Supercar Market Insights & Analysis – Nov 2023

Supercar Market Insights & Analysis – Nov 2023

Since I did the last Supercar Market update in July 2023, the world has changed……again.  We have two wars raging with the surrounding areas looking highly volatile.   Money is now very expensive and might get even more so in the coming months.  Mortgage rates in the US are now at a 20 year high with the Fed threatening to push rates even higher if inflation doesn’t come down soon.  Credit card and auto loan delinquencies are now well above pre-COVID levels and expected to peak in 2024 at around 10%.   The US House of Representatives was brought to a standstill and the Speaker of the House unceremoniously deposed by a Congressman currently being investigated by the House Ethics Committee for sexual misconduct, illicit drug use, and assorted other misconduct.  The new Speaker of the House of Representatives, who is also 2nd in line to the US Presidency, voted against certifying the 2020 US Presidential election.  The US now has a sitting President whose son has been indicted, and a former President who is facing criminal charges in 4 different jurisdictions.  Just to add a bit more legal excitement this year, that same former President was found liable for sexual abuse and defamation plus it turns out he committed fraud by shockingly inflating his assets by just a few billion.  The ghost of Richard Nixon has to be complaining that he was born fifty years too early.  It all makes Boris Johnson look pretty boring and down to earth. 

There are signs that something resembling normalcy might just break out again, David Cameron, the last adult to be British Prime Minister, was just brought back into the Government as Foreign Minister. Liz Cheney must see that as a sign of hope. However, as a true sign of the times, the Associated Press recently tweeted: “We recommend avoiding general and often dehumanizing ‘the’ labels such as the poor, the mentally ill, the French, the disabled, the college educated.” It wasn’t exactly well received in Paris.  I would like to note that the “French” fall between the “mentally ill” and “the disabled” while the “college educated” rank dead last. 

The Macro Situation

Which brings us to today. The rise in interest rates over the last year and a half has finally taken a real bite into the economy.  The housing market is just plain ugly right now with mortgage rates at a 20 year high.  To a large extent, the market has frozen up as many current owners can’t afford to sell or trade up as they would lose their current locked in low mortgage rate.  Despite threats from a number of quite angry high-profile CEOs demanding their staffs return to the office, remote and flexible working are here to stay.  The pendulum on DEI/ESG has finally begun its long swing back towards the center but some of the insanity around it will take a long time to work through (as an example a good friend recently lost out on a Board seat for which she was highly qualified as the company decided they wanted a Latina and didn’t realize she was Italian until the final round of interviews).   Several of those companies that seem to be talking the loudest about DEI/ESG have stock prices going sideways the fastest (example: Colgate-Palmolive).  A number of major money managers are closing EGS focused funds and the number of companies talking about it in the latest round of quarterly earnings has dropped by over half in the last 2 years.  In fact, Larry Fink at Blackrock refuses to mention it at all. Long term the companies that return to choosing the most qualified candidate for the job and focus first on investor returns will win in the marketplace. 

Inflation is finally starting to cool behind the Fed taking interest rates from basically 0% in 2021 to 5.5% as of July 2023.  The stock market has recovered a bit in 2023 with the DOW up 5% YTD after a torrid November rally.  After hitting parity to the $ back in late 2022, the € has stabilized and now sits at €1 = $1.10.  The British £ seems to be locked into a $1.20-$1.30 trading range long term now and currently sits at $1.27 = £1 but is still well off its pre Brexit levels.  I have a few UK based friends that are predicting that the UK will eventually return to the EU and I can’t see the British £ returning to a 2:1 $ exchange rate unless that happens.  After an extended mud throwing session, the US and China are finally looking to cool the temperatures as the Chinese economy has cooled off.  Putin’s mad foray into the Ukraine is looking more and more like it will drag on for years.  The harsh reality is this is probably in NATO’s best interest as having the Russian army tied up and being ground down in Ukraine keeps it from creating trouble elsewhere. 

Instead of going through a methodical analysis of different parts of the Supercar market, as there are plenty of better informed people who already do that, I thought it might be more interesting to layout a few things that have caught my attention.

