Ferraris and Aston Martins are Still in High Demand, Despite Production Delays

The superrich are increasingly spending money on luxury cars. However, this does not always make them profitable to manufacture.

Ferrari reported strong order intake alongside its third-quarter earnings on Wednesday. The luxury carmaker doesn't disclose reservations, but orders for its Purosangue SUV model - launched in September with a starting price of €390,000 in Italy - are running "way above our most promising expectations," said CEO Benedetto Vigna on a call with analysts.

The company increased its full-year guidance. It now expects revenues of €5 billion, which would be about 17% higher than last year and almost a third above the prepandemic total in 2019. Adjusted operating profits should come in above €1.18 billion, giving a margin of about 24%—well ahead of the average for listed car makers.

Ferrari shares nonetheless fell, underlining just how high expectations are set after years of consistent delivery.

It's not easy to create a luxury car brand. Just look at Aston Martin Lagonda. They have struggled to find their footing in the market.

Aston Martin reported earnings on Wednesday and has seen strong demand for its products, although they are not in the same league as Ferrari. In the third quarter, the average price paid for an Aston Martin jumped to a record £189,000, or about $217,000, excluding special editions. Orders for the company's core sports-car range extend well into next year. However, the company has for years been let down by weak profitability amid persistent operational problems.

The latest issues facing Aston Martin are slow logistics and shortages of certain interior parts, which have prevented the company from delivering all the vehicles it had hoped to. Hurricane Ian delayed shipments from Britain to the all-important U.S. market, for example. The problems seem temporary, and the company has new products coming next year that are built on a more flexible production line designed to be more profitable. However, given that Aston Martin has disappointed investors so continuously since its 2018 initial public offering, few are prepared to give the company the benefit of the doubt at this point.

AML shares dived 15% Wednesday as the company downgraded sales and profit guidance. The stock is now down 82% this year, not helped by a discounted rights issue in September. Even after that equity raise, the company’s balance sheet appears debt-heavy. The fundamental problem is insufficient cash generation.

Ferrari is the finely tuned cash machine that AML needs to become. AML isn't shy about the link: It hired former Ferrari CEO Amedeo Felisa to be its new boss in June, as well as a former Ferrari engineer as chief technical officer. Ferrari will probably make about twice the number of cars AML does this year, yet it has almost 17 times the enterprise value.

The comparison highlights the opportunity for long-term investors if Aston Martin can finally be turned around. Very few car brands can command prices as high as Aston Martin, and most of them are doing well. Volkswagen last week reported Ferrari-like profitability at its most expensive brands, Lamborghini and Bentley.

There are plenty of investors who are willing to help AML financially. The latest capital increase brought in the Saudi sovereign-wealth fund and Chinese car maker Geely, though Canadian billionaire Lawrence Stroll remains the largest shareholder. He is also the executive chairman.

Small investors face the risk of being asked to invest more money before AML finally turns around. Next year's product launches will be crucial. The company will have to hope that rich people are still feeling insulated from the economy's wider problems.