Aston Martin Financial Recovery Needs New Model Success
Aston Martin Valkyrie (Photo by Martyn Lucy/Getty Images)
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Aston Martin, the storied luxury sportscar maker which has declared bankruptcy half a dozen times in its 100-year history, is piling up solid laps of recovery as it seeks to pay down crippling debt on the way to fulfilling its ambition of matching the luxury stock market valuation now enjoyed by its rival Ferrari.
The success of new models like the Vantage and updated DBX SUV is crucial to Aston Martin’s turnaround.
Aston Martin more than halved its losses last year to an adjusted pre-tax £171.8 million ($229 million) from £451 million ($580 million) in 2022. This was also better than the average loss expected by analysts of £209 million ($270 million), according to the company.
The company kept its near and medium-term forecasts unchanged, planning to raise sales to £2.5 billion ($ 3.2 billion) within 4 years and produce earnings before interest, tax, depreciation and amortization (EBITDA) of £800 million ($1 billion). The long-term sales target was 17,000 sports cars and SUVs a year. 6,620 vehicles were sold in 2023. The DBX accounted for almost half of that.
Aston Martin DBX-707 (Photo by Emanuele Perrone/Getty Images)
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One delayed target was the plan to launch its first battery-electric vehicle next year. Aston Martin had said it would launch four new EVs starting in 2025, using technology from Saudi Arabia-backed Lucid. Aston Martin is in good company, pointing to Mercedes’ EV delays, as demand for the technology fails to live up to expectations. The first EV will now appear in 2026.
Executive Chairman Lawrence Stroll said meanwhile the company would concentrate on more plug-in hybrid electric vehicles adding “people want some electrification but still have the sports car smell and feel and noise”, according to Automotive News Europe.
HSBC Global Research was in the halfway house too.
“First indications on model refresh are encouraging. The product is compelling and the media response very positive. Cash generation remains the Achilles heel of the business and clarity on this will take more time, perhaps into 2025,” HSBC said in a report.
The Aston Martin lineup includes the Vantage road car, Vantage GT4 for racing, the Valkyrie, DB 12, DBS and the DBX. The DBX is about to be refreshed.
HSBC said Aston Martin now plans to sell fewer cars but make more money and this indicates its improving pricing power, supporting its assertion profitability will improve over the next few years.
Aston Martin Valhalla plug-in hybrid. (Photo by Jun Sato/WireImage)
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“Aston has relied on continued capital raises to fund its future. The good news is that the future looks bright, but the bad news is the plan has yet to mature to the point where the need for external capital can be ruled out. Management has said further equity raises are not on the cards at present, but combined cash outflow in the first half of 2024 will raise doubts,” HSBC said.
Bernstein Research also liked the progress made by Aston Martin but wants more.
“Aston Martin has put liquidity concerns to bed, but investors would still like to see more proof points and FCF (free cash flow) finally turning positive. We now expect the product refresh and subsequent FCF improvements to be spread out over a longer period, but maintain our positive stance on the company. Refinancing is imminent, FCF is set to continually improve, and new cars in 2024 can provide more tailwinds,” Bernstein Research said in a report.
Bernstein said its estimates were slightly under the company’s for sales and earnings.
“We are slightly below the company’s ambitions but see the plan as ambitious but credible, supported by the refresh of the line-up and addition of plug-in variants,” Bernstein said.
Moody’s Ratings, in upgrading some Aston Martin debt, said it expects a successful refinancing of a $1.2 billion ($1.5 billion) note coming due in November next year. It expects sales worth around £1.7 billion ($2.2 billion) in 2024 and £1.9 billion ($2.4 billion) in 2025, based on its expectations for the recently launched new Vantage, and the refreshed DBX. Based on its assumption of an average selling price of nearly £240,000 ($307,000), adjusted EBITDA will reach just under £150 million ($192 million) in 2024 and around £200 million ($256 million) in 2025. Free cash flow will break even in 2025 after another outflow of around £150 million ($192 million) in 2024.
“Any delay in the ramp-up of new models would likely have a materially negative impact on the company’s free cash flow profile,” Moody’s Ratings said.
Fitch Ratings also viewed the company as currently weak financially but making good progress.
“We view Aston Martin’s financial profile as weak, including negative EBIT (earnings before interest and tax) and free cash flow in recent years as well as high leverage. Nevertheless, we forecast Aston Martin will be cash-flow neutral within two years, driven by a new sports line-up and lower investment needs, and assume the company will largely deliver its business plan,” Fitch Ratings said.
Fitch liked the insurance provided by linkups in technology with Mercedes and Lucid, and equity support from Mercedes, the Saudi Arabia Public Investment Fund and Geely of China.
The market for high-priced luxury cars has remained healthy, including the likes of BMW’s Rolls-Royce, VW’s Bentley, McLaren, Ferrari, high-end Porsches. Fitch Ratings expects growth to accelerate,
“The market for hyper-luxury cars has expanded rapidly in the past decade, as the number of millionaires and billionaires has increased. Absolute sales of ultra-luxury vehicles remain far below those of mass-market cars, but the sales growth rate of vehicles with a six-figure price tag has far outpaced that of the overall auto industry since the 2008-2009 global financial crisis, increasing by about 15%-25% a year since 2010, against 3%-5% for the sector.”
“We expect further growth in view of the sheer number of potential customers compared with annual sales of high-end vehicles with Aston Martin seeing strong momentum in new customers to the brand.”