief Executive Officer of Aston Martin Lagonda, said: “Ken will leave Aston Martin as a friend and we wish him all the best moving forward. Our sincerest thanks for his tireless efforts as Chief Financial Officer and the contribution he has made to our leadership team. I look forward to working closely with him over the coming months until a successor is appointed.”

 

Ken Gregor, Chief Financial Officer of Aston Martin Lagonda, said: “I am proud of what I have achieved in my time at Aston Martin Lagonda. It has been an honour to play my part in shaping the company’s future direction, helping to establish a clear roadmap to profitability and financial sustainability.”

 

In accordance with its statutory obligations, the company will disclose details of Mr. Gregor’s exit arrangements on its website and in the directors’ remuneration report in due course.

 

The following is from the Aston Martin Press Release issued in June 2020 to announce Ken Gregor’s hiring:

 

Ken, 53, will be appointed to the Board as an Executive Director today, 22 June. Ken will report to the Executive Chairman, Lawrence Stroll, and to the Chief Executive Officer, Tobias Moers, once Mr. Moers joins the Company on 1 August.

 

Ken has over 20 years of automotive experience, most recently as Chief Financial Officer of Jaguar Land Rover (JLR) for 11 years from 2008. Under his leadership, the finance group developed as a strong business partner to support the delivery of shareholder value and the company’s growth ambitions. Prior to his appointment as CFO, Ken held a number of roles within JLR from 1997 including Group Financial Controller and financial control roles within Marketing, Sales and Service and Product Development.

 

In summary, Ken Gregor is a highly experienced automotive CFO.  He successfully navigated major corporate transformations at Jaguar Land Rover in his 11 years as JLR CFO before joining AML in June 2020.  Given Gregor’s resume, core competency and ability to do the job are a given.  Gregor was most likely hired on an initial 2 year contract which is why his exit date in the AML regulatory filing is listed as no later than June 30, 2022.  Gregor is most likely no longer involved in AML and the statement that he is leaving for “personal reasons” could be read as “massive disagreement and I do not want to be associated with what is going on”.  For a CFO to leave in the middle of a corporate transformation, shortly after the company announced poor quarterly results and with it a stretch to hit their current 2021 guidance, is anything but a positive sign. 

In my experience, in these types of situations where a highly experienced CFO suddenly leaves a struggling business that is supposed to be in the middle of a multiyear turnaround, its likely due to one of the following reasons:

 

  • – The CFO is being pressured to report numbers that he/she is not comfortable with (Aston reported that it has £495 mil. of cash on the Balance Sheet as of end Q3 2021, unlike Ferrari though, Aston does not report total liquidity which is the number I would really be interested in seeing)
  •  
  • – The “turnaround” is not on track and the CFO does not want to be around when the financial “turd” hits the “fan” which in this case would be reporting the full year 2021 results
  •  
  • – Personality conflict, which given who the AML CEO and Executive Chairman are, certainly could be an option.

 

Which could well have been a “final straw” after a year of potential growing unease around:

 

 

  • – Nebula & Supernatural Lawsuits
  •  
  • – AML & AMR relationship
  •  
  • – Aston’s treatment and use of Customer Deposits

 

More details on the Nebula Lawsuit and the AML AMR relationship are covered in:  Aston Martin’s 1st Half .  AML is now caught up in the Supernatural – Multimatic dispute and there is a very strong chance more unflattering information comes out in court as Supernatural has been involved with both the Valkyrie & DB5 Bond cars.  On the Customer Deposits, I have had feedback from several potential Valkyrie customers that when they requested that their deposits be held in escrow, Aston Martin flat out refused.

Working through the potential reasons for Gregor’s untimely departure, while it might have been prompted by hearing the theme song from the Titanic on the radio while driving to work and personality conflicts could be a contributing factor, its highly unlikely either is a key driver for Gregor to announce his exit now.  If it was just personalities, its far more likely Gregor would simply complete his contract and depart quietly in June 2022 with a successor already lined up.  A sudden and untimely departure announcement in early December points towards it being much more likely the outcome of a major disagreement.  Of the two other potential reasons listed above, my guess is the reason sits somewhere in between them both which would be a final straw.  Going back to the Q3 earnings call, in answer to the following question:

 

Henning Cosman (HSBC): Hi, good morning. Thank you for taking my question. Sorry, the first one I wanted to come back to is the implied guidance for Q4. If I take your investor relations consensus of full-year adjusted EBITDA of £150, that implies £78 for Q4, adjusted for the legal cost. So, I was just wondering if you could help us, again, to sort of, reconcile that. I understand that you said you want to sell double-digit units, Valkyrie, but for the Valkyrie, for this to be attributable to Valkyrie alone it would have to be almost £2 million EBITDA per unit, so that seems a bit steep. So, I hope you could, you know, help us a little bit understand the other moving parts and, again, why your confidence in achieving the guidance is so high.

 

Gregor replied:

 

Kenneth Gregor: And on the full year, there’s a number of pieces that come together to support the Q4 delivery. Yes, you’ve got Valkyrie and, yes, that’s really important, as we’ve pointed out in our guidance, and there’s a range of how we see the number of units of Valkyrie and the track Pro car that Tobias talked about earlier, in terms of what we can see in Q4. And, yes, those do have a very high unit contribution, ranging towards the figure you saw. There’s a range of different contributions, depending on the model and how they’ve been specified, and the options contribution coming. So, they are very high contribution per unit and the full-year result is very sensitive to the number of units that get produced.

 

To summarize the above exchange, for AML to meet the Q4 and full year EBITDA targets, they need to deliver a double digit number of Valkyries in Q4.

