Aston Martin will be releasing their 2021 Earning’s Report this coming Wednesday, February 23rd. As customer deliveries of the Valkyrie hypercar will play a large part in this report, I thought it might be worth taking a look back on its history and see how a project that started off with such excitement and promise, has turned into a Greek tragedy that even Sophocles would be impressed by. In researching its history, as per just about everything related to the Valkyrie, trying to decern facts from fiction is no easy task.
The former CEO of Aston Martin and great slayer of shareholder value, Andy Palmer, recently posted a video on Twitter (Palmer – Valkyrie Video) on how the Valkyrie came to be. It’s a cute story and of course makes Andy look great. The video makes Andy look like an inspirational visionary who’s creativity initiated the chain of events that would lead to the groundbreaking Valkyrie’s development. This story has just enough truth in it that it is quite believable on the surface. However, like most things that include both Aston Martin & Andy Palmer in the same sentence, you need to dig below the surface a bit to find the whole truth. It turns out that the original idea for what became the Valkyrie was germinated not in a pub in Woburn over sausage & mash, but in the scenic valley just east of Zurich in Switzerland.
The first germination of the idea for what was to become the Valkyrie happened in St Gallen, Switzerland in 2013. At the time, St. Gallen was the home of one of Aston Martin’s largest and most profitable dealerships which also happened to be the main outlet for the sale of Aston Martin’s highly profitable special models. Back in 2013 there was a lot of hype and excitement on the upcoming “holy trinity” of hypercars about to be launched by Ferrari, McLaren, & Porsche. The owners of the St Gallen dealership (aka the Swiss) saw the opportunity for Aston Martin to get on this highly profitable gravy train. The Swiss approached Ulrich Bez, the CEO of Aston Martin at that time, and pitched the idea for a mid engine Aston Martin hypercar. Bez, who was on his way out the door, had little interest so the idea was shelved. Roll forward to 2014, Bez is gone, and the father of the Nissan Leaf, Andy Palmer was now ensconced in the corner office in Gaydon. The Swiss decided to give it one more shot and repitched the mid engine idea, this time to Andy Palmer. Palmer embraced the concept and agreed to take it to the Aston Martin Board of Directors for approval. The Aston Martin Board signed on, but under the stipulation that the Swiss would underwrite the project.
With the basis for a deal in hand, the Swiss set up a new company, Nebula Project AG, in 2015 as the co-initiator and underwriter for the Aston Martin mid engine projects. In return for underwriting the projects, Aston Martin agreed to pay Nebula Project AG an undisclosed royalty on what was to become the Valkyrie and all other Aston Martin mid engine cars for a period of 10 years. A steering committee for the mid engine projects was set up with both Nebula and Aston Martin holding an equal number of seats.
With the basic structure and financing in place, all that was needed now was an actual car to sell and customers to buy it. Where the idea to approach Red Bull F1 Racing Team about the project came from I have not been able to identify. However, once that decision had been made, it is where Andy Palmer did play a critical role as he was well connected to the Red Bull F1 Racing Team going back to his days at Nissan. Over sausages and mash at a pub in Woburn, Palmer pitched the Swiss’s mid engine hypercar idea to Red Bull’s Christian Horner (Team Principal), and Adrian Newey (Chief Technical Officer). For Horner, this had to seem like a gift from the heavens. Newey had recently received a large financial offer from Luca Montezemolo, CEO of Ferrari, to take over development of both Ferrari’s road and race cars. A key part of the attractiveness of the Ferrari offer was it would have allowed Newey to achieve one of his goals, to design a ground breaking road car. As just a race team, this wasn’t something Red Bull could match on their own. However, by joining forces with Aston Martin, Horner could give Newey his road car project and keep him from jumping ship to Ferrari. While it would take over a year for the final deal to be put in place, the framework for it was done and it looked like a win-win all around. The Swiss would get a ground breaking hypercar that their well heeled clients would fight each other over to get the right to buy, Aston Martin would get an image enhancing project that would enhance their profile ahead of the future planned IPO, Newey would get his road car, and Horner would retain the greatest current designer in Formula 1 for Red Bull.
Roll forward to mid 2016 and development of what was now called the AM-RB 001 had reached a point where it could now be shared with the public. The basic design work had been completed but the final details were still under development. Despite the £2.4 /$3.2 million plus price tag, a long list of potential clients has already been lined up for all 150 road car build slots. At this point it was also announced that a smaller production run of more extreme track only versions would follow the road cars. First deliveries were targeted for the end of 2018.
