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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