Which brings us to the Dec 2021 Business F1 article (Business F1 Magazine) stating that it is now unlikely that Aston Martin will deliver any Valkyries before the end of the year.  Per Gregor’s comments on the earning call, if the “double digit” number of Valkyrie coupe road cars and “single digit” number of the track only AMRs that Moers’ promised on the Q3 call would be delivered in Q4 don’t happen, Aston Martin will very likely miss the full year adjusted EBITDA goal of £150 mil. quite badly.  In the Business F1 article it states that Aston Martin is blaming Multimatic (which is doing most of the Valkyrie’s assembly) for delays and quality problems with the Valkyries.  Business F1 has been spot on with its Aston Martin reporting in the past so I have no reason to believe this isn’t the case.  In addition, it is all very consistent with all the past information that’s been leaking out about issues with the Valkyrie all year.  If you project the current Valkyrie issues into 2022 and link it to what’s known about Valkyrie tooling and production capacity (for more details: Analysis of Aston Martin’s Q3), they will be lucky to produce even 1/3rd of the 3 Valkyries per week in 2022 that Moers was calling for in the Q3 call.  This will leave another massive hole in the P&L.

 

Just to top it all off, from a personal financial perspective, the decline in Aston Martin’s stock price in the last month has also very likely made sticking around a lot less lucrative for Gregor than it would have been earlier this year.  The AML stock price is now at the same level it was at when Gregor would have signed on.  As a very significant part of his compensation would have been tied to increases in the stock price, that financial incentive has now gone the way of the Aston Martin Submarine.  Much better to get out now with at least your reputation intact, then stick around for a payday that’s now highly unlikely to happen.

 

Summary

The CFO suddenly resigning is almost never good news for a company.  A CFO suddenly leaving a business that’s highly challenged, just reported weak results, and had a magazine article come out that raises significant question on if the company will make its full year EBITDA goal is just plain ugly.  How this plays out for Aston Martin we will see in the next couple of months but it just another indication that the business is continuing to struggle mightily.  Gregor is also just the latest and most high profile individual to leave Aston Martin after a short tenure.  His departure is likely do to a combination of unease, disagreement on direction, and where the numbers are heading. In addition, given where the share price is today, he likely has little incentive to stay.   It seems that a lot of talent Aston Martin was able to recruit in the last several years has left in 2021.

 

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December 2021

 

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Analysis of Aston Martin’s Q3 2021 Results

Analysis of Aston Martin’s Q3 2021 Results

Aston Martin reported their Q3 2021 results last Wednesday.  They were broadly in line with expectation and the stock finished up just under 2% on the day which appears positive at first glance until you consider that Aston Martin’s stock is down 20% in the last 3 months.  Aston Martin indicated that they are on track to deliver their full year targets despite subtly revising a few key numbers downward.  Listening to the earning’s call raised a number of questions.  What do the Q3 and YTD numbers really tell us?

Are the full year targets still achievable? Is the DBX the success it is being touted as? What has happened to the Sport & GT series cars?  Will the long-suffering depositors be getting their Valkyries shortly?

 

The earnings call did provided a delightful basket of additional insights. As per the last several calls, it was just the CEO, Tobias Moers & the new CFO Kenneth Gregor on the earning’s call.  Moers came across as having all the enthusiasm of a man who was about to have to tell his children he just ran over the beloved family dog.  The Executive Chairman, Lawrence Stroll, was nowhere to be found.  Stroll has been on a PR tear lately giving a plethora of interviews.  However, he seems to have a distinct preference for the fawning auto press vs. having to face what could be awkward questions from financial analysis on Aston Martin’s cash flow and crippling debt load. It was actually quite wise of him not to show up at this earnings call as for the first time, the analysis started asking more pointed questions and it wasn’t just the usual exercise in fluffy soft toss that past earnings call have been.

 

The results Aston Martin presented all use the YTD 2020 as the main point of reference and show enormous improvement.  While that presents a nice fuzzy feel-good story, it’s the equivalent of comparing Churchill’s backbone to Chamberlain’s.  It just isn’t really that relevant to understanding the current health and trajectory of the business today. As such, what is relevant when looking at Aston Martin’s results is how they were doing both pre pandemic and over the last several quarters.

 

Q3 2019

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Cars Wholesale

1,497

660

1,839

1,353

1,548

1,349

Revenue

£250 mil.

£124 mil.

£342 mil.

£242 mil.

£274 mil.

£238 mil.

EBITDA

£48 mil.

-£29 mil

£48 mil

£21 mil.

£28 mil.

£24 mil.

Operating Profit

£10.5 mil.

-£70 mil

-£94 mil

-£15 mil.

-£22.7 mil.

-£30 mil.

Free Cash Flow

-£23 mil.

-£143 mil.

-£26 mil.

£24 mil.

-£69 mil.

£5 mil.

Net Debt

£800 mil.

£868 mil.

£727 mil.

£723 mil.

£792 mil.

£809 mil.

This now tells quite the story.  Just based on car sales and revenue, its looks like Aston Martin a year and a half into the Stroll regime looks almost exactly like Aston Martin in the late Andy Palmer era, just less profitable.  Operating Profit, Free Cash Flow, and Revenue are all still heading in the wrong direction.  In Q3 2021, Aston Martin put up its lowest Revenue number in the past 4 quarters.  Stroll & Moers have been pitching this majestic recovery story, but the hard truth is, the business is not growing.  Today Aston Martin is still consuming vast amounts of cash, increasing its debt load, with profitability nowhere near in sight.  Perhaps my favorite attempt at misdirection in the earnings announcement was the comment on the improved Free Cash Flow of £5 mil.  Buried in the fine print, Aston did admit they made no interest payments in Q3.  If they had this number would have been very negative.  When you consider Aston pulled in £38 mil. of new customer deposits in Q3 this just means you’ve likely burned through £33 mil. of what was brought in.  I do hope that all of the recent depositors are aware that they are basically floating Aston Martin an unsecured multi year interest free loan. For the originally Valkyrie depositors, the reality is they have lost 6 years of income on those funds which at a 5%-6% rate of return roughly equates to $400k.