The Modern Era (2010 ->)

The Hypercar Trinity

Prices on the 2013/2014 Hypercar Trinity, which include the oddly named Ferrari LaFerrari, the McLaren P1, and the Porsche 918 have been very stable through 2022 with not a lot of cars changing hands, at least publicly.  LaFerraris now sit squarely in the $2-$4 mil. range depending on spec and mileage with the higher number being achieved by LaFerraris that have sadly never felt a leaf, rock, or pothole under their tires. The number of LaFerraris coming into the market has dropped off this year rather substantially.  My guess is existing owners are holding onto their cars now waiting to see what Ferrari announces as it successor which is expected to happen in the next year.  Both McLaren P1s and Porsche 918s moved up from early Covid lows of $900k.  918s now sit in the  $1.1-$1.4 mil range which is off about $200k from 2022.  P1s are a bit of a different story, two crossed the auction block this year at $1.05 mil and two were in the $2 mil.  range.  The two high value P1 were both MSO special projects and have spent almost their entire life under a car cover.  The two others had been driven a few miles but still well under 5k. Where P1 prices go from here will be very interesting to watch but the market seems to be bifurcating dramatically between garage queen museum pieces and drivers.  I expect the next generation of Hypercars to be announced by at least two of the three manufacturers in 2024.  What this does to values on the last generation will be interesting to see but at least initially I doubt it will have a positive effect. The LaFerrari is a possible exception if Ferrari makes current LaFerrari ownership one of the critical criteria for getting an allocation of its next hypercar.  All of these models are falling into the exploding maintenance costs category as their hybrid technology ages.  When annual service bills start approaching the cost of a nice used Ferrari 458 or McLaren 650S, it will have an impact.  These are also not cars you can just park in a warehouse and forget.  They need to be constantly on life support (i.e battery chargers) and do much better when used regularly than when they sit.

And a brief word on the McLaren Elva

Elvas are an interesting case.  To start, they had a rather difficult “birth” with production numbers being cut twice before settling at 149 units.  Long term, the low production numbers should help values, but this could take a decade or longer before it plays out.  In terms of values today, it is very hard to peg.  List price was $1.7 mil. but by ticking a few boxes on the option list, you could easily be in for north of $2 mil. by the time it landed in your garage.  Six times an Elva crossed the auction block between Oct 2021 and Aug 2023 and not a single one of them was sold.  High bids on each ranged from a low of $1.3 mil. to a high of $2.1 mil.  Finally in Nov 2023 an Elva was hammered sold for $1.38 mil.  The insanity on this sale is it was the third time that car had been put up for auction.  The first time the seller rejected a high bid of $2.1 mil., the second time it was $1.6 mil. before finally accepting $1.38 mil.  Go figure.

The Ferrari F12 & 812: Still Depreciation Champs ?

I have been following the Ferrari F12 and 812 market fairly closely for 2 years now.  Adding a Prancing Horse badged V12 GT to the garage has been high on my list for quite some time, but I am not in a rush and refuse to pay a premium for a car that has traditionally been the depreciation champion of the Ferrari line up.  One that was close to an ideal spec recently popped up on the Ferrari Preowned site but it just happened to be at the one Ferrari dealer I would rather drop something heavy on my foot than ever deal with again.  The number of F12s on the market is consistent with 6 months ago but twice the number of 12 months ago.  Today there are 15 F12s on the US Ferrari preowned website ranging in price from $230k to $305k and 39 on Autotrader starting at $209k.  Prices on F12s look like they have dropped by at least $40k in the last year with $10k of that in the last 6 months.  F12 prices have been pushed down mostly by the recent drops in values on the 812 Superfast, which replaced the F12 in the Ferrari line up.  For the 812, inventories are substantially higher today vs. 6 months ago with a whopping 52 812s on the US Ferrari preowned website ranging in price from $320k to $440k and 89 on Autotrader.  I expect we will see the next big move south in F12 values when the first 812 is listed on the US Ferrari preowned website below $300k.  The way the market is moving, this is highly likely to happen in the next 3-4 months.

Aston Martin Vanquish Gen 2 2012-2018: The V12 Bargain Buy?

