Aston Martin Triples Loss; Survival Might Require A Takeover.
“It is difficult to see how it can survive”
Troubled luxury sports car maker Aston Martin tripled its losses in the first half of 2022 and investors hoping last month’s £653 million ($744 million) capital raising might end worries about its financial security need to think again, as analysts point out more cash or even a takeover might be required to guarantee survival.
Aston Martin lost a pre-tax £285.4 million ($347 million) in the first half of 2022, compared with a loss of £90.7 million ($111 million) in the same period last year.
Aston Martin shares were erratic in European trading Monday, opening down nearly 3%, then rallying to a 1.4% gain, according to Reuters.
Chairman Lawrence Stroll, commenting on the financial results, said the company was handicapped by a shortage of chips, which left 350 of its pricey DBX SUVs unfinished and stranded in limbo.
“We ended June with more than 350 DBX707s that we had planned to deliver in Q2, still awaiting final parts, consuming tens of millions in cash and temporarily limiting our ability to meet the strong demand we have,” Stroll said.
“We have now started to deliver these vehicles in July and expect further improvements in the supply chain as we move through (the second half), supporting the delivery of our full- year targets,” Stroll said.
Aston Martin said last month it planned to raise £653 million, through an investment of £78 million ($93 million) from Saudi Arabia’s Public Investment Fund and a rights issue of £575 million ($681 million). After the rights issue, the Saudis own 16.7% of Aston Martin, Stroll’s Yew Tree Consortium 18.3% and Mercedes-Benz just under 10%. A counter-offer from Chinese conglomerate Zhejiang Geely Holding Group was rejected.
Analysts aren’t convinced the capital raising plan was sufficient.
Professor David Bailey of Birmingham Business School thinks a takeover is making more sense.
High cost of EVs
“The latest effort by Aston Martin to raise cash buys some time but doesn’t change the fundamental challenges facing the firm. It is difficult to see how it can survive as an independent player in a rapidly evolving industry with high costs of developing new EVs (electric vehicles),” Bailey said.
“Turning down the recent investment offer by Geely seemed a particularly bad call – it would have raised more cash and opened up access to platform sharing with (British sports car maker) Lotus, also owned by Geely. A takeover seems increasing likely,” Bailey said.
Other commentators say more cash is needed.
“The scale and direction of the losses suggest a bigger cash injection is required. Without serious investment in a revamp to catch up with rivals like Ferrari the losses will keep mounting,” said Reuters’ Breaking Views column.
British-based automotive analyst Charles Tennant agrees more drastic action might be required including a takeover.
“Unless sales can be revved up soon, I’m afraid yet more cash – or even a take-over perhaps by the Chinese behemoth Geely – is going to be required sooner than later. With a share price that has tanked 66% so far this year it is clear that the City (investors) has the jitters about future prospects, even though Stroll claims Aston Martin is in a strong position with robust demand,” Tennant said.
Aston Martin said first-half sales fell to 2,676 from 2,901 in the same period last year and it expects to sell more than 6,660 vehicles in all of 2022. It has said by 2025 sales will hit 10,000 a year.
Tennant said the recent injection of new funds might not be enough to avoid the company’s 8th bankruptcy.
“After all, half of this new money is going to be squandered on paying down debts, which currently sit at an eye-watering £1.27 billion ($1.54 billion) – a figure that has worryingly risen by 40% so far this year. Whilst the debt position can be in part explained away with £80 million ($97 million) tied up in supply chain delays, £134 million on revaluation of its dollar denominated debts, and £46 million servicing the company overdraft; it is unfortunate that just £138 million was available for new model development. And with just 2,676 cars sold so far this year, against a planned 6,600 full year position, there is so much to do and it’s all going to cost a lot of money,” Tennant said.
He said Aston Martin’s cash burn is increasing at an alarming rate, causing the cash balance to dwindle 60% to £156 million.
“With an expensive transition to electric cars a priority now, I seriously question whether Aston Martin will be able to fund this from its own earnings, even with technology input from Mercedes Benz and electric car manufacturers such as Lucid and Rimac,” he said.
Aston Martin, despite being the sports car of choice of mythical movie spy James Bond, is in the unfortunate position of being in the same market as Italy’s Ferrari. Ferrari makes huge profits by managing the power of its brand to maximize its prices and profit margin. Aston Martin has said it wants to emulate the Ferrari strategy, which includes making limited editions of cars like the Valkyrie, a racing car adapted for roads and which sells for about £2.5 million ($3.1 million). The Ferrari equivalent is the Monza SP.
Investors have to decide if there really is a future in this rarefied market for another company to consistently prosper. It might be best to gain the protection of a much bigger partner, like China’s Geely, or Mercedes, which already has a just under 10% stake in Aston Martin.