In March 2017 at the Geneva Motor Show, Aston Martin announced that the AM-RB 001 had been officially named the AM-RB Valkyrie and further details on its performance and specification were released. List price was set at £2.4/$3.2 million. All 150 road versions of the Valkyrie now had customer deposits against them. The specs shared at this point in time indicated that the Valkyrie would be powered by a Cosworth supplied 6.5-liter V12 hybrid producing over 1,000 horsepower coupled to a bespoke seven-speed paddle-shift transmission. The power-to-weight ratio goal was set at a highly ambitious 1:1 (one horsepower for every kilogram of kerb weight). Bosch would be developing bespoke Engine Control Unit (ECU), Transmission Control Unit (TCU) and Electronic Stability Program (ESP) systems for the Valkyrie and Alcon/Surface Transforms, would supply the bespoke braking system. First deliveries where now planned for 2019. Looking back today, this was probably the high point of the Valkyrie’s development.
In addition to giving Aston Martin the halo car it needed and a road into the mid engine segment of the supercar market, the Valkyrie also delivered something that Aston Martin deeply desired, a huge influx of cash. Buried deep in Aston Martin’s 2018 IPO Prospectus is the following statement:
During 2016, Aston Martin Lagonda generated £164.6 million from operating activities and £74.3 million from improved working capital, in particular due to deposits received for future sales, in particular for the Aston Martin Valkyrie. Over the same period, Aston Martin Lagonda used £190.2 million in investing activities as it continued its investment in new products.
The £74.3 million referenced equates very closely to what would have been the initial £500k customer deposits on each of the 150 Valkyries with £750k more to come by the end of 2018. Without the deposit money, Aston Martin would have been in a cash negative position. Hence 2016 marks the beginning of Aston Martin’s addiction to customer deposit funding and it’s been “chasing the dragon” ever since. More customer deposit funds would flow into Aston Martins coffers in 2017 and 2018. By May 2018 all 25 of the Aston Martin Valkyrie AMR Pro track only cars had been spoken for with hefty deposits paid. List price on the Valkyrie AMR Pros is around £4 million.
The 2018 IPO Prospectus lists Aston Martin’s cash as of June 30, 2018 at £71.5 million. This is only about 1/3rd of what would have been collected in terms of deposits by that period of time. Question is where did the money go? While some of the funding was definitely used to develop the Valkyrie, it’s also highly likely that a not insignificant amount helped pay for the DBX SUV program. It’s also quite clear that without the funding that came along with the Valkyrie, Aston Martin’s cash position would likely have been quite negative, making the IPO even more difficult to execute (I will come back to Aston Martin’s October 2018 IPO in a later article. A quick sniff test on it led to burnt nostrils).
With cash in short supply resources being diverted to the DBX’s development, by 2019 it had become quite apparent that the Valkyrie program was well behind schedule and the cracks in Aston Martin’s overall business were beginning to show. Initial Valkyrie deliveries had been pushed to 2020. To divert attention, Aston Martin announced the 2nd and 3rd cars in the mid engine program and presented both at the Geneva Motor Show that March. The 2nd car in the series, originally designated the AM-RB 003, was later renamed the Valhalla. The Valhalla was sold as a more civilized version of the Valkyrie with a limited run of 500 units. List price was estimated at around $1.2 million, and Aston Martin has happy to collect a $300k deposit to secure a build slot. Aston Martin’s business continued to deteriorate through 2019 and within a year of the IPO, Aston Martin’s shares had lost 75% of their value. While the Valhalla helped Aston Martin’s cash position early in 2019 as deposits funds flowed in, by the end of 2019 it was a drain as many of the early depositors requested refunds. The Valkyrie did make its public debut in 2019 where it managed to complete one lap of the Silverstone circuit ahead of the British Grand Prix however, going into 2020 deliveries had officially been pushed back to start in the 2nd half of 2020.
In early 2020, Aston Martin was in a precarious financial position, and it looked like a record 8th bankruptcy might be in the cards. At this point, Aston Martin had to bring in a major outside investor, Lawrence Stroll, to provide badly needed liquidity to avoid going under. Once Stroll had ensconced himself as the new Executive Chairman, Palmer was unceremoniously jettisoned, Tobias Moers from Mercedes-AMG was hired as his replacement, and the Valkyrie steering committee was disbanded. Shortly afterwards Stroll pushed first deliveries on the Valkyrie to 2021 while embarking on a cost cutting program that would significantly increase the car’s weight. At this point there was also a major loss of talent on the Valkyrie development team, and Adrian Newey had little further involvement in the car’s development. The relationship with Red Bull continued to worsen throughout 2020. By the end of the year, Red Bull had officially exited the Valkyrie development program and “RB” was removed from the car’s name.