The 2nd generation 2012-2018 Vanquish was basically an evolution of the DBS.  The Vanquish is built off the same platform with a few styling cues swiped off the One-77 added.  The Gen 2 Vanquish was only sold with an automatic gearbox.  Early models came with a 6 speed autobox with later (mid 2014-2018) switching to a much improved 8 speed ZF automatic.  A further update with increased horsepower and revised aerodynamics was delivered in 2017 with the cars now being badged Vanquish S.  Today you can find higher mileage coupes starting at $70k with Volante’s starting at $105k.  The later “S” models of both have dropped by $30k in the last 6 months to $170k.  The low end of the market has dropped by $10k in the last 6 months and post 2014 Volante’s are down by $20-30k with cars sitting on the market for extended periods.  The later model Vanquish and Vanquish S’ are still depreciating, and I would expect that they will eventually settle down at a similar price range as the DBS.  With 52 listed for sale on Autotrader plus an additional 7 on Aston Martin Preowned USA right now, it is a buyer’s market.  Six months ago, there seems to be a $20-30k spread between similar cars listed on independent dealerships vs. at official Aston Martin dealerships.  That spread is now closer to $10k which probably reflects the recent decreases in values but points to a more stable market going forward.  At 60% of the cost of a compatible Ferrari F12, the Vanquish is an intriguing option.

The Classics (90’s & 00’s)

The Ferraris: Steady as She Goes….

This one’s a bit painful to write as we sold our Ferrari F50 back in 2014, but over the last decade, F50s have gone from the ugly unloved stepchild in the Ferrari limited edition line to the most lusted after of the group, and for good reason.  An hour’s drive in one provides all the proof needed.  F50s have risen from just under $2 mil. in 2019 to topping out at $4.9 mil. in Dec 2022.  The march up has been very consistent until this year.  Since then, the market has stalled and with the last one going for a more modest $3.9 mil.  Ferrari Enzos on the other hand have been trading in the $2 – $3 mil. range depending on color and mileage for most of the last decade.  In 2023, on fairly thin data, it looks like they might have taken a bit of a step up to be more in the $3 – $4 mil. range with the last sale of a very low mileage Enzo crossing the $4 mil. line for the first time.  While the F50 has aged brilliantly and it is as engaging and rewarding to drive today as it was 25 years ago, the Enzo and its first generation F1 gearbox has aged more like fresh seafood. 

The 430 Scuderia is another Ferrari that has aged well with prices in the US rising from $180k in 2019 to $100k more for a similar car today.  The final generation F1 gearbox in the 430 Scuderia is a joy to use and has aged well.  In fact, I would rate the 430 Scuderia as the best of all the 2000-2010 Ferrari models.  What is a bit strange is while prices of 430 Scuderia have jumped in the US, they have only risen slightly in the UK. Probably the biggest head scratcher though is the huge jump in values on the Ferrari F355 GTS that continues to this day.  It seems to be mostly driven by Bring A Trailer.  The F355 GTS has gone from $70k a couple of years ago to an insane high sale at $307k for a Euro F355 GTS 6 speed in June.  They now sit regularly in the $150-200k range and command a $50-70 premium over F355 Spiders.  The F355 GTS was the first Ferrari I owned and of the three F355 variants (Berlinetta, GTS, Spider) I would have put it squarely at the bottom of the pile.  Leaky roof panels, vague steering, and with reliability that both EasyJet and RyanAir would be horrified at, just doesn’t have that much charm.  Ferrari 599 GTB values have remained very steady over the last several years in the $140-200k range depending on year, spec, and mileage.  As 812s continue to drop in value, I would expect that this will have a bit of a knock on effect on 599s over the next 1-2 years.

Porsche Carrera GT: Poster Child

If there is a poster car for the COVID supercar market price jump insanity, the Porsche Carrera GT would be a leading contender.  For most of its first decade of existence, Carrera GTs were $300k-$450k cars.  In 2014, they started climbing and by late 2015 the new range was $600k-$800k.  This held until the beginning of 2022 when suddenly Carrera GTs jumped by $1 mil. to $1.8 mil before finally hitting an all-time auction high of $2 mil. in March 2022 for a 182 mile grey car.  Since then, it’s been a downward slope with most auction sales closer to the $1 mil. mark than the $2 mil. mark with a couple falling back under $1 mil. In fact, 4 of the 10 Carrera GTs sold at auction this year were under $1 mil. I had one Porsche expert tell me early in 2023 that he believes they will drop back down to the $800k range.  He was spot on as a silver Carrera GT that had a few miles on it went for $834k in October. Longer term it looks like Carrera GTs are now $800k-$1.4 mil. depend on color and how much of their life they have spent under a car cover. 