Unpacking the numbers in a bit more detail, Aston Martin is considerably behind the pace they need to deliver the 6,000 units called for in the current 2021 guidance.  The YTD, Aston has wholesaled 4,250 cars which on a straight line basis equates to 5,667 cars.  To hit the guidance number, Aston needs to ship 1,750 units in Q4.  While they did ship 1,839 cars in Q4 2020, that number included dealer pipeline fill of 578 DBXs.  Back those out and it wasn’t even close.  Moers has continuously stated that Retail sales were ahead of Wholesales shipments without providing any numbers to back up the claim.  Given how weak the Q3 wholesale numbers were, it actually would have added a bit of credibility and confidence in Aston’s story if Moers had shown a Retail number that was higher as it would have indicated stronger consumer demand than the YTD Wholesale number would lead one to suspect.   

2021 Targets

Aston Martin’s current 2021 guidance is:

 

 

Original 2021 Guidance

Revised 2021 Guidance

Estimated 2021 Results based on YTD run rate

Cars Wholesaled

6,000

6,000

5,667

EBITDA Margin

Mid Teens

<14%

Very Low Teens

Depreciation & Amortization

£240-250 mil.

£225-235 mil. (re-phased into 2022)

£225 mil.

Interest Expense

£145 mil.

£165 mil.

£165 mil.

Capex & R&D

£250-275 mil.

£215-235 mil. (re-phased into 2022)

£220 mil.

 

The guidance does not include either a revenue target, which will likely be around £1 billion, or a profit (loss) target which is likely to land in the -£240 mil. range after the reductions in D&A & Capex.  Both are concerning as while reducing D&A can be a bit of financial engineering to make the bottom line look a lot better, cutting Capex on a portfolio that even the CEO admits is “overaged” is very hard to explain.  In addition, it’s impossible to make money when EBITDA doesn’t cover your interest expense.   In fact, the road to profitability is questionable even if Aston delivers against Stroll’s 2024/2025 target of £2 billion of revenue.  To get to profitability under its current debt load, Aston will need to at least double its current EBITDA margin while holding Depreciation and Amortization and other expenses at current levels which would take a minor miracle to happen.  This is a tall ask as Aston Martin is sitting with £1.3 billion (and growing) in intangible assets on the balance sheet which will need to be amortized over the coming years.  Moers even admitted in the 1st half earnings call that they will likely need to accelerate the write down for the planned model refresh and move to Mercedes supplied technology & powertrains in 2023.   How they are going to be able to afford to do so is a major unanswered question.  In fact, if you take a step back and try to evaluate the true value of Aston Martin today, you have a car company with a market value of £2 billion, which sells £1 billion of cars annually at a loss of £240 million, and has issued debt with a fair market value of £1.36 billion.  Given the debt load, “junk” rating on most of the debt, huge losses, and lack of growth, it’s hard to justify even the current recently depressed stock price.  In fact, if the stock drops another 25% it will fall below the price Stroll guaranteed Mercedes Benz when he gifted them 20% of Aston Martin as part of the strategic technology agreement signed in Q3 2020.

 

DBX

Looking at the DBX sales in a bit more depth, YTD 2021 Aston has wholesaled 2,186 DBXs.  This breaks down into 746 DBXs in Q1 followed by 849 in Q2 & 591 in Q3.  The straight line of 2,915 again is short of Moers’ modest stated goal of shipping 3,000 DBX’s in 2021 (the original Palmer target was 6,000 units).  Adding the 578 DBXs left over from Q4 with the 2,186 sold in the YTD 2021 totals 2,764 DBX’s floating through the Aston Martin retail network through 3 quarters of 2021.  Just checking the number of DBXs listed for sale at Aston Martin dealers in North America, it is currently 134 (as a reference there are 22 new Bentley Bentaygas listed).  Most high dealers I know only list 1/2 to 2/3rds of their new car inventory on the website so conservatively there are around 200 DBX’s sitting in dealer lots in the US as of the end of Q3.  With North America representing 34% of Aston’s global sales, this projects to 600 DBXs for sale globally right now which neatly matches the retail inventory carry over from 2020.  The good news is it does look like Aston is matching supply to demand.  The bad news is demand is falling short of the even the current quite modest goal.  This has to be extremely concerning to Stroll and Moers given the DBX is supposed to be Aston’s hot new thing, and the new car market has been on fire.  Add in that Aston Martin built a new factory to produce the DBX that’s running at less than 40% of capacity and the DBX is starting to look like a financial dumpster fire.  As a sign that they really aren’t selling near expectations, I keep getting increasingly generous offers from different dealers just to come and test drive one.  2021 was the year Aston really needed to get the DBX off the ground as the Ferrari SUV arrives next year.   

