The Supercar Trio: Larry, Ben, & Mike
A couple of weeks ago, I had the privilege of watching a number of the sessions at the Financial Times, Future of the Car, Event in London. The overall theme of the event was: “What new skills, strategies, and strategic alliances does the car industry need to develop to future-proof businesses and ensure long-term success?” Overall, it was an outstanding and highly informative event and the list of participants was a who’s who of the automotive industry. Out of the numerous interviews and fireside chats, it was the three sessions with Aston Martin’s Lawrence Stroll, Ferrari’s Benedetto Vigna, and McLaren’s Michael Leiters that really captured my interest. Leiter’s discussed McLaren’s challenges and where they are headed, Vigna focused mostly on emerging technology and its implications for Ferrari, and Stroll talked about his accomplishments. All three sessions were moderated expertly by the FT’s Peter Campbell. The following are my key takeaways from each of the three sessions, in reverse order of the egos involved.
McLaren – Michael Leiters
Leiters came across as quite open, honest, thoughtful, and a little bit nervous. He was transparent about McLaren’s recent challenges, where he wants to take the business, and how he sees the portfolio and powertrain technology evolving. Leiters was clearly well prepared, well rehearsed, and remained very much on script during the 30 minute discussion. It’s clear that he’s got a massive challenge, possible more than he originally bargained for, when he took the job. He did make a point of saying that he has confidence in the business plan and it has strong shareholder support. Leiters indicated that he is hoping to have the new capital structure in place in a month. I hope he is right as it is a bit overdue at this point as the discussions have dragged on for at least 6 months now. A couple of other interesting points:
- Despite Leiters’ coming from Ferrari, he was very clear he had no intention on trying to copy Ferrari, very clear about the need to stick to McLaren’s DNA.
- Leiters sees a future for ICE in the McLaren portfolio but believes the majority of the portfolio will likely be hybrid in the next 5 years. EV is further out (if ever). In fact, it was pretty clear that Leiter’s is not sold on EV as a powertrain solution for Supercars given both the weight and lack of emotion.
- While not outright committing to doing a SUV, Leiters strongly hinted that it is highly likely that at a minimum, McLaren will introduce a 4 seater.
- While stating that an IPO is not currently on the agenda, he did reveal his cards when he indicated that McLaren needs to become profitable and then we will see what happens.
Ferrari – Benedetto Vigna
Vigna is clearly a captain of industry and quite comfortable in the Ferrari CEO seat now. While Ferrari might be his first CEO job, Vigna ran a massive highly complex semiconductor operating group prior to joining Ferrari so is used to managing complexity and large organizations. He started the discussion by establishing that he is used to working in a much faster paced industry than the automotive world which was a rather interesting approach given the audience. While he did say Ferrari was fast for a auto manufacturer, it was clearly implied that he would be step changing the rate at which Ferrari evolves and embraces change. He did reference Tesla as a company that has come out of nowhere to completely disrupt the industry. Vigna is a clear champion of using technology to create disruptions that can be leveraged. He does believe that innovation is core to the Ferrari DNA and he will use emerging technologies to drive that forward. A few quite interesting points:
- Sustainability is highly important and Ferrari’s core values include the three P: People, Profit, and Planet.
- In terms of powertrains, Ferrari is committed to a three prong approach. Ferrari will continue to manufacture ICE, build hybrids, and launch EV. What was very interesting is Ferrari seems now to be very committed to maintaining ICE for as long as possible while being much less excited about EV. ICE wil be maintained until it socially untenable to do so.
- Ferrari is first and foremost a luxury goods manufacturer. It must appeal to the emotional side of the customer; it must touch the soul and create an emotional connection.
- Vigna is clear on the challenges on creating an EV that “touches the soul” while at the same time being quite certain that Ferrari has or will crack the code. His comments on an electric car not being silent was quite telling as to the approach Ferrari is taking. He did illude to the size of the challenge when referencing Enzo Ferrari’s statement that the engine is the soul of a car. When pushed Vigna stated that in an electric car the soul is now the client as the intent is to stimulate the client’s emotions across the senses and not just via sound but also linear and lateral acceleration and the cockpit environment. He also admitted that with current battery technology you can’t produce a car that is both a track monster and a long distance tourer. Current battery technology just isn’t flexible enough.
- One of the biggest challenges and decisions Vigna is facing is deciding what to produce in-house and what to outsource. Both EV batteries and software are key decision points. On the software, a car has four main systems, Ferrari will always develop the performance software in house but comfort/climate control, infotainment and autonomous will be outsourced as they are not competitive points of difference.
- On Ferrari’s future growth, Vigna made what I would call slightly strange statements around the 2022 volume growth being due to Ferrari’s stress testing their supply chain. He then refused to get caught stating any sort of volume cap but did emphasize that he expected most of the growth to come through value, i.e. mix and pricing. He is looking to add more models at low volumes facilitating this with the Purosangue (and please don’t call it an SUV or he will ignore you) being a good example of the new approach. I would also take this as an indication that Ferrari will expand upon the Icona line given its price point and margins.
- Finally on Formula One, don’t expect a quick turn around on Ferrari’s fortunes. He is urging patience for the new team principle, Fred Vassuer. Doubt he will get it. Ferrari goes through team principles at the same rate Italy goes through Prime Ministers.
Aston Martin – Lawrence Stroll
If Leiters and Vigna were the poster kids for staying on script and disciplined in their response, Stroll was free flowing word salad. The first two discussed their companies’ accomplishments. Stroll attributed everything to himself in a performance that would even make Trump blush. If someone in the Aston Martin PR department spent time preparing a script for Stroll, it was not time well spent. This was a completely different Stroll vs. the on-script discipled version from the FY 2022 Earnings Call.