Up until now, most of the issues with the Valkyrie’s development had been kept out of the public eye. That all changed in mid 2021. First in June, Aston Martin under Stroll & Moers leadership lodged a request in Switzerland for a criminal prosecution, plus a parallel civil action, against the Board Members of Nebula Project AG. The Aston Martin release on the proceedings reads:
Aston Martin Lagonda Global Holdings plc (“Aston Martin” or “the Company”) announces that it is filing for civil legal proceedings against Nebula Project AG and, with the support of a group of its customers, criminal proceedings against its board members in order for the prosecutor to investigate any potential criminal behaviour following the failure to pay some customer deposits for Aston Martin Valkyrie programme orders received by Nebula Project AG to the Company. The Company has also terminated the underlying commercial agreement with Nebula Project AG.
Both Aston Martin and its customers have been impacted by Nebula Project AG’s and its board members’ behaviour. Aston Martin is fully committed to supporting and working with those customers affected to ensure that they will still receive delivery of their Valkyrie programme vehicles as scheduled, prioritising customer relationships, despite the Company not having received all the deposited funds. There are no other agreements like this in place and going forward the Company will ensure that all deposits for special vehicles are received directly by Aston Martin, not through a third party.
In 2016, the prior management team of Aston Martin entered into an arrangement with Nebula Project AG to underpin the development of the Aston Martin Valkyrie and certain other mid-engine programmes. Under the terms of this agreement Nebula Project AG was to receive royalty payments, which could have been significant over time, linked to production volumes of these programmes and Nebula Project AG meeting its funding commitments. As a result of the termination of this commercial agreement with Nebula Project AG, Aston Martin is no longer liable for any of these potential royalty payments.
The Company is today also terminating the dealership arrangements it had with AF Cars AG, a company operating Aston Martin St.Gallen in Switzerland and managed by the same board members as Nebula Project AG, after learning that vehicles have been sold in breach of terms of the dealership agreement. The Company is focused on maintaining service for customers as a priority with the four other dealers it has in Switzerland operating as usual.
The net financial impact to Aston Martin of this extraordinary event is expected to be positive over time, as the financial impact of not having received all the deposited funds, is expected to be outweighed by the benefit from the termination of the Nebula agreement and associated potential royalty payments. However, for the year ending 31 December 2021 it is expected to reduce both cashflow and EBITDA by up to £15 million, including a provision of up to £5m of trade debtors. The Company expects to book the provision in the second quarter and for the remaining impact on cash flow and EBITDA to arise primarily in the fourth quarter. The Company is confident that the net negative impact for 2022 can be managed within current expectations.
This is the statement issued by Nebula Project AG in response to the notice of proceedings from Aston Martin:
Having reviewed the Regulatory News Service (RNS) distributed by Aston Martin Lagonda Global Holdings plc today we are surprised and disappointed about the aggressive tone of the RNS. We have had a strong working relationship with Aston Martin during the past 11 years and have been a loyal partner contributing significantly to Aston Martin’s sales and profit especially through the successful distribution of limited-edition special vehicles.
Nebula Project AG entered in good faith into the agreement with Aston Martin regarding the Valkyrie and other mid-engine programs and has always fulfilled its obligations as co-initiator of said project in accordance with the existing arrangements with Aston Martin. We are convinced that Aston Martin’s allegations towards us in connection with the Aston Martin mid-engine programs are entirely unfounded. On the contrary, we and our customers have been significantly impacted by Aston Martin’s behaviour as partner of the project, resulting among others in a delay of Valkyrie customer deliveries by more than two years due the late start of its production.
We consider Aston Martin’s alleged unilateral termination of the contractual relationship with Nebula Project AG as illegitimate and unjustified and are prepared to pursue the necessary steps to preserve our rights. Contracts have to be honoured despite any shareholders and management changes.
We are convinced that the value of the royalty payments which Nebula Project AG is to receive from Aston Martin is significantly higher than insinuated by Aston Martin. Finally, we want to make it clear that we keep our commitments if Aston Martin keeps their obligations.