The 90’s Jaguar Supercars

After not a single Jaguar XJR-15 crossed the auction block in 2018-2020, seven have done so in the last 2 years.  The first of these was the high sale at $1.7 mil. in Aug 2021, the next closest XJR-15 made $1.2 mil. and the low was $900k.  Given that XJR-15s might be beautiful to look at but are completely demonic to drive, and there are only 50 (or 53 depending on who you ask) of them, this $900k-$1.2 mil range is probably where they will now sit.  To give you an idea of how completely demonic they are to drive, the XJR-15 is a 31 year old car now.  Of the seven that have come up for auction, the highest mileage car was still under 1k miles and three of them were under 200 miles. 

XJ220s are a bit of a different story, as one of the 90s most unloved supercars, unlike just about everything else, they never really have had a major run up in values in the last several years.  The peak was around $600k whereas today they are $400-500k cars. Most XJ220 have rarely been driven and around half the cars coming up at auction in the last couple of years had under 2k miles on the odometer. 

Vintage (60’s – 80’s)

70’s Ferrari Fiberglass

Ever since I owned a Ferrari 308 GTB “Vetroresina” well over a decade and a half ago, I have always been intrigued by them.  These are the 1st generation Ferrari 308 GTBs produced in 1975-77 with fiberglass bodies.  Just over 800 were produced, making them rarer than either a similar era Ferrari Daytona or a Ferrari 512 BB.  In fact, I would put it in a similar category with the Dino 206 which preceded the hugely popular Dino 246 GT.  For the better part of the last decade these “glass” 308s have commanded over a 100% premium vs. the far more common steel bodied 308s.  In the Covid era, they have traded hands remarkably consistently in the $150k range up until the last year.  Values declined consistently through 2022 hitting a low of $108k in December 2022.  This year has been a bit more of a rollercoaster with a concours quality restored blue Euro fiberglass 308 GTB going for $280k in March at RM Sotheby’s Amelia Island auction but the latest two sales were at $85k and $111k.  My guess is a number of speculators were hoping that the 308 GTB Vetroresina would be the second coming of the Dino 246 GT and values would skyrocket into the $400k range in just a few years.  At this point it looks more like the second coming of the 512 BB with values off by a 1/3 vs. Pre COVID bubble highs.

I looked at two 308 GTB “Vetroresinas” this year.  Still waiting for compression test numbers on the first and never did hear back on the second after pointing out that it was well overdue for a cambelt change. 

Vintage Ferraris (the 60’s)

If you look at the longer-term trends on a few of the better known of the 60’s Ferrari models, it is a bit of a mixed bag but the direction does seem clear.  The Ferrari 365 GTB/4 Daytona’s sits at the bottom of the 2 seat GT pecking order and they are now rock steady in the $500-$600k range.  The hype a few years ago that Daytonas were about to become $1 mil. cars has aged about as well as a Jared Kushner’s Middle East peace plan. Ferrari 275 GTB’s look to be $1.5 mil. to $3 mil depending on length of nose and number of carburetors.  The slide in 275 GTB’s has ended, and prices have stabilized over the last 2 years.  The Ferrari 250 Lusso is on a similar track to the 275 GTB.  Back in 2015 they were $2 mil. cars and now $1.2-$1.5 mil. is where the market sits.  One 250 Lusso did bring $2.6 mil at auction in August 2023 but it was a rare perfectly restored car with a fully documented history.  The most recent sale at auction was for $1.3 mil. for an older restoration that would now be described as a very nice “driver”.  Values on the 60’s 2+2 Ferraris look to be off Pre Covid highs by 20-30% now and will likely fall further.  These models all have the same eye watering maintenance costs of other 60’s Ferraris worth multiple times as much.  The maintenance costs were easy to justify when values were rising but in a stable to declining market it becomes far more difficult to.  Demographic shifts will continue to put pressure on the older cars with the less valuable or well known models taking the hit first.  These Vintage Ferraris are less appealing to the younger generation of enthusiasts who did not grow up with them on their bedroom walls.  These are also all cars that take real skill to drive and punish mistakes with massive repair bills with a high potential for broken bones.  The other issue is with each passing year, finding a skilled mechanic who can care for the car is becoming increasing difficult. 

