At Aston Martin, Facing Down Demons and Building for the Future
(Bloomberg) -- Aston Martin officially debuted the electric Rapide E last month at the Shanghai Auto Show—nearly four years after its initial announcement about the car.
Based on the V12-powered Rapide, the sedan will arrive in one small batch, with a scant 155 “special edition” cars produced. But contrary to widespread speculation, it won’t star in the upcoming 25th installment of the James Bond franchise.
It would have been a somewhat unexpected product placement anyway, considering Bond’s image as a well-dressed rule-breaker, rather than a well-dressed environmentalist. And Great Britain’s 106-year-old company has plenty of bigger problems that even Bond himself wouldn’t be able to fix.
When Deutsche Bank revised its outlook for Aston Martin on April 8 to a more negative view, its shares plummeted, finally settling down by market’s close at half of October’s initial public offering price of 19 pounds ($24.70). That figure gave the company a market capitalization of 4.1 billion pounds. Analysts cited “higher volatility in demand” and “limited share price potential” as factors leading to the downgrade. (The company had announced a $190 million note issue to generate more funds April 3.)
Last year’s IPO fell completely flat, and uncertainty surrounding Brexit and the general cooling of the automotive market has done much to shake investor confidence in the iconic English marque. Aston Martin is currently worth less than one-fifth the value of its rival Ferrari, a company Chief Executive Officer Andy Palmer had said his brand’s own value would exceed when it made its debut as a public company.
“We’ve taken 105 years to get to an IPO. We’re not going to worry much on what the initial shares are doing,” Palmer said in an interview with Bloomberg TV after it went public. “We will always look over the longer term.”
A Change in Approach
One challenge Aston must face is its historically low production numbers. Last year the brand sold fewer than 6,500 vehicles worldwide, far less than even Porsche, let alone BMW or Mercedes-Benz. That exclusivity has always been part of the brand’s cachet, but to increasingly diminishing returns. In this day and age, when trucks and SUVs reign supreme, car companies must sell lots of vehicles to stay afloat. Even arch-rival Ferrari has announced plans to make an SUV.
Meanwhile, Aston Martin has been forced to give deep dealer incentives to jump-start sales of its new Vantage, a $150,000 coupe. The success of that car is crucial to overall corporate health, since as the lower-priced, lower-powered Aston Martin, it was intended to be its biggest seller. And although Aston Martin will report its best Q1 ever for North America this year, the IPO resulted in a pretax loss of £68 million ($89 million) for 2018.
“They haven’t had the right product cadence yet,” says Kevin Tynan, the lead automotive analyst for Bloomberg Intelligence. “If anything they’ve been a little quiet while all of this news is happening around them. If you were a conspiracy theorist, you’d be worried about [where they are getting] funding.”
Of course, Tynan notes, quiet doesn’t necessarily mean inactive. If you look carefully, Aston Martin is fighting its demons using the good old-fashioned multi-pronged approach.
Tactic One: The Hypercar
Kris Singh is a young investor from Miami who spends millions of dollars at auto shows each year buying whatever he wants.
What he wants lately are hybrid supercars.
At the Geneva Motor Show in March, Singh reserved for himself the Aston Martin AM-RB 003, a $2 million hybrid that will start production in 2021. The hypercar was among the most-feted debuts at the year’s most exciting show, but it’s far from Aston Martin’s first million-dollar hybrid. The $3 million Valkyrie, which runs on a V12 engine paired with a lightweight electric motor, sold out almost instantly when it debuted in 2017, even though it will be later this year before its buyers can take it home.
Creating a halo around an electrified supercar is mandatory these days if you want to be like Ferrari. McLaren, Ferrari, Porsche, Pininfarina, and Mercedes-Benz all already make and sell—for very high margins—hybrid or all-electric supercars like the Pininfarina Battista and Ferrari LaFerrari.
Aston Martin declined to comment on the specific margins the company makes on such cars but a spokesperson did note that “specials” like the AM-RB 003 and the Aston Martin Valkyrie have a “significant impact” on the company’s average selling price. In 2018, the average selling price per vehicle at Aston Martin was £141,000 ($184,460) excluding special cars. It was £157,000 ($205,390) including them.
Plus, with a decades-long Formula 1 and endurance racing heritage bolstering the credentials of some of the best-driving sports cars on the market, the car highlights one area where the brand can excel, Tynan says, even if it is in extremely low volumes. The company will make fewer than 500 of them for worldwide distribution.
“Honestly my opinion is that Aston Martin is in a pretty good spot in terms of this whole hypercar and electrification thing,” he says. “People still want their hypercars. They want performance, and they’re willing to pay for it. Aston Martin won’t have to change who they are to fit into the evolution of what’s going on with the industry.”
Tactic Two: The Electrics
With their instant torque and less-demanding range demands, it’s no accident that the Valkyrie and AM-RB 003 were Aston Martin’s first major electric-boosted endeavors to get legs. Their intergalactic body styles and high level of customization provide lightning-rod excitement for the brand, while the technology inside them will trickle down to more affordable wares, all of which will be available in hybrid or pure-electric form by 2025, Palmer said.
Indeed, real-world electric driving performance is where Aston Martin can gain more market foothold. By the end of this year, global sales of electric vehicles will hit 2 million, up from 1.2 million in 2017, according to Frost & Sullivan’s Global Electric Vehicle Market Outlook 2018 report.
