Aston Martin Is Delivering Something Rare These Days: Good News
(Bloomberg) -- A triple-digit sales increase this year hasn’t managed to bail it out of multimillion-dollar profit losses, but for the first time in a long time, Aston Martin might be on the upswing.
On Aug. 24 financial regulators announced they’d found no wrongdoing after allegations of insider trading between Aston Martin Lagonda and Daimler AG. The investigation by Germany’s Federal Ministry of Finance (known as BaFin) had examined the purchase of a stake in Aston Martin by Mercedes-Benz’s Formula One boss, which was suspicious because of the relationship between the two brands. Daimler, the parent company of Mercedes, owns a minority stake in Aston Martin.
It was another recent victory for the storied British automaker, after a long list of fails and flails. The company has a long tradition of habitual mismanagement over its 108-year history, which led to seven bankruptcies, the last of which was in 1974, and a close call as recently as 2014. Just a few years ago its product portfolio alternated between boring and garish (the Aston Martin DB11 Volante circa 2018, for one). And who can forget the abysmal IPO, when shares fell 6.5% on the day of their debut and plummeted 75% soon after?
The company’s association with James Bond only goes so far—it sells fewer than 5,000 vehicles globally each year, a tiny fraction of the many hundreds of thousands sold by Mercedes-Benz and Porsche AG. In 2020, Aston Martin sold 4,150 vehicles worldwide, down 32% from 2019.
But this year is already stronger. In July the company announced a 224% sales increase for the first half of 2021. The company sold 2,901 vehicles worldwide in the first half of 2021, more than half of them the $189,000 DBX SUV. Aston Martin says it’s on pace to sell 6,000 vehicles by the end of 2021.
“It’s a complicated journey,” CEO Tobias Moers said during an interview Aug. 14 in Carmel, Calif. “But it was really a vicious year.”
Since taking the helm in August 2020, the taciturn German has tabled the planned-for rejuvenation of the house of Lagonda; closed the paint shop in Gaydon, England, in favor of carting cars back and forth to Wales; managed a deeply slashed workforce; scuttled plans for a V6 engine for the Valhalla and Vanquish; and switched planned production of the $3 million Valkyrie hypercar from a big bespoke space back to the main factory.
“It was very reasonable to do,” he said in the curt way that gives Germans who grew up in the Black Forest the reputation for being tough. Workers “who see a Vantage and a Valkyrie beside them—it gives them more energy.” And it may be the bitter tonic the pride of Warwickshire needs.
Things at Aston Martin started to improve when Canadian fashion billionaire Lawrence Stroll purchased a 16.7% stake in the company last year. In August 2020, Stroll hired former Mercedes-AMG boss and two-decade Daimler veteran Moers as his top deputy; he in turn convinced some of his best lieutenants from AMG to join him. A 2013 technology-sharing agreement with 5% shareholder Mercedes-Benz got supercharged to 20% when Stroll bought in.
On March 3, Stroll told Bloomberg TV that the brand’s sports cars were sold out until September and order intake for the new DBX is ahead of expectations. Coronavirus helped too, Moers said. “It helped us stay focused. We didn’t have any distractions. We just stayed 14 hours a day, 14 hours a day. It’s a different perspective on a pandemic, I know, and it sounds strange, but it is the truth.”
Not There Yet
Analysts noticed. In January, Citigroup’s head of European automotive research upgraded Aston Martin to Buy from Neutral. By July, Goldman Sachs number crunchers were telling buyers that Aston Martin was “seeing the payback from hard work last year.” A July 28 market report from Deutsche Bank saw “Aston Martin ticking the boxes on what’s needed to build a track record and taking it one step at a time to deliver on the full-year targets.”
In August, Gillian Davis, an automotive analyst for Bloomberg Intelligence, also found Aston Martin on the right track to eventually compete financially with the likes of Ferrari SpA and Porsche. “Only a few brands are capable of selling high-margin $1 million-plus-priced limited-edition supercars, and that club includes Aston Martin,” she wrote.
Michael Dean, the senior European automotive analyst at Bloomberg Intelligence, was more reticent to offer a glowing endorsement, criticizing the less-than-revolutionary technology in the DBX and noting that the company needs to provide more detail and milestones on how it’s going to achieve its new financial targets. But, he said, the addition of Moers and his team is like “night and day” compared to previous management.
“They certainly aren’t out of the woods, and running down inventory and shifting to a demand-driven model was painful,” he said in an email. “They need a total revamp of the sports car range, which will take another couple of years. And in the meantime [that] makes them even more reliant on DBX and limited-edition models.”
Aston’s free cash flow is expected to stay negative in 2021 despite turning positive in the first quarter. But if the company follows its plan, it will be free-cash-flow positive by 2023, Dean said.
Planning for Profitability
That plan involves an expanded product portfolio with at least two incoming mid-engine sports cars—the Valhalla supercar and Vanquish sports car. (These stand apart from Aston’s traditional, front-engined sports cars, such as the DBS, DB11, and Vantage.) There’s also an EV lineup, developed through its partnership with Mercedes, and a multimillion-dollar investment to upgrade the infotainment systems for each of the new models.
Earlier this summer the company unveiled the Moers-ordered revamped production version of its 950-horsepower Valhalla. The plug-in hybrid supercar will go into production in 2023. The price is expected to exceed $700,000.
There will also be more-powerful new engine variants for the most essential part of Aston Martin’s portfolio, the DBX. By the first quarter of 2022, Moers says, Aston Martin will debut DBX engine variants, including a hybrid and a high-performance version that would theoretically compete against the best-selling Lamborghini Urus.
He even insists the Valkyrie will start deliveries by the end of 2021—after two years of delays. “It’s always a journey to change a culture,” Moers says. “We are more open-minded. We have to be a bit more competitive, but we have a chance.”
©2021 Bloomberg L.P.