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Some Ferrari Investors Want Bold SUV Decision

Some Ferrari Investors Want Bold SUV Decision.

Others Want To See Higher Sales, As Long As Exclusivity Preserved.

“Some will see it as heresy, whereas others will look at Bentley and Lamborghini and ask why Ferrari is allowing the competition to tap demand that might rightly be theirs,”

Ferrari investors want the Italian luxury speedster maker to be bold, hold its nerve, grit its teeth and go for that SUV.

Ferrari won’t call it an SUV of course. According to CEO Sergio Marchionne a possible new vehicle will be utilitarian and a definition of Italian class. But it appears that the defenders of Ferrari exclusivity and the notion that breaching the long-term 10,000 annual target would lead to a trashing of the brand, are on the verge of defeat.

Not all investors are hot to trot for the bigger Ferrari. Citi Research appears unbothered by the SUV decision, but wants Ferrari to grow faster, but maybe not much higher than the 10,000 barrier.

“The opportunity at Ferrari is still largely untapped. We see scope for Ferrari to grow volumes to 10,000 by 2020,” Citi Research analyst Michael Tyndall said.

In its second quarter report, Ferrari said earnings before interest, taxes, depreciation and amortization (EBITDA) profit jumped to €270 million from €217 million in the same period of 2016. Ferrari retained its sales target for 2017 of 8,400 vehicles.

Tyndall said the key risk was maintaining exclusivity and he liked the fact Ferrari management seemed well aware of this.

“Will they or won’t they launch an SUV is not the issue,” Tyndall said.

“Some will see it as heresy, whereas others will look at Bentley and Lamborghini and ask why Ferrari is allowing the competition to tap demand that might rightly be theirs,” Tyndall said, adding that the form of expansion is academic, but the opportunity to expand sales must be taken, as long as exclusivity is maintained. 

Don’t hesitate
The Wall Street Journal’s Heard on the Street column said Ferrari shouldn’t hesitate about taking a more ambitious path.

“Ferrari is speeding toward a fork in the road. It shouldn’t hesitate to take the more ambitious path,” said columnist Stephen Wilmot.

“It looks increasingly likely to embrace growth by developing a new form of Ferrari that appeals to a new customer base – one possibly more interested in looking good than racing,” Wilmot said.

Porsche took the plunge when it launched the Cayenne SUV. Bentley has the Bentayga SUV. Even Rolls Royce is close to launching one.

Wilmot said this more ambitious route risks breaching the 10,000 barrier, which would than invoke higher government regulation compliance costs.

“In reality, though, this was always going to happen at some point,” said Wilmot.

Meanwhile Bernstein Research analyst Max Warburton has no qualms about the new, bigger vehicle, which he calls the FUV (Ferrari Utility Vehicle) and considers it a confirmed issue.

“What is the market potential of a Ferrari SUV? Depending on price point, we’d estimate 2 to 3,000 units per year. We’d highlight the truly horrible looking Bentley Bentayga SUV is selling about 5,000 a year despite the close to $250,000 price. Add in the new Dino, a V6 sports car, and it looks like Ferrari could be a close to 15,000 unit business after the SUV launches in perhaps 2020/2021. This could raise annual EBITDA to around €1.8 billion,” Warburton said in a report.

Inevitable
But in a later report Warburton said he wasn’t sure if the formal go-ahead for the FUV had been given, but believes this is inevitable.

Berenberg Bank looked at the Formula 1 aspect of Ferrari and reckoned that the new ownership of the franchise, Liberty Media, might be able to turn what is a cost to the company into a profit.

If F1 could be improved as an entertainment by evening out the technology to make races closer and more competitive, plus a more aggressive attitude to selling advertising would generate more income.

F1 currently costs Ferrari about 15 per cent of its profits.

“Through a combination of higher income, and lower costs, we expect Ferrari’s Formula 1 franchise to turn a profit of €16 million in 2021, a €110 million swing from 2016 that adds 17 per cent (to profit) over the next five years,” the bank said in a report. 


 

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