Ferrari steps on the accelerator to meet the challenge of electrification
An iconic brand
Headquartered in Maranello, Italy, Ferrari is a famous Italian manufacturer of luxury sports cars; it is also a well-known F1 team with multiple world championship titles even though their last title dates back to 2008, which seems like too long ago for the tifosi (Ferrari’s loyal fans). Created in 1947 by Enzo Ferrari, the group is an icon in the automotive sector. Ferrari is quoted on both the NYSE (RACE US) and Euronext Milan (RACE IM).
The company sold around 13,000 cars in 2022 and generated revenues of €5,095m, an increase of 19.3% year-on-year, for EBITDA of €1,773m, equivalent to a margin of 34.8%, way ahead of the margin of traditional, mass market, original equipment manufacturers. Sales are rather well distributed between EMEA (between 45% and 50%), Americas (c.26%), APAC (between 19% and 24%). Its first-ever 4-door car, the Purosangue, which Ferrari refuses to call an SUV (sports utility vehicle), was such a big success, that Ferrari had to close the order books (they have been re-opened since), in an attempt to preserve some exclusivity and to avoid the Aston Martin syndrome (the British brand, long known for its luxury 2-seater sports cars, generates around half of its sales thanks to its SUV, the DBX). Ferrari’s range encompasses traditional luxury sports cars as well as special series and limited-edition models whose selling price usually exceeds €1,000m.
Record after record
Despite a difficult macroeconomic environment, which currently weighs on a lot of industrial companies, Ferrari’s financial health is shockingly impressive as the group is on pace to record another excellent year. The group, which recently released its 3Q figures has revised its guidance upwards and is now targeting revenues of around €5,900m (previous guidance was €5,800m) and an EBITDA margin superior to 38%. As a consequence of such excellent profitability, Ferrari’s industrial net debt over EBITDA ratio (excluding financial services) is currently close to 0.1x, a level that clearly positions the Italian group in the investment grade category. Ferrari’s free cashflow evolution is as impressive as the rest of credit metrics as the company targets FCF of c.€900m for FY23, which would be equivalent to an increase of 18% with respect to FY22. At December 31, 2022, the group had €2,058m of available liquidity, deriving from cash and cash equivalents and undrawn credit lines, thereby providing good visibility with respect to capex needs, and preserving the group from any liquidity issue in a context of rising interest rates.
However, if the picture seems perfect at first glance, Ferrari is no stranger to challenges. First, the Scuderia Ferrari has been chasing another F1 World championship title for 15 years. If the impact on financial results is not really visible, the brand would certainly benefit from a new title in motorsport racing, after the win in 2023 in the Le Mans 24h race. Another challenge will be the rise of electric vehicles. Sports cars have long been associated with noisy thermal engines. Ferrari, whose sales of hybrid vehicles accounted for around 50% of total 3Q sales, has announced that its first-ever full-electric vehicle will be released in 2025. Such a shift is essential for a brand whose average customer age is getting younger every year, and to respond to rising environmental regulation all over the world. Ferrari’s own ESG metrics are good, undeniably driven by decades of good profitability which have helped the company build a modern, low energy-consuming factory while disclosing some good social practices. But the main challenge does not lie in Ferrari’s own levels of emissions or energy consumption but rather in the utilization of its products and the image they convey while the rest of the world is fighting climate change. Until now, Ferrari was getting away with some exemptions as a niche manufacturer. However, if Ferrari keeps selling more than 10,000 cars, which it has done in 2019, 2021, 2022, and which it is expected to do again in 2023, it will fall under more environmental constraints. It will therefore have to find the right balance between contenting new clients and keeping historical ones while keeping an eye on the evolution of environmental regulation worldwide. This is when the power of a recognized brand for decades should help mitigate the risk. Nevertheless, the next decade will certainly be a test for Ferrari.