Ferrari Profit Plan Soothes Investors, But Electric Doubted

Ferrari Profit Plan Soothes Investors, But Electric Doubted.

“An aggressive push towards electrification helps de-risk the long term strategic plan. Targeting 60% of mix with hybrid will improve performance while addressing regulations.

Italian luxury sports carmaker Ferrari impressed investors with its short-term plans, but it will have to do more to embrace electric power if it is to ward off regulators intent on outlawing the internal combustion engine in the longer term.

Ferrari announced at an investors’ meeting Tuesday that it will launch an SUV, called the Purosangue, by 2022. Between next year and 2002, there will be 15 new model launches. 60% of all cars sold by 2022 will be gasoline electric hybrid. But Ferrari stopped short of announcing its first venture into the all-electric market. Ferrari also unveiled some special editions, like the retro-styled Monza which will be powered by an 810 hp V-12 motor, and can be bought with one or two seats. It will also introduce some smaller V-6 engines.

Ferrari also reassured investors made nervous by new CEO Louis Camilleri’s recent comment the profit target for 2022 set by the late CEO Sergio Marchionne was “aspirational”.  Marchionne had set a target for EBITDA (earnings before interest, tax, depreciation and amortization) profits of €2 billion ($2.3 billion) by 2022.

Camilleri said the new 2022 target was now a range between €1.8 billion and €2 billion. Investors didn’t seem phased by the new wording. 

Before the meeting, investment bank Morgan Stanley said it didn’t expect Ferrari would announce an all-electric car at the meeting, but said this is the most important decision that has to be taken by the company to secure its future.

Morgan Stanley analyst Adam Jonas liked the hybrid move.

Aggressive push
“An aggressive push towards electrification helps de-risk the long term strategic plan. Targeting 60% of mix with hybrid will improve performance while addressing regulations. Ferrari left the door open to a pure EV (electric vehicle) but stressed the importance of sound. This is an unresolved issue for the brand but we believe the company is well positioned to eventually tackle it with time and upfront expenditure,” Jonas said.

“Ferrari management cited regulations as the number 1 risk factor outside of the company’s control. We were encouraged to see this acknowledgement as it reflects high awareness from management of risk factors and the willingness to take measures up front to address them,” Jonas said.

Competitors like Aston Martin and Jaguar though are already ahead with their pure EV plans. 

Because its sales are comparatively small, Ferrari doesn’t show up on emissions regulator’s radar on either of the Atlantic. But that benign regime will end when Ferrari passes 10,000 in annual sales, where it will become subject to mass market gas guzzler rules in the U.S.   

Ferrari sold 8,398 vehicles globally in 2017, led by 12-cylinder models like the GTC4Lusso and the 812 Superfast, and has said this will rise to more than 9,000 in 2018. Investors already expect Ferrari to aim for annual sales of 15,000 in the medium term. 

The launch of the Purosangue ( which means thoroughbred in Italian) SUV was pushed back by about 2 years, and Citi Research expected less than 1,000 would be shipped in 2022.

Purosangue
The Purosangue will compete with the Lamborghini Urus, Rolls Royce Cullinan and the Bentley Bentayga.

Camilleri, on an analysts call, said much of Ferrari’s improved profits would come from price increases rather than higher sales.

Reuters’s Breaking Views column pointed out how this might work.

“Ferrari’s revenue per unit, which includes proceeds from sponsorships, stood at €407,000 ($540,000) in 2017. Ferrari would have to increase that to near €500,000 to deliver its revenue pledge without passing the 10,000 vehicles a year mark that triggers more stringent emission rules. That’s an annual average increase of over 4%, in line with last year’s rate, “Breaking Views said.

Citi Research declared itself satisfied.

“Relying on price-mix requires a leap of faith and some investors will be comfortable with that, particularly in light of the fact that it has not consistently been the main-contributor of (profit) growth historically. That said, the launch of 15 new models in five years, inclusive of one-offs/specials, which command higher price points, and a new high-end mid-engine car may be enough to drive earnings higher. Ultimately, the fact that the mid-term targets assume such a low volume of ‘FUVs’ (Purosangues) suggests the equity-story should remain intact beyond 2022. We remain Buyers,” said Citi Research analyst Raghav Gupta-Chaudhary.

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