 

 

Sport & GT

With DBX already accounting for over 50% of the cars sold in the first three quarters of 2021, its fast becoming the core of the Aston Martin business.  This is helping to mask the utter collapse of the Sport & GT car sales which through 2019 were 95% of Astons sales, represent its core and heritage.  The Aston brand was built around the beautifully designed front engine GT.  James Bond drives a DBS or a DB5, not a DBX designed for the school run.  In Q’s 1-3 of 2021, Aston sold 2,002 Sport & GT cars.  This is effectively half the number Aston Martin sold in the same period in 2019.  Net net, sales of the Sport & GTs are now running at about half the level they were pre pandemic and this is unlikely to change anytime soon.  In a shocking bit of honesty on the earnings call, Moer’s actually stated that the Sports & GT cars were doing better than he thought they would, before tacking on that the current Sport & GT models are “overage”.  This just shows how weak the core Sports/GT business is perceived to be internally.   Moers also stated that Aston has an order bank for the next 6-8 months for these models which he considered very reasonable as customers do not want to wait longer for these types of cars.  It’s a questionable point of view considering customers don’t seem to have an issue waiting 18-24 months for similar type Ferrari.  Despite the Sport & GT business melting down faster than Prince Andrew’s reputation, a facelift for the existing models now will not be arriving until 2023.  Stoll originally promised it for Q3 2021 a year ago.  What happened to those plans is not clear, but it is consistent with Astons delivering major projects years after they were originally due.

 

Looking at a few other areas of interest in a bit more detail:

  • Manufacturing: Aston still is carrying manufacturing capacity for 14,000 cars annual with zero plans to get anywhere near that number. Gaydon where all the Sport & GT car production is done, is now only running one line.  St Athan where the DBX is produced is running at 40% of capacity.  Moers has admitted multiple times that Aston Martin has plenty of available capacity should demand increase but carrying all that addition capacity is becoming an on-going major financial burden that Aston can ill afford.  Moers has also stated that Gaydon is where the Valkyrie and other “Specials” will be produced. This is more than just a bit misleading as the Valkyrie is being developed and largely built by Multimatic (Multimatic Road Cars) now and it’s likely the Valhalla will be as well.  It’s just the interiors and badges that are being added in Gaydon.
  • Mercedes Tech Agreement: Back in Q3 2020 Aston Martin signed a strategic technology agreement with Mercedes-Benz. Simplistically, the agreement allows Aston Martin to buy powertrains, software, and components from Mercedes-Benz through to 2027 in return for 20% of Aston Martin. As part of that agreement, Aston Martin guaranteed Mercedes Benz a minimum stock price of 1,240p So far this year the stock has dropped from a high of 2,295p to the current 1,661p. If it drops another 25% it will fall below the price Stroll guaranteed Mercedes Benz.  This is just another potential lurking major liability.
  • Valkyrie:  Moers very excitedly announced that Aston Martin has completed its first customer Valkyrie.  Aston Martins current plan is to deliver a “double digit” number of Valkyrie coupe road cars this year alongside a “single digit” number of the track only AMRs.  In theory this is possible.  Since Moers announced they were beginning Valkyrie production in July a total of 8 Valkyrie road car carbon fiber tubs have been built.  There are also the 8 XP cars which could potentially be rebuilt as customer cars.  As Moers mentioned, it takes 6 weeks to build the carbon fiber tubs for the Valkyrie.  From what I have heard, there could be another 4-5 tubs that are ready between now and the end of the year.  Projecting these numbers for 2022, it looks like best case, Aston might be able to deliver 40 Valkyries.  This number also ties nicely with the number 30-40 Cosworth V12s that Aston has purchased to date for the Valkyrie. However, in the earnings call, Moers stated that he expects to build 3 Valkyries a week in 2022.  This seems quite a stretch as they do not have the production capability or tooling set up to produce more than 40.  To hit Moers’ number, he would need to both find another Multimatic type supplier and a specialist carbon fiber manufacturer both willing and capable of building the highly complex tubs for Aston Martin at the low cost point he and Stroll have demanded.  Even if Aston Martin could find suppliers capable of doing it, it’s unlikely Aston has the cash needed to be able to do this as its very likely the suppliers’ terms would be payment on delivery given Astons long tawdry payment history.  Then Aston needs to have enough carbon fiber on order, which is highly unlikely.  Aston Martin has committed to producing 260 Valkyries across the three variants (Coupe – 150, AMR Pro – 25, Spider – 85) At a rate of 40 Valkyries per year, it is going to take them 6 ½ years to build all the cars.  Even if Aston Martin can double the production rate to 80 a year, some owners will not be getting their cars until Q4 2024.  At some point I would believe this will need to another round of rather unpleasant discussions between Aston Martin and a number of Valkyrie customers.

Assuming Valkyrie construction has officially started, there’s still no evidence that the car actually works properly.  The last it was publicly seen was at the Goodwood Festival of Speed back in July.  Here’s what was supposed to happen at Goodwood:

  • The highly anticipated Aston Martin Valkyrie is due to make its Goodwood Festival of Speed debut at the show. The crowd will be delighted to see – and hear – Valkyrie take on the famous Hillclimb past Goodwood House in the ‘Supercar’ batch. Accelerating from 0-60mph in under 2.5 seconds and powered by an almighty, naturally aspirated 6.5-litre V12 engine producing 1160bhp, Valkyrie – which will be driven by Aston Martin Cognizant Formula One Team driver Lance Stroll on Saturday – is surely set to be the star of the show.

And this is what transpired:

Aston had planned for the Valkyrie to complete 11 runs over the 4 days.  The final count was less than half that number.  On Thursday, the Valkyrie did complete a run on the Hillclimb but a close look at the video seemed to indicate that the active aero had been turned off, the car was quite skittish, and not particularly quick.  Inboard video footage that Aston posted indicated that the check engine light was on, the active aero was off and so were all the ECS systems.  This is very much in line with information I have gathered that Aston Martin was having major difficulties getting the Valkyrie to run properly.  If the situation was bad on Thursday, it got worse on Friday when the Valkyrie broke down on the hill (apparently with the influencer Shmee as a passenger in the car) resulting in a red flagging of the session and Lawrence Stroll (Aston Martin CEO) cancelling his appearance at the last minute.  This was actually the second time the Valkyrie had broken down at Goodwood.  Post the Valkyrie’s Friday fiasco, Lance Stroll’s Saturday appearance was quietly cancelled, and Tobias Moers suddenly showed up to drive the car.  While Moers did successful get the Valkyrie up the hill fairly slowly on Saturday, it broken down again on its way back to the paddock.   

