Aston Martin Losses Mount, But Investor Hopes Are In The Fast Lane

Financially troubled luxury sports car maker Aston Martin more than doubled its losses last year after another call on investors for cash, but analysts see signs of progress.

Investment researcher Jefferies said Aston Martin’s management seemed more confident about the future, although shareholder’s exuberance was probably overdone.

“While we acknowledge progress on product and pricing, the path to organic deleveraging is unclear. We think shares have run ahead of themselves and we would seek better entry points,” Jefferies analyst Philippe Houchois said in a report.

The shares have rallied 135% from a low of 89 pence in November. The rally continued this week closing in on 295 pence. Last September, the company raised £576 million ($692 million) from a rights issue after which Saudi Arabia’s Public Investment Fund became its 2^nd largest shareholder.

Aston Martin’s losses in 2022 rose to £495 million ($595 million) from £213.8 million ($257 million) the previous year but the company said it hopes to begin generating cash this year. In the final quarter of 2022 though the company posted an operating profit of £6.6 million. Chairman Lawrence Stroll said after the results he would reveal new models this summer, including electric ones. Aston Martin’s recovery has been undermined by supply and production problems. Because of this, sales of the high-performance 707 version of the DBX SUV were slower than planned. Aston Martin said the roll-out of new models would be improved.

Bernstein Research saw merit in the financial data too.

“The company’s cash should be sufficient. Overall, the company looks more in control of its destiny today than in a long time. Continued consumer demand and steady execution is bringing them closer to free cash flow breakeven in ’24,” Bernstein analyst Daniel Roeska said.

British-based automotive analyst Dr Charles Tennant points out some problems with the last profitable quarter.

“Before we get carried away with this seemingly remarkable turnaround it needs to be noted that 40% of the 6,412 cars sold in 2022 (up 4% on 2021) were delivered in that final profitable quarter, which also included 36 Valkyrie hypercars costing £2.5 million ($3 million) each. But for the whole year, although revenues jumped 26% to £1.38 billion ($1.66 billion) – half of vehicle sales were from the DBX 4×4 and average selling prices were up 18% to £177,000 ($212,000) – the losses still racked up to a dismal record of £495 million,” Tennant said in an email exchange.

“The company is trying to spin this by claiming that if the cost of serving its debt pile of £765 million ($920 million) and product development spending is stripped out the result would have been a profit of 13% or £190 million ($220 million). Furthermore, it says that if they can raise sales in 2023 by 10% to 7,000 vehicles then the profit margin will soar to 20%,” Tennant said.

Aston Martin said because it has improved profitability per car, and if the previous annual sales target of 10,000 isn’t achieved, profit goals are still on track. The company expects sales of around 7,000 vehicles in 2023.

“The problems remain, the debt is still there, and the need for product development investment will not go away either with an expensive transition to electric cars that are already in the pipeline,” according to Tennant.

Bernstein’s Roeska awaits the summer’s new model announcements.

“Aston Martin should detail its product plan and electrification strategy. 2022’s final quarter has shown that management has much greater control of their business. To deliver a compelling (new model strategy), they need to show that they can maintain this control. Order books must hold up and the luxury pull model must be sustained,” Roeska said.

In a later report, Roeska said he expects new models to boost profit margins.

“We expect Aston to deliver a slew of high-margin ‘swansong’ specials over late-2023 and 2024, boosting margins. Without a new hypercar or specials this fades by 2025. More details on the mid-decade product line-up would serve as an upside to our current view,” Roeska said.

Aston Martin’s involvement in Formula 1, may raise its profile.

“Aston is not valued as a luxury car company, (like rival Ferrari) given lingering uncertainty around its turnaround story. We think recent earnings have effectively killed the well-trodden short story on Aston, while recent successes on the F1 track, though technically unrelated, may also spur retail and institutional investors to take a fresh look at the company,” he said.

Aston Martin came in 3^rd at Bahrain Grand Prix March 5, the first race of the season.

And Tennant looks to a recovery for Aston Martin boosted by the new models.

“The aim is to demonstrate that Aston Martin has turned the corner with an array of profitable new cars in the pipeline including much needed hybrid and battery electric cars. 2023 could be the year where Aston Martin disproves its nay sayers by moving back into profit from its last chance saloon, demonstrating that with its Mercedes-Benz technology, collaboration it can indeed remain independent,” Tennant said.

Mercedes has a close to 10% stake in Aston Martin and supplies engines and electric car technology. The Saudi stake and Stroll’s Yew Tree own close to 19%, and Geely of China 7.6%.

The latest financial information might end speculation, for now, that Aston Martin’s days as a stand-alone manufacturer are numbered. Some analysts find it difficult to see how it can survive as an independent player in a rapidly evolving industry with the impending high costs of developing new electric vehicles. They reckon a reported offer by Geely would have given it access to more funding and opened access to platform sharing with its British sports car maker Lotus.