The Washington PostDemocracy Dies in Darkness

Ferrari’s Prancing Horse Will Need Its Skillful Rider

Exhibitors clean a Ferrari SF90 Stradale at the 2021 Pebble Beach Concours d’Elegance in Pebble Beach, California, U.S., on Saturday, Aug. 14, 2021. Since 1950, the annual Pebble Beach Concours d’Elegance has hosted the world’s most beautiful and expensive collectible cars for a week of lavish parties, blue-chip auctions, glamorous rallies, and exclusive high-roller meetings.
Exhibitors clean a Ferrari SF90 Stradale at the 2021 Pebble Beach Concours d’Elegance in Pebble Beach, California, U.S., on Saturday, Aug. 14, 2021. Since 1950, the annual Pebble Beach Concours d’Elegance has hosted the world’s most beautiful and expensive collectible cars for a week of lavish parties, blue-chip auctions, glamorous rallies, and exclusive high-roller meetings. (Bloomberg)
Comment

If there’s one takeaway from the strategy update Ferrari NV gave at its Maranello headquarters this week, it’s this: The prancing horse isn’t about to alter its winning gait. 

Apart from a mixed record on the Formula One racing track, Ferrari has put barely a foot wrong since its stock listing in 2015. It’s convinced investors to think of it as a luxury brand like Hermes International rather than a metal-bashing automotive company, and enjoys a princely valuation to match: Ferrari’s 30 billion euro ($32 billion) market capitalization — even after a one-third drop from its 2021 peak — is astonishing considering it sold barely 11,000 cars last year.

But given its reliance on powerful combustion engines there’s understandable trepidation about what the epochal shift to electric vehicles means for its stellar financial performance. The imminent launch of a Ferrari sports-utility vehicle, the Purosangue, also worries purists: a glance at the ugly (albeit very profitable) tractors made by Bentley, Lamborghini and others explains why.

Benedetto Vigna, who’s been the automaker’s chief executive officer since September, brings bags of technology expertise given his background at STMicroelectronics NV, but he doesn’t have much automotive or luxury experience. 

Yet Vigna and his team will have reassured Ferrari purists their company is in safe hands. The company plans to increase revenue by more than half by 2026, but the uplift will come largely from hiking prices and offering desirable models, rather than compromising exclusivity.

It’s a huge advantage in this inflationary era that Ferraris are also collectors’ items: customers often have several in their capacious garages and they’ll pay whatever the Italian company demands. Ferrari sales have also proven resilient in past recessions, a quality that may soon be tested once again. While there are doubtless a few crypto bros who can no longer afford an SF90 Stradale, which starts at about $500,000, Ferrari hasn’t seen demand deteriorate. 

Indeed, the company could doubtless sell many more vehicles than it plans, especially with the Pursoangue due to arrive in September providing Ferraristi with a more practical family runabout to complement their racing machines. However, the firm says the Purosangue will account for at most 20% of its sales; the comparable Urus contributes 60% of Lamborghini sales volumes.

I think that’s the right call: Ferrari’s luxury cache would be compromised if its vehicles became as commonplace as Range Rovers. 

Fortunately, Ferrari investors won’t be left empty-handed. Its already industry-leading 25% operating profit margins are projected to expand, and the company aims to generate almost 1 billion euros of free cash flow per year until 2026 by being disciplined about spending. Electrification is a priority; fully autonomous driving not so much (customers still want to drive their sportscars, after all).   

Battery-powered vehicles remain a risky departure for Ferrari, given its association with V12 engines, so the company is taking its time: the first fully electric Ferrari won’t arrive until 2025. Even in 2030 it still expects hybrid and fully fossil-fuel powered cars to represent 60% of its model lineup. The company expects cleaner synthetic fuels will allow customers to continue driving combustion models. It also plans to seed a forest in Italy to reach carbon neutrality.  

To me, its approach to electric vehicles feels too slow, but at least the planet won’t be harmed much by its tardiness: Ferrari’s carbon footprint is tiny — according to company estimates, it accounts for 0.001% of global emissions, in part because customers’ thirsty sports cars rarely leave the driveway. Scrapyard emissions also aren’t an issue because clients generally keep their precious vehicles forever.  

But Ferrari can’t afford to rest on its laurels. The European Union wants all vehicles sold from 2035 to have zero tailpipe emissions, and while Ferrari has so far avoided the trap of becoming an old man’s brand – almost 40% of clients are under 40 – there’s a risk that faster-moving rivals redefine what a luxury electric car looks and sounds like. 

Porsche AG’s electric Taycan already outsells the 911 model, and soon the very profitable Volkswagen AG subsidiary will have its own stock market listing, providing competition for portfolio managers’ investment dollars as well as their car budgets. Mercedes-Benz AG is also trying to position itself as an electric luxury leader. 

Still, I’m confident that with tech expert Vigna at the helm, Ferrari will eventually craft electric vehicles that are every bit as enviable as its gas-guzzlers. The Italian thoroughbred remains in fine fettle, but should not slacken its pace.

More From Bloomberg Opinion:

• Which Side of an EY Breakup Do You Want to Be On?: Chris Hughes

• SoftBank’s Son Has Survived Bigger Disasters: Gearoid Reidy

• Tiger Global and the Perils of Crossover Hedge Funds: Shuli Ren

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.

More stories like this are available on bloomberg.com/opinion

©2022 Bloomberg L.P.

Loading...