According to a few ex Aston Martin employees, Stroll/Moers have taken all the cost they can out of the Valkyrie and that Multimatic has had massive problems getting the electronics to work properly in the road cars.  Adrian Newey and Redbull are no longer involved at all with the project and haven’t been for quite some time.  The chief test driver for the Valkyrie apparently hasn’t driven it since Goodwood so its highly questionable if Aston/Multimatic have actually solved the reliability issues.  Last I heard, neither Valkyrie variant had passed the crash tests yet.  Given the above, my guess is the Valkyries that Moers has stated will be delivered this year will be going to “close friends and family” who will keep any issues quiet. 

  • “Works” Formula 1 Team: Now this was quite interesting. In the past both Stroll and Moers have made quite a big deal about the Aston Martin Works F1 Team and the value it is brings to the brand.  In past interviews, they both have done a good job at trying to blur the lines between the public company Aston Martin Lagonda PLC in which Lawrence Stroll is the largest but very much still a minority shareholder and the privately owned race team (formerly Racing Point, now rebranded as Aston Martin Racing).  The use of the word “Works” to describe the team is certainly a creative one as there is currently no shareholding relationship between the two companies.  It is just a marketing relationship with Aston Martin Lagonda PLC (AML) paying Aston Martin Racing GP Limited (AMR) a sponsorship fee of £24 million a year.  This is an increase of £4-5 million vs. what Aston Martin was paying Red Bull for the naming rights last year (last year Red Bull finished 2nd in the F1 Championship, this year Aston Martin Racing is currently 7th).  On an appearance basis it’s highly questionable as Stroll is having a public company that he controls pay a private company that he also owns, and his son drives for.  For a company that is on track to lose over £200 million this year, it seems like a very hard to justify extravagance.  How a link with a mid-field F1 team will help you sell SUVs is beyond my imagination.

However, when a question came up about the relationship between the two during the Q3 earning call, this time Moers was spectacularly transparent and honest about it.  He stated: “Totally two separate legal entity, a private-owned company doing the racing business, and the PLC, which is a totally different company with a different ownership.”  This is hugely different from the image Stroll was spinning when he was interviewed for the F1: Beyond the Grid podcast back in October.  In the interview its quite clear that Stroll doesn’t differentiate between the race and road car company and is putting his own vision and interests first.  He explicitly states that Aston Martin Racing was able to sign “hundreds and hundreds of millions of dollars of sponsorship” off the back of the name change from Racing Point to Aston Martin Racing.  If this was the case, Stroll just gifted (along with a check for of £24 million) the AMLs most valuable asset, the Aston Martin brand, to his private company and then raised hundreds of millions off the back of having the rights to use the brand to fund his racing team.  If AMR was truly able to raise those sorts of funds just off a name change, then why isn’t AMR paying AML for the use of the brand?  As Executive Chairman of AML, Stroll’s first responsibility is to act in the best interest of the AML shareholders.  Stroll has also recently hired Martin Whitmarsh as the Group Chief Executive Officer of the newly created Aston Martin Performance Technologies (AMPT) under which Aston Martin Racing is being folded.  Bizarrely, Stroll has just created an almost identical structure to the one McLaren has just dissolved.  If I was an AML shareholder, I would watch this situation very closely and be highly suspicious of any large development contract given by AML to AMPT.  In terms of humility, modesty, and conflicts of interest, Stroll can give a certain ex-US President and his family a run for their money.

Summary

Moers and his leadership team are still a long way from being out of the woods.  The light in the tunnel is more likely to be a train heading towards them than not at this point.  So far Aston Martin has found a way to survive but it’s not sustainable over the longer term.  Aston is still burning through too much cash too quickly.  On a straight line basis, they are not on track to deliver against the guidance issued back in the 1st half.  While the DBX is helping keep Aston afloat right now, it’s a far cry for being a runaway success and the launch of the Ferrari SUV next year will impact sales going forward.  The Sport/GT business has collapsed and it’s not coming back anytime soon.  In other areas, the Valkyrie would make for a great Harvard Business School case study on how not to develop a car, and even though deliveries are starting shortly, there still is no evidence the car actually works properly.  The fiasco with the Valkyrie at Goodwood now even looks even more inept given the brilliantly executed debut of the Gordon Murray T.50 at the recently completed Goodwood Member’s Meeting.  At this point, Stroll’s dream of creating the “British Ferrari” feels closer Lotus than it does Ferrari.

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November 2021

 

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Aston Martin’s 1st Half 2021 Results

Aston Martin’s 1st Half 2021 Results

Aston Martin reported their 1st half results last Wednesday.  Aston Martin’s results were broadly in line with expectation and the stock finished up just under 3% on the day the results were released.  Aston Martin also indicated that they are on track to deliver their full year targets.  This raises a few questions.  Is Aston Martin back on track?  Are the full year targets really achievable? What do the Q2 and 1st half numbers really tell us?