At first glance, this seems like a financially challenged Aston Martin looking for an excuse to get out of having to make the royalty payments to Nebula on the mid-engine cars. Building the case around the non-passing on of customer deposit money by Nebula to Aston Martin feels very thin at best. These deposits would have been originally collected back in 2016/2017. Aston Martin has been cash strapped for years. Suddenly, 4-5 years and numerous audits later, the Aston Martin accountants suddenly discover they are missing £15 million? In addition, if Nebula was holding funds that should have been passed along to Aston Martin, wouldn’t it make more sense to simply request the money instead of blowing up a long-standing relationship with a group that has been incredibly patient through all of Aston Martin’s drama over the last decade? My guess is Stroll simply saw Nebula as a cost he could either get rid of or at least delay by tying the things up in litigation which would take years to work its way through the various court systems. I would not be surprised if Stroll is betting that by the time all the lawsuits are resolved, he will have passed Aston Martin on to new owners, and it will be their problem to deal with. The other driving factor is quite possibly that the Valkyrie has become a very “bad math” car for Aston Martin. When they set the list price at £2.4 million back in 2017, they had a fairly limited idea on how much it was going to cost to develop and build. The Valkyrie is intended to be as close as possible to a Formula 1 car while being street legal. Just the basic carbon fiber tubs on a F1 car runs $600-$700k. The bespoke Cosworth V12 engines likely cost around $250-300k each so pretty quickly it becomes quite difficult to turn a profit on building the Valkyries, hence Stroll’s push to cut cost wherever possible. I would also not be surprised if the Valkyrie is a “cash negative” production issue for Aston Martin now with the build costs of each unit now being higher than what is left for Aston Martin to collect from a customer when it finally delivers the car. The pressure on costs also helps explains the sudden announcement in 2021 that Aston Martin would build an additional 85 Valkyrie Spiders (and collect a total of £1.5 million in customer deposits on each one) as this would allow them to spread the development costs over significantly more units while shoring up their cash position.
With the Nebula relationship now publicly splattered and Red Bull having washed its hands of the Valkyrie, Aston Martin was now in sole control of the program. The Valkyrie’s major global “coming out” party was planned for the Goodwood Festival of Speed. 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 broke down again on its way back to the paddock. Adrian Newey also drove the Valkyrie at Goodwood and afterwards described it as having a way to go until it is fully ready for customers with development still to be done. He also stated the car at Goodwood didn’t have active suspension and there’s a lot of mapping work still to be done.
In many ways, Goodwood was the high point for the Valkyrie in 2021. Post the Goodwood fiasco, which Aston Martin’s PR team did do a great job of trying to bury, and despite Newey’s comments that further development was needed, Tobias Moers reiterated a commitment that the first delivery would happen before the end of the year. At the time according to a few ex Aston Martin employees, Stroll & Moers were 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, the Valkyrie Pro AMR track cars are also being prioritized as they do not include the sophisticated electronics & hybrid system.
In November, Moers very excitedly announced that Aston Martin has completed its first customer Valkyrie. Aston Martin’s plan was to deliver a “double digit” number of Valkyrie coupe road cars this year alongside a “single digit” number of the track only AMRs before the end of 2021. What actually happened was Aston Martin shipped 10 Valkyrie and Valkyrie AMR Pro vehicles in December. “Shipped” it turns out just meant that the Valkyries left the Gaydon manufacturing facility and were deposited in a warehouse in Southern England. The first Valkyrie wasn’t actually delivered to a customer until mid January in Munich.
Where does this leave us? At a recent event Stroll made a few comments about the Valkyrie. He blamed delays that have dogged the company’s £2.4m Valkyrie supercar on the complexity of the project. He claimed the deliveries have been held back to maintain quality, so the rollout will take longer than initially hoped. Stroll also stated that all orders have substantial deposits and no customers have wavered. On the later statement, Stroll does have a relationship with the truth that most politicians would appreciate (Stroll also claimed that the Valkyrie’s issues at Goodwood were just due to a £5 part). He also stated that Aston Martin has a complexity issue on the Valkyrie and that they overestimated the number of cars they could build (the carbon fiber tubs take eight weeks to make) until they started building them. Given the Valkyrie has been touted from day one as a highly complex groundbreaking project, that last statement by Stroll is shocking.
With production now started, Moers has claimed that he expects to build 3 Valkyries a week in 2022. However, given how long it takes to build the carbon fiber tubs, it looks more likely that Aston Martin might be able to deliver 40 Valkyries this year. This is also the number I have heard the current production capacity and tooling will support . The number also ties nicely with the number 30-40 Cosworth V12s that Aston has purchased to date for the Valkyrie. 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. In total 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.
In summary, it looks like best case, it will be a decade from sausages and mash at a pub in Woburn to when the last Valkyrie leaves the production line. What started off as a dream by a small group of businessmen in Switzerland has tuned into a very expensive nightmare for them. They not only have been forced out of a project they initiated and underwrote, but also lost their Aston Martin dealership in the process. In fact, all the key players originally behind the Valkyrie project are long gone now. Andy Palmer who did play a key role bringing all the key parties together was sacked by Stroll in early 2020 and Red Bull exited shortly thereafter. So, who actually are the winners in this whole saga? Its Investindustrial V L.P and Adeem Investment and Wealth Management Company. They were the two big private investment funds that cashed out of Aston Martin in the 2018 IPO. Without the customer deposits the Valkyrie brought in, that IPO may not have happened.
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