Vintage Aston Martins DB5 & DB6

If you look at the longer-term trends on the main 60’s Aston Martin models, the direction does seem clear.  Back in 2020-2021 I couldn’t find any DB5 sales where the number began with anything less than a “5”.  This year there have been several sales on the $300-400k range.  DB5s look to have now settled in the $400k-$550k range depending on condition and spec.  This is down from $700-$850k for a similar car a few years back.  It’s the lower value DB6 coupes that have held value better.  For the last 2 years they have been reliably $150k-$200k cars.  The higher powered DB6 Vantage still commanding a 50%-100% premium over the base DB6 depending on condition.  Like with the 60’s Ferraris, demographic shifts will continue to put pressure on the older cars, so I don’t see these rising in value again anytime soon.  Vintage Aston Martins are cars that take real skill to drive well and are a bit of an acquired taste as light and nimble are not words normally used to describe any of them.  Condition on all is a huge driver of value as restoration costs on all are eyewatering. 

Summary

As of November 2023, we have a supercar market that is generally holding stable for the  vintage cars but is in decline on most of the more classic & modern models.  Interest rates have likely peaked, but a lot of the pain from that peak is still to come.  Those models that have exploded in value during the Covid era are the ones most likely at risk of a second rapid decent.  The Hypercar bubble is history, the latest ones launched are at best holding at MSP.  Demographic shifts, as the percentage of the population that knows how to drive a manual car continues to decline, will likely continue to put pressure on the vintage market over the coming years.  However, if you have the cash, the coming year will likely be a good time to start looking for your next garage addition.

 

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Ferrari vs. Aston Martin: Truly Competitors?

Ferrari vs. Aston Martin: Truly Competitors?

There was one exchange on the recent Ferrari Q3 earnings call that really caught my attention:

 

Question: Giulio Pescatore – BNP Paribas

And first one, I want to come back on a comment made by one of your competitors. I know you don’t comment on competitors, but it was striking because they were calling out weakness in luxury cars demand, especially in North America. And what they said, it seemed very stark contrast with whatever you’re saying today. So, I’m not asking you to comment on competition, but just what do you think is making the difference here? Why your demand is so much healthier and resilient than some of your peers?

 

Answer: Benetto Vigna – Ferrari CEO

I think when we’re talking about Ferrari car, we are talking about an ultra-luxury car that is also addressing maybe demographics that is different from other brands. But the second I have been — in these 2 years, I have seen, and I’ve met many people that are touching our brand and they have seen an attachment, a sense of bonding that is really unique. I mean, I was in Mugello last weekend, I was in Pebble Beach. And I can tell you, Giulio, that right after the car was shown, it was fully allocated. I mean the car — there was a client close to me that started to cry, literally.

 

Which is a wonderful way of saying we don’t comment on our competitors because we don’t believe we really have any.  We operate in our own unique environment and ecosystem.  Whatever weakness they are seeing might be happening in their market but certainly not ours.

The competitor that Pescatore was referencing is Aston Martin Lagonda as they referenced weakness in North America in their Q3 commentary the day before.  Now Aston Martin’s Executive Chairman, Lawrence Stroll has stated repeatedly over the years that:

Our vision to become the world’s most desirable, ultra-luxury British performance brand.

 

This would indicate that Aston Martin sees itself in the same competitive reference group as Ferrari.  In fact, to try to bring his vision to life, Stroll has seeded Aston Martin’s management ranks with a significant number of Maranello refugees, including Aston Martin’s current CEO, Amedeo Felisa.  In many ways, the current Aston Martin executive team is a pretty close recreation of Ferrari’s management team circa 2015.

 

The question therefore is do the Financials suggest Ferrari and Astin Martin are true competitors.

 

Starting with a few basic numbers and then looking into the most recent results in terms of both Q3 2023 and YTD 2023.  Today Ferrari has a market cap of $65 bil. and Aston Martin’s is $1.9 bil.  If you invested $100 in Ferrari on the day Vigna took over as CEO, you would have $165 today.  The same investment in Aston Martin on the day Felisa took over would leave you with $31 now. If you are in London, it’s basically the difference between dining at the River Café or being relegated to Pizza Express.  While brand strength and equity value are as much perception and can vary greatly depending on the eye of the beholder, where the undeniable truth does shine through is in the financial results.