Though it’s trotting out the all-electric Rapide E at auto shows, the brand is far behind the rest of the pack. Tesla continues to steer the market segment for premium sedans and SUVs with its waiting-list-only Models S, 3 and X. Porsche will be selling the much-anticipated Taycan sedan by November. Audi and Jaguar are already selling excellent electric SUVs; BMW and Mercedes-Benz will be selling their own later this year.
What’s more, the race is intensifying. Porsche has said half of its vehicles will be electric by 2023, and BMW says it will do 25 electrified vehicles by 2025. To have a chance of keeping up, Aston Martin must show that it can make reliable daily drivers just as well as it makes track stars—those, ultimately, are where the bread-and-butter profits will derive.
“There are plenty of customers who are high net worth and for whom sustainability is important,” says Ian Fletcher, the principal analyst at IHS Market, an automotive research firm. “Does Aston need to have something more than an electric Rapide E? Of course. But they’re moving forward with their [long-term] strategy, and at the end of the day, they just need to keep pedaling.”
Tactic Three: The SUV
The brand is also aiming to launch a top-tier SUV to compete with the Porsche Cayenne and Macan, the Bentley Bentayga, and the Lamborghini Urus. It’s a tactic that’s worked for Bentley, which has doubled production numbers with its new Bentayga, and for Porsche, whose $50,000 Macan is the company’s best-selling vehicle. Scheduled for its official unveiling by the end of 2019, with sales in 2020, the DBX is intended to do the same kind of heavy lifting—Aston wants to double its total production by 2023, Palmer said, when the company will make 14,000 total vehicles worldwide.
“I think [DBX] bodes well for the brand,” says Stephanie Brinley, a principal automotive analyst for IHS Markit. “Aston Martin is a brand defined by being highly beautiful and highly powerful, but it’s a little less edgy than a Lamborghini, so it naturally fits in that space [of SUVs and crossovers] to begin with.”
It’s a big step up. In 2018, Aston Martin sold 6,441 vehicles total, up 26 percent, year over year. It will likely sell 7,300 in 2019, a spokeswoman said. But the hope is that DBX will have a natural home in North America, with its insatiable lust for crossovers and SUVs. In 2016, SUV sales in the U.S. surpassed those of cars. By 2022, Americans will have more new SUVs from which to choose than cars.
Elsewhere, Aston Martin’s Atlas of an SUV must also heave onto its shoulders the responsibility of raising market share in China again after a 31 percent jump in sales last year. It’s a can’t-miss opportunity to pounce where rivals like Jaguar Land Rover and Daimler have seen sales stumble.
And the brand must attract more women buyers, an audience Aston Martin has sought since 2015, with indeterminate results. In 2017, the company created a “female advisory panel” to review and provide feedback on current and future products. Last year it scrambled to name a woman to its formerly all-male board. Laura Schwab became president of the Aston Martin Americas division in 2015. Through a representative, both Palmer and Schwab declined to be interviewed for this story.
“Aston Martin is in a good position here,” Brinley says. “When you go into the utility vehicle space, that naturally opens you up to more women.”
Tactic Four: The Workhorse
The stopgap, until DBX, is Vantage. At least, it should have been. In March, Aston Martin North America sold 93 Vantages out of its 182 total cars sold, its second-best month since the car was introduced. But the company’s ongoing and hefty financing payouts for the sinuous coupe have suggested Aston Martin buyers aren’t as excited as they might be. Steve Serio, the Aston Martin dealer in Boston, said he’s had multiple Vantages languish for months on his showroom floor before they sell.
“My buyers are 98 percent male and between the ages of 40 and 65,” Serio said. They buy rather than lease their cars as well—the exact types of drivers who prefer manual to paddle-shifting by a wide margin. The Vantage, however, is not currently available in North America with a stick-shift gearbox. A Vantage AMR version with manual transmission is due to arrive later this year, while the standard model Vantage will offer it starting in 2020.
“It’s really the Vantage that’s the concern,” agreed Michael Dean, the senior analyst of European automotive for Bloomberg Intelligence. He noted the higher MSRPs for the new-generation model, which have created a subtle cooling effect on sales. He noted the polarizing new grille, which gapes at the front of the car like a catfish. And he noted that competitor Porsche’s excellent new 911 has received rave reviews.
“While the Vantage isn’t a key driver of earnings, it will impact sentiment toward the shares in the first half of the year,” Dean said.
The Long Game
Fortunately for Aston Martin, success in the automotive world is solidified over more time than the first half of this year. “It could be decades before things play out,” Tynan says.
Analyst Dean says Aston Martin has enough access to cash in 2019. Fletcher says it has well accounted for contingencies like Brexit and is optimistic in spite of a subtle downturn in global auto markets. “Aston Martin is one of the most bullish despite everything,” he notes.
The analysts agree that if the company can stay conservative with cash expenditures while managing to produce high-performance products with such regularity that it becomes routine, it has a real chance of beating its current challenges.
Unsurprisingly, Palmer himself has recommended taking a long view when evaluating the company’s fortunes.
“We said at the time of the IPO not to buy us if you are not going long term,” Palmer told Bloomberg in February. “It’s all about growth through 2023.”
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