 

The earnings call later in the day provided a quite a few additional insights. As per the Q1 call, it was just the CEO, Tobias Moers & the new CFO Kenneth Gregor on the earning’s call.  Like at the Goodwood Festival of Speed, The Executive Chairman, Lawrence Stroll, was nowhere to be found. It was interesting listening to Moers on the call, he came across as having all the enthusiasm of an inmate who had just been denied parole. 

The results Aston Martin presented all use the 1st half of 2020 as the main point of reference and show enormous improvement.  While that presents a nice fuzzy feel-good story, it’s the equivalent of comparing the British Army’s performance at the Battle of Yorktown with Waterloo (where incidentally it was also the timely arrival of the Germans that swung the tide decisively in the allies’ favor).  It isn’t really that relevant to understanding the current health and trajectory of the business today. As such, what is relevant when looking at Aston Martin’s results is how they were doing both pre pandemic and over the last several quarters.

 

 

Q4 2020

Q1 2021

Q2 2021

Cars Wholesale

1,839

1,353

1,548

Revenue

£342 mil.

£242 mil.

£274 mil.

EBITDA

£48 mil

£21 mil.

£28 mil.

Operation Profit

-£94 mil

-£15 mil.

-£22.7 mil.

Free Cash Flow

-£26 mil.

£24 mil.

-£69 mil.

Net Debt

£727 mil.

£723 mil.

£792 mil.

 

This now is a very interesting picture.  Just based on car sales and revenue, its looks like Aston Martin is gaining a bit of momentum after a weak Q1.  However, if you smooth Q4 2020 with Q1 2021 as Q4 included the DBX pipeline fill of around 600 units, Q2 looks to be about where the quarterly wholesale run rate sits today.  What is concerning though is the Operating Profit, Free Cash Flow, and Net Debt are all still heading in the wrong direction.  Aston Martin today is still consuming vast amounts of cash, increasing its debt load, with profitability nowhere near in sight.  Perhaps my favorite attempt at misdirection in the earnings announcement was the comment on the improved cash position of £506 mil. (up £17 mil. vs end 2020).  When you consider Aston issued £77 mil. in new debt in the 1st half this just means you’ve already burned through £60 mil. of what you raised.

 

Unpacking the numbers in a bit more detail to see if they are on track to deliver the 6,000 units called for in the current 2021 guidance, the car sales need to be split into two very different parts, the DBX SUV and the Sport/GT cars.  Aston has stated that they completed the dealer destocking in Q1 2021 and are now only producing cars to meet demand.  In fact, Moers stated that Retail sales were ahead of Wholesale sales in the 1st half without providing any numbers to back up the claim.  While I do believe Moers statement is technically accurate, it’s a bit misleading as the retail network had one last big push in Q1 on destocking the mountain of leftover Palmer era Vantages and DB11s while it also would have been working down some of the extra 600 DBXs which were wholesaled in Q4 2020.  The number that would have been quite telling to have is the Q2 retail and wholesale units.  If Aston Martin is truly matching supply to demand, these would be nearly identical.  I am quite disappointed that none of the financial analyst who follow Aston demanded it.  Eliminating this key piece of information gives Aston the ability to immediately revert back to old bad habits and start stuffing dealerships with cars to manage earnings and hit targets to prop up the share price (the May edition of BusinessF1 has a very well researched article on Aston Martin’s 2018 IPO, Andy Palmer, how the City held its nose, and the grim aftermath).

DBX

Looking at the DBX sales in a bit more depth, in Q4 2020 Aston wholesaled 1,171 DBXs  against retail sales of 593.  This left 578 DBXs sitting in dealerships’ inventory going into 2021.  In Q1 2021, Aston wholesaled another 746 DBXs followed by another 849 in Q2.  Adding the 578 DBXs left over from Q4 with the 1595 sold in the 1st half of 2021 totals 2,173 DBX’s floating through the Aston Martin retail network in the 1st half of 2021.  Just checking the number of DBXs listed for sale at Aston Martin dealers in North America, it is currently 210.  Ignoring the fact that dealerships often do not list all the cars they are holding in inventory on their websites, with North America representing 36% of Aston’s global sales, this projects to 580 DBXs for sale globally right now which neatly matches the inventory carry over from 2020 (about two months stock).  At first glance therefore it does look like the 1,595 DBXs wholesaled in the 1st half will straight line to hitting the revised Stroll era goal of 3,000 DBXs in 2021 (the original Palmer era goal was 6,000 DBXs per year) and Aston is matching supply with demand.  Only issue is there are probably another 300-500 DBXs sitting in dealerships’ inventory right now. (Most high dealers I know only list 1/2 to 2/3rds of their new car inventory on the website as projected scarcity is key to supporting pricing, the vast majority of Aston dealers have either 5 DBXs listed with a few of the larger dealers at 9-10.  The consistency in the numbers speaks to adhering to a listing policy set and enforced by Aston).  Taking the high and low numbers in that range and subtracting it from the 1595 1st half DBX wholesale number leaves you with range of DBXs truly retailed in the 1st half of 1,095 – 1,295.  The only retail number Aston has provided on the DBX was 593 in Q4 2020.  That number straight lined into the 1st half of 2021 would be 1,184 which is unsurprisingly right in the middle of the 1,095-1,295 range.  This is where I believe DBX sales truly sit, especially as I keep getting increasingly generous offers from different dealers just to come and test drive one.

 

Sport & GT

With DBX already accounting for over 55% of the cars sold in the 1st half of 2021, its fast becoming the core of the Aston Martin business.  This is helping to mask the collapse of the Sport & GT car sales.  In 1st half of 2021 Aston sold 1,280 Sport & GT cars and in Q4 2020 the number was 629.  This straight lines to about 2,500 to 2,600 Sport & GT cars per year.  Comparable numbers from 2018 and 2019 are 5,862 & 6,441.  These numbers do include the massive dealer loading at the end of the Palmer era and true demand was more likely in the range of 5,000 per year.  Net net, sales of the Sport & GTs are now running at about half the level they were pre pandemic and this is unlikely to change anytime soon.  In prior earning call comments, the CEO, Tobias Moers, referred to the Sports Car range as “aged” which may had been an unwise attempt at transparency.