 

Ferrari’s financial results in both the latest quarter and for the year so far this year have simply been stellar:

Aston Martin’s financials at the top of the P&L are quite positive, but it all turns very pear shaped as you drop down.

Getting into a few more details just on the volumes, Ferrari’s numbers are very healthy across the board with only one minor negative in Q3 in China, HK, & Taiwan.  This is more due to model transition than any market weakness.  It’s also important to note that Ferrari’s dealers carry no stock of new cars.  With an order book that now stretches to the end of 2025, all the cars Ferrari produces are to order so wholesale and retail are identical numbers. 

Aston Martin’s numbers are strong on a YTD basis but in Q3 they are starting to show weakness.  The Q3 Americas number, which is Aston Martin’s largest market is very concerning.  Aston Martin claims that they only produce to demand but a quick survey of Aston Martin’s US dealers would indicate that Aston Martin has a very liberal and creative definition for demand.  Aston Martin’s order book for its latest DB12 is best described as “light”.  While the order book Ferrari’s full portfolio extends to over 24 months, in the Q3 earnings call, it was revealed that the ultra-hyped DB12 orders only extend to Q2 2024.

When you start drilling into the cash flow and debt loads the differences are massive .  Positive and growing free cash flow is the definition of a healthy business.  Its near impossible to stay in business long term if you can’t generate positive cash flow.

 

Ferrari’s Free Cash Flow numbers are simply world class

Aston Martin’s Free Cash Flow numbers are positively abysmal. 

The delta on YTD Free Cash Flow between the two is € 976 mil. Because of this, Aston Martin is having to continuously raise new equity to keep the lights on and service its debt.  That delta is almost the size of Aston Martin’s YTD revenue number.  That great Free Cash Flow is also what allows Ferrari to invest heavily in developing its portfolio and emerging technologies which serves to continue to widen the gap to the competition. 

 

In summary, Ferrari is a cash machine. As a business, Ferrari is in a league of its own and has no discernible competition.  While that gap today is huge it is likely to only widen as Ferrari is consistently and continuously able to invest in developing world class market leading supercars.  With its very tight cash position, Aston Martin on the other hand is limited to facelifts of current models (see DB12) or very extended development times on new (Valhalla). The stock market has clearly voted in Ferrari’s favor as its market cap is over 30 times that of Aston Martin.  On a final note, as far as Brand equity is concerned, the comparison is a bit more subjective without access to Brand Equity measures which neither company share.

 

Note: I do not and have never owned any AML or RACE (Ferrari) shares.

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Ferrari’s Q3 2023 Results: The Horse Flies

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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Q3 Earnings Expectations: Aston Martin, Ferrari, McLaren Plus a Few Words on GMA & Praga

Q3 Earnings Expectations: Aston Martin, Ferrari, McLaren Plus a Few Words on GMA & Praga

I thought I would share a few thoughts on the upcoming Q3 earnings expectations ahead of the upcoming releases.  More in-depth analysis will follow post the earnings calls. Also, I have a few new observations on GMA & Praga that I thought would be worthy of sharing after recent discussions with both.

 

Q3 Earning Call Season

Aston Martin Lagonda

Q3 Earnings call season kicks off on Nov 1st when Aston Martin releases their Q3 results.  At the beginning of 2023, AML was promising strong 2nd half growth along with positive free cash flow (FCF).  Given FCF was a -£218 mil. in the 1st half, turning that into a positive number would be a monumental achievement.  In terms of growth, the numbers do look very ambitious.  Taking into account that the Americas are AML’s largest region at 48% of wholesales and I’ve been led to believe that AML is again looking for a new President for the Region, it doesn’t bode well.  This level of turnover at a very senior level is normally not a sign that the business is booming.  Both of the last two incumbents lasted less than a year in the role, giving the position a similar level of stability to the US Speaker of the House, UK Prime Minister, Trump lead defense attorney, or spouse to Henry VIII.  As a benchmark, the Regional President for Ferrari North America has been in position for 6 years. I will be also interested to see if this is the quarter that Stroll finally drops the claim that AML only builds cars to order as the rather larger mountain of DBXs sitting at US dealership would appear to indicate that really isn’t the case.

