Are supercars expensive toys or valuable assets? The question is as relevant to stock investors as it is to proud owners of a Ferrari, Lamborghini or Aston Martin..
At the enterprise level, these brands can generate financial returns for their speed and appearance, but they are not guaranteed. This is especially true in an age when companies have to come up with electric vehicles that somehow build on their heritage in loud engines.
Lamborghini, which has a checkered financial history, celebrated a period of rapid growth on Friday with a capital markets day at its northern Italian headquarters. Such a move could normally be interpreted as the prelude to a split by Volkswagen, which bought the Italian brand in the late 1990s, during the empire-building era. Rumors of a portfolio reshuffle have circulated around VW since CEO Herbert Diess took over in 2018.
With Lamborghini, however, VW has kept expectations in check. In May, UK trade magazine Autocar reported that the German company had received a generous offer of 7.5 billion euros (about $ 8.7 billion) from a consortium of investors; VW said the brand is not for sale. Lamborghini described Friday’s event as a low-key affair motivated by a group-level commitment to transparency.
The track record of independent supercar brands is either fantastic or terrible, depending on the example chosen. Ferrari’s stock has more than tripled since the split from what was then Fiat Chrysler Automobiles in 2015. Investors have come to appreciate the depth of demand for the brand, which underpins the long order books, pricing. high and large margins. But Aston Martin’s aggressively priced initial public offering in 2018 was a disaster for investors, with the stock falling 84%.
Either way, the future might not look like the past. While European regulations have pushed the wider automotive industry towards electric vehicles in recent years, boutique manufacturers have been granted an exemption for producers of less than 10,000 vehicles. But now that politicians are talking about banning gasoline engines in big markets like California, supercar makers are moving faster.
After delivering its first plug-in hybrids late last year, Ferrari announced in April that it would have an all-electric vehicle in 2025. Lamborghini announced an electrification strategy in May, with its first plug-in hybrid slated for 2023 and its first full EV for the “second half of the decade”. Aston Martin plans to sell its first plug-in hybrids in 2023 and full electric vehicles in 2025 as part of a broader turnaround.
One obvious challenge that full electric vehicles pose for these brands is acoustics: what’s a Ferrari or Lamborghini without the rumble of the engine? After a first push of acceleration, electric vehicles cannot yet compete with traditional supercars on the race track, which remains at the heart of their brands. To keep their prices attractive, supercars must above all “maintain the sense of the occasion created by watching them, driving them, experiencing them”, explains Mark Wakefield, world co-leader in automotive and industrial practice at AlixPartners.
VW is probably wise to retain full ownership of Lamborghini for the time being. The brand owes its recent growth spurt and double-digit operating margins to the 2017 launch of a sport utility vehicle, the Urus. But with a total turnover of 1.6 billion euros last year, it’s still less than half the size of Ferrari, which will launch its own SUV, the Purosangue next year. VW’s scale and reach could facilitate elements of Lamborghini’s transition. For example, the Italian company could benefit from sharing the technology with Rimac, a famous Croatian electric supercar startup that already has ties to VW’s Porsche and Bugatti brands, said Tim Urquhart, senior analyst at IHS Markit.
Lamborghini has become more than a vanity project in recent years, but it had an open road. Now the competition and electrification are catching up with the supercars.
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Write to Stephen Wilmot at [email protected]
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