2021 Targets

Aston Martin’s current 2021 guidance is:

 

 

2021 Guidance

2021 Run Rate Based on 1st Half 2021 Results

Cars Wholesaled

6,000

5,802

EBITDA Margin

Mid Teens

Very Low Teens

Depreciation & Amortization

£240-250 mil.

£255-265 mil.

Interest Expense

£145 mil.

£135 mil.

Capex & R&D

£250-275 mil.

£250-275 mil.

 

The guidance does not include either a revenue target, which will likely be around £1 billion, or a profit (loss) target which is likely to land in the -£200 mil. range.  It’s very hard to make money when EBITDA doesn’t cover your interest expense.   In fact, the road to profitability is questionable even if Aston delivers against the 2024/2025 target of £2 billion of revenue.  To get to profitability under its current debt load, Aston will need to at least double its current EBITDA margin while holding Depreciation and Amortization and other expenses at current levels.  This is a tall ask as Aston Martin is sitting with £1.36 billion (and growing) in intangible assets on the balance sheet which will need to be amortized over the coming years.  Moers even admitted that they will likely need to accelerate the write down for the planned model refresh and move to Mercedes supplied technology & powertrains.   How they are going to be able to afford to do so is a major unanswered question.  In fact, if you take a step back and try to evaluate the true value of Aston Martin today, you have a car company with a market capitalization of £2.3 billion, which sells £1 billion of cars annually at a loss of £200 million, is sitting on £1.36 billion (and growing) in intangible assets on the balance sheet that it needs to write down and has issued debt with a fair market value of £1.36 billion. 

Looking at a few other areas of interest in a bit more detail:

  • Manufacturing: One of Palmer’s many gifts to Stroll is the new factory in Wales (St Athan) which was built to produce the DBX and is currently running at under 40% of capacity. St Athan opened in December 2019 with 600 employees hired over the course of 2020.  In March 2021, Aston made 1/3rdof 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 to save money. These are not the actions you normally see taken to support a massive success and the changes in options go directly against Moers’ 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 is less than happy with the current situation. 

Moers has also cut staff and reorganized production at Aston’s other factory, Gaydon with all Sport & GT car production now being done on one line.  This makes sense given the collapse of Sport & GT volumes.  Moers also did mention that Aston Martin has plenty of available capacity should demand increase.  He has also stated that Gaydon is where the Valkyrie and other “Specials” will be produced. This is more than just a bit misleading as the Valkyrie is being developed and built by Multimatic (Multimatic Road Cars) now and it’s likely the Valhalla will be as well.  In fact, there is no mention of Multimatic anywhere in the earnings release materials. 

  • Mercedes Tech Agreement: Back in Q3 2020 Aston Martin signed a strategic technology agreement with Mercedes-Benz. Simplistically, the agreement allows Aston Martin to buy powertrains, software, and components from Mercedes-Benz through to 2027 in return for 20% of Aston Martin. When Moers was asked if the newly announced Mercedes AMG EA (high performance electric powertrain) technology was included he completely fudged his response.  It was a question I expected a simple “yes” answer to and Moers non-answer raises a significant number of questions as to how Aston Martin will be able to make the transition from hybrid to electric now.

Valkyrie: There was little discussion on the Valkyrie this time and the impression I had is it’s a subject Moers would rather avoid which is not surprising given what happened at the Goodwood Festival of Speed.  Moers did reiterate the commitment that the first delivery will happen before the end of the year.  If Aston Martin finally does deliver a customer Valkyrie before the end of the year, it will have taken Aston longer to develop this car than it took the Manhattan Project to develop the first atomic bomb.  Apparently, Aston has had major challenges getting the Valkyrie road car mules to run consistently and according to a few ex Aston Martin employees, Stroll/Moers are apparently putting immense pressure on Multimatic to produce the car as cheaply as possible. These sources also indicated that given the massive problems Multimatic has had trying to get the electronics to work in the road cars, it’s now the Valkyrie Pro AMR track cars that are being prioritized as they will be built without the sophisticated electronics & hybrid system.   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.  What is unclear is if the Q4 delivery commitment is for the track car, road car, or both. 

Aston Martin has parted company with just about everyone internally who was involved in the Valkyrie’s development starting with Fraser Dunn, the Chief Engineer.   Moers apparently has been happy to blame Red Bull for the faults and delays resulting in a relationship with Red Bull that is now fairly toxic.  Multimatic also has its own additional challenges as they currently are in court over multimillion pound payment dispute with Supernatural (a specialist carbon fiber component manufacturer) which is Valkyrie related. 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. 