A few things Stroll would like you to know:
- He inherited a company that came off a colorful troubled IPO and that was executing a wholesale push model rather than a retail pull model.
- Stroll has built some of the greatest luxury companies in his life. The Aston Martin he inherited claimed to be operating in a luxury environment but the manner in which the business was conducted couldn’t have been farther from the truth. In addition, there was an inventory oversupply issue which he had to deal with as well.
- My new vision is very clear, to build the world’s greatest ultra luxury high performance British brand.
- The first thing Stroll did when taking over Aston Martin was to solidify the finances of the company. He has raised and invested approximately a billion and a half pounds, which he believes is quite a substantial number by anybody’s standards.
- He has also brought in what he considers to be the best management in the world that understands how to do small volumes, high performance, and luxury
- Stroll’s first order of business was to align demand with supply. It was a very costly venture, probably the costliest venture, and cost several 100 million GBP because of the inventory that was in the marketplace.
- Stroll firmly believes that we should always be manufacturing significantly, or at least a few percent less, than demand. So, the first thing I implemented was we stopped making cars for over 9 months to work through the existing inventory.
- When Stroll took over most of these cars were selling through discounts. He is adamant that there couldn’t be worse way to build a luxury company. He then stated that to this day he has not made a car that doesn’t have an order.
- Stroll indicated that today there is no (new) inventory to the buy which has driven values of Aston Martin’s second hand cars up significantly. Per Stroll, if you want to buy a new one, you can’t do so without ordering it.
- Stroll stated that in the next 24 months there will be eight new car launches, and that Aston Martin has never seen so much activity in the history of the company.
- He has been working for three years to bring new technology performance from our Formula One team and integrated into the road car business.
- Stroll would like you to know that Aston Martin has created a new sector in cars. Aston Martin has created something far superior to a Grand Tourer which for the first time in the automotive world is going to have this true high level of luxury and a true level of high performance. (it’s what they are calling Super Tourer, not to be confused with ABBA’s Super Trouper).
- In Stroll’s words, “I’m taking a page out of my previous successful retail history. In order to share Aston Martin experience properly with customers, we will be opening our first flagship store in New York. It will have the best address on Park Ave at 57th It opens on the Tuesday before the Canadian Grand Prix. I think it’s the 13th of June. That’s going to show the world how an Aston Martin customers experience is done and it’s nothing like any other automotive manufacturers has done. It will really be something that’ll blow your mind. We’ll have one of those in New York, we’re going to have one of those here in London, we’ve actually signed the lease in Berkeley Square. We’re going to have several in China we have one in Japan we’re going to open several throughout United States. Beverly Hills and Florida are next on the list. I want to have a dozen of these around the world that give the true customer experience. They will have designers in those stores seven days a week to help you with your car. We’ll have designers living in those stores. You know the extra options you put on the car are very profitable.”
- Stroll would like everyone to know about the huge benefits that Aston Martin Lagonda, the road car company, is getting by having the Aston Martin Formula One team. In each race Aston Martin has the safety car and the medical car. Stroll claims, Aston Martin has 92% new interest in the brand since joining Formula 1 last year
- Stroll stated that the Vantage F1, which is a car Aston Martin sells that is similar to the actual F1 safety car, 72% of those sales are due to Formula 1.
- In terms of the mid engine, cars, Stroll stated that Aston Martin will have a very large mid engine program built around the Valhalla. The Valhalla will ultimately come in many variants and there will be a number of mid engine specials.
- Stroll thinks Aston Martin’s shares are significantly undervalued but blames it on the troubled past of the company which predates him.
And my favorite Q&A:
In answer to Peter Campbell’s question on inventory, “you said you’ve never made a card that you haven’t already pre sold. And yet there were some of the books last year, about 900 more cars, in inventory than were planned, what happened”
Stroll replied “with that no we didn’t 100 more if you’re referring to the DBX we had tremendous well two very big supply chain shortages which we mentioned during the course of the year one was one was leather one was bumpers and we had to deliver cars later in the year because we got the components later in the year those were sold orders or to dealers or the customers that we delivered later they were not there. The car should have been delivered earlier but were sold before they were delivered so there’s no, categorically there’s no car made today that aren’t pre sold at all. There’s no cars made today that were not ordered by a customer or by a dealer there’s no cars in our inventory there are cars in dealers inventory. Its just the two or three cars they have in the showroom. These are the cars that they have for test drives and but unless they’ve ordered the car, or the customer ordered the car, that’s correct we have not made a car. Other than some press cars or things like that”
Word salad has never had a finer moment.
As a final note, Aston Martin’s shares are down 83% since Lawrence Stroll took over as Executive Chairman and its Gross Debt is up by over £200 million. Regarding all the Aston Martin boutiques Stroll is planning on opening around the world, only one word comes to mind, Asprey (see: A Royal Mess – Asprey). In terms of only building to order, in Aston Martin’s 2022 Full Year Financial Report, it was noted that in the timing of deliveries towards the end of Q4, total wholesale volumes were temporarily ahead of retail volumes at the end of 2022. A check of inventory at a few US Aston Martin dealerships indicated that there are plenty of new Aston Martins for sale on dealer forecourts today. For more details on Aston Martin’s performance: AML 2022 FY Results & AML Q1 2023 Results.
Summary
Watching the three interviews back to back was fascinating. Leiters clearly has his hands full, knows it, and isn’t trying to hide it. Vigna and Ferrari are flying high but are concerned that the emergence of EV could destabilize the cash machine they have created. As for Stroll, there really isn’t anything to add that he hasn’t said himself. Stroll couldn’t be more different from the other two if he tried.
Thoughts and comments? Please see the comments section below.
The sign up for new blog email notifications is at the bottom of the page.
Follow us on
Share Now
May 2023