Ferrari

Ferrari will be reporting their Q3 earnings on Nov 2nd. In Q2, Ferrari raised its Guidance for 2023 on the back of a strong product mix and increased personalization.  With both 296 GTS & Purosangue deliveries ramping up in the 2nd half of 2023, the increased guidance looks quite achievable.  From what I have heard, so far the increase in interest rates has had little to no effect on the order book which still stretches well into the future. 

 

McLaren

McLaren is the last of the three to report Q3 earnings but will not do so until Nov 29th. I expect volumes to be soft on the back of the announcement in July that North American Artura deliveries had been temporarily slowed for enhanced quality control.  From what I understand, the slow down has now been lifted.  With the Artura volumes increasing and 750S deliveries starting, I expect Q4 will be closer to what we can expect in terms of McLaren’s quarterly run rate going forward. Hopefully there will also be additional news on the recapitalization shortly.

 

Gordon Murray Automotive (GMA)

I recently had the opportunity to spend a bit of time with a couple of the key GMA Team Members and take a look at the T.50 in detail.  In a word, the T.50 is truly spectacular.  The craftsmanship, packaging, and attention to detail is extraordinary.  In a world where cars have become consistently bigger and heavier, the T.50 is a throwback.  Its compact, light, and just looks agile.  The focus on weight savings is borderline psychotic and the results are hugely impressive.  No detail is too small to be challenged and improved upon.    The fact that it comes with a manual 6 speed gearbox and naturally aspirated V12 engine just make it that much more desirable.   Production has now officially started on the T.50 and the first customer delivery happened recently in Monterey with more to follow in November.  That makes it basically 3 years from the model’s first unveiling to first delivery.  GMA have provided public progress updates frequently, opened their factory doors to leading journalists, run the cars at major events without any issues, and been quite conservative when it comes to their performance claims.  Talking to a few of GMA’s depositors, they all seem very happy with the process and feel as if they have been kept closely in the loop in terms of the T.50s development.  Using Dario Franchitti as a spokesman and development driver has worked brilliantly as he’s not only engaging and charismatic, but also brings another level of credibility to the endeavor.

 

GMAs second model, the T.33, sold out instantly and most of the 100 units of the third model, the T.33 Spider already have homes.  Both appear to be on track in terms of development.  GMA is in the process of building a new Headquarters and Production facility in the UK with Phase 1 completed a year ago.  The T.50 is being built at GMA’s current location with the T.33 and future models to be produced at the new site.  The T.50 will be imported into the US under “Show & Display” rules for which GMA already has approval.  Both the T.33 models will be fully homologated.

 

In terms of what then comes next for GMA, they are incredibly tight lipped.  The only piece of information I was able to pry out was future models will likely also be based on the Cosworth V12. 

 

Praga Bohema

I sat down recently to discuss the Bohema and its development with Praga’s head of Sales and Marketing.  Like GMA, Praga is making good, consistent progress on delivering its first hypercar, the Praga Bohema.  The Bohema is based on an all new carbon fiber tub and is powered by a Nissan supplied 3.8-liter twin-turbo V-6 producing 700 bhp.  Dry weight is 2164 lbs which makes a few of its competitors look quite tubby.  Praga recently showed the Bohema at the Goodwood Festival of Speed and at a few other private supercar events in the UK & EU including most recently at the Red Bull Ring.  The fact that Praga has done not only passenger rides for depositors but also successfully completed a series of press test drives shows the huge amount of confidence Praga has in the Bohema.

 

The production run is limited to 89 units over a four year period at about €1.36 million each.  Customer deliveries are on target to start in early 2024.  Of the 89 cars, it’s expected that 24 cars will go to UK/Europe; 26 to The Americas; 24 to Asia/Pacific and 15 to Middle East/Africa.  The Bohema is already road legal in the UK and is due to receive certification in the EU shortly.  US imports are expected to be done under “Show & Display”.  If all goes well, hopefully we will see Praga and the Bohema in Monterey next August.

 

 

Summary

In terms of Q3 earnings, I doubt there will be any major surprises.  The numbers I am most interested in seeing are AML’s Free Cash Flow, Ferrari’s Revenue Growth, & McLaren’s Wholesales.  GMA and Praga are making great progress on getting cars into customers hands.  Both of these are led by highly successful teams with extensive backgrounds in racing, deep connections in the industry, & decades of experience in the supercar arena.  They both have a very clear idea of the experience they are looking to deliver and a single minded focus on achieving that goal, and it shows.

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