  • Regarding the Valkyries performance at the Goodwood Festival of Speed, whatever Aston Martin is paying its PR agency, it’s not enough. Per Aston Martin’s original press release, the plan was:
  • The highly anticipated Aston Martin Valkyrie is due to make its Goodwood Festival of Speed debut at the show. The crowd will be delighted to see – and hear – Valkyrie take on the famous Hillclimb past Goodwood House in the ‘Supercar’ batch. Accelerating from 0-60mph in under 2.5 seconds and powered by an almighty, naturally aspirated 6.5-litre V12 engine producing 1160bhp, Valkyrie – which will be driven by Aston Martin Cognizant Formula One Team driver Lance Stroll on Saturday – is surely set to be the star of the show.
  • This isn’t exactly what happened. Originally Aston had planned for the Valkyrie to complete 11 runs over the 4 days.  The final count was less than half that number.  On Thursday, the Valkyrie did complete a run on the Hillclimb but a close look at the video seemed to indicate that the active aero had been turned off, the car was quite skittish, and not particularly quick (there is no official time for any of the Valkyrie’s runs but per the video it looks to be around 1 minute 15 seconds, as a reference the McLaren 720S GT3X did it in 45 seconds).  Inboard video footage that Aston posted indicated that the check engine light was on, the active aero was off and so were all the ECS systems.  This is very much in line with information I have gathered that Aston Martin was having major difficulties getting the Valkyrie to run properly.  If the situation was bad on Thursday, it got worse on Friday when the Valkyrie broke down on the hill (apparently with the influencer Shmee as a passenger in the car) resulting in a red flagging of the session and Lawrence Stoll (Aston Martin CEO) cancelling his appearance at the last minute.  This was actually the second time the Valkyrie had broken down at Goodwood. 
  • Post the Valkyrie’s Friday fiasco, Lance Stroll’s Saturday appearance was quietly cancelled, and Tobias Moers suddenly showed up likely with a Lawrence Stroll size shoe print on his posterior. While Moers did successful get the Valkyrie up the hill fairly slowly on Saturday, it broken down again on its way back to the paddock.  Just to cap the mess of a weekend off, while the Valkyrie did officially win the Michelin Supercar Paddock Showstopper award, it did so only after Marek Reichman, Aston’s Chief Creative Officer, in a move Kim Jong-un would approve of, personally intervened after he found out it was about to go to the SCG 004S.
  • Valhalla, and other “Specials”: The “new” Valhalla launch has been declared a success. Other than the awkward name (per Nordic mythology, one must be dead to go to Valhalla), this iteration has little in common with the car originally unveiled in 2019.  Per Moers comments, the new Valhalla will have cutting edge superior technology, and will be a hybrid powered by a V8 Mercedes-Benz sourced powertrain (per the target stats Aston has provided, the Valhalla will have less bhp and be 50% more expensive than the similar Ferrari SF90, not to mention it being launched 3-4 years later.  By 2023/4 Ferrari likely will have moved the game on again).  Deliveries will start in Q 4 2023 with the target of 1000 units over a 2 year production run.  Given Aston Martins history, the 2023 delivery start dates seems about as likely as Boris Johnson combing his hair or Donald Trump admitting he lost the 2020 US Presidential election.  What came out clearly in Ken Gregor’s (Aston Martin CFO) comments was the timing of the “new” Valhalla launch has everything to do with getting deposits in now.  He stated that Aston currently is holding £270 mil. in customer deposits and intends to sustain that level going forward.  With deliveries of V12 Speedster having started and the Valkyrie scheduled for Q4 (and the associated deposit unwind on those cars), Aston needs to start refilling that cash bucket now. 
  • Nebula: 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, but it’s very unclear how Aston Martin came up with that number.  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 and my guess is Aston can’t afford to pay both Multimatic to build the Valkyries and then pay Nebula a royalty on them. 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.  Gregor did indicate in his comments that Aston expects getting out of the Nebula agreement will be a net positive starting in 2022.  Whether this happens is very much up in the air as Nebula are looking to fully enforce the contract’s original terms.  The information that comes out both in this litigation and the Multimatic – Supernatural dispute should be quite interesting and is unlikely to be particularly flattering for Aston Martin. 
  • (the not exactly) Works Formula 1 Team: In interviews both Stroll and Moers continue to make quite a big deal about the Aston Martin Works F1 Team and the value it is bringing to the brand. The only data they have shared to support this claim is that it drives brand awareness and has delivered over 1.4 billion social media impressions in the year to date.  For the first time, buried in the financial statement notes under related party transactions, Aston reported a net marketing expenditure of £12.2 million for sponsorship of AMR GP Limited (formerly Racing Point) year to date (£24.4 million annually)

The use of the word “Works” is certainly a creative one as there is currently no shareholding relationship between the two companies.  It is just a marketing relationship with Aston Martin paying AMR GP Limited a sponsorship fee of £24 million a year.  On an appearance basis it’s highly questionable as Stroll is having a public company, he controls pay a private company that he also owns, and his son drives for. 

Summary

Moers and his new leadership team are still a long way from being out of the woods.  Going back to the three questions I laid out up front:

Is Aston Martin back on track? 

Are the full year targets really achievable?

What do the Q2 and 1st half numbers really tell us? 

On the first I would say, Aston Martin has found a way to survive but it’s not sustainable over the longer term.  Aston is still burning through too much cash too quickly.  On the second, they will likely make the top (cars sold) but not the bottom line (EBITDA) and on the third, even taken advantage of the “fog” of only reporting wholesale numbers, Aston is still having major challenge selling cars.  While the DBX is helping keep Aston afloat right now, it’s a far cry for being a runaway success.  Best case Aston DBX sales will be less than 60% of what Bentley will do with the aged Bentayga or Lamborghini will do with the polarizing Urus.  In other areas, the Valkyrie would make for a great Harvard Business School case study on how not to develop a car.  For Aston Martin to have risked putting the Valkyrie on the Goodwood Hillclimb course knowing that there was a good chance it would break down points to either desperation or incompetence.  Toss in the litigation with Nebula and the Multimatic/Supernatural lawsuit and things are likely to get quite spicy for Moers and Co. in the coming months.  At this point, Stroll’s dream of creating the “British Ferrari” feels like it’s just that, a dream.

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August 2021

 

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