Could Electric Cars Save Ailing Aston Martin, As It Shakes Off Debt Burden?

Another day, another bailout for financially-troubled British luxury sports car and SUV maker Aston Martin, undermined by debt and unsettled by leadership changes. Analysts, struggling to find positives, wonder if electric vehicle plans might point the company towards eventual safety.

Aston Martin said last week it planned to raise £653 million ($744 million) through an investment of £78 million ($93 million) from Saudi Arabia’s Public Investment Fund and a rights issue of £575 million ($681 million). After the rights issue, the Saudis will own 16.7% of Aston Martin, Chairman Lawrence Stroll’s Yew Tree Consortium 18.3% and Mercedes-Benz just under 10%.

A counter-offer from Chinese conglomerate Zhejiang Geely Holding Group was rejected, and analysts said this would have provided more cash, but would have diluted current ownership stakes more.

“This is a game-changing event for Aston Martin, supporting the delivery of our strategic plans and accelerating our long-term growth potential,” Stroll said in a statement.

Aston Martin shares jumped close to 10% Friday, but a graphic of the company’s share price in 2022 shows an almost cartoon-like downward progression with brief, jagged rallies. The stock price has dived more than 70% this year. Aston Martin was valued at £4.3 billion ($5.1 billion) in 2018 when it was floated on the stock market. But this has slumped to about £432 million ($513 million) now and slid from £1.6 billion ($1.9 billion) at the start of 2022.

Aston Martin has gone bankrupt 7 times since its inception in 1913 and financial circumstances turned bad again after the float. Canadian billionaire Stroll stepped in to bolster the finances in 2020. Aston Martin has now hired its 3^rd CEO in as many years. Tobias Moers became CEO replacing Andy Palmer, who was replaced by former Ferrari leader Amedeo Felisa, 76, in May.

“I am not at all surprised that Aston Martin is entering yet another round of refinancing in a desperate attempt to reduce its expensive debt burden and invest in product development, particularly in electrification where it is way behind rivals such as Porsche,” said British-based automotive analyst Charles Tennant.

“With a £1 billion ($1.2 billion) debt burden costing £130 million ($154 million) interest per year and lower than expected sales – 2,676 in the first half of 2022 – it is way behind on its lofty plans for 10,000 sales per year and does not expect to be in positive cash flow until at least 2024,” Tennant said.

First half sales fell from 2,901 in the same period last year and the company expects to sell more than 6,660 vehicles in all of 2022. It has said by 2025 sales, will hit 10,000 a year.

Reuters Breaking Views column said the latest financing would help the company stave off problems from high-debt servicing, but problems remain.

“Aston Martin Lagonda has swerved to avoid a crash but could still end up in the ditch,” said Breaking Views columnist DashDASH
a Afanasieva, adding the deal would save more than £30 million ($36 million) in annual interest payments, but the company’s prospects are still far from rosy.

Aston Martin lost a pre-tax £111.6 million ($143 million) in 2022’s 1st quarter, more than double the £42.2 million loss in the same period last year. Its 2^nd quarter financial report is expected in a couple of weeks.

Aston Martin reiterated Friday its medium-term EBITDA (earnings before interest, tax, depreciation and amortization) ambition to earn £500 million a year, although analysts don’t see much prospect of that being achieved any time soon.

Aston Martin lags behind most of its supercar competition in the race to embrace electric power. Last month Ferrari said it would launch its first all-electric car in 2025. Ferrari expects full-electric cars will make up 5% of sales in 2025 and 40% in 2030.

The Financial Times’ Lex column believes Aston Martin’s problems aren’t over yet.

“Shareholders should complain about having to pay even more for the same business plan they had already agreed. True, this added fuel will enable a needed revamping of front-engine models. Also, a new mid-engine range due in 2024 can proceed more smoothly. The hope is that the new models should double gross margin per vehicle from around the current 20%. But Aston Martin’s turnaround effort resembles a Le Mans-style race. Expect more pit stops to come,” Lex said.

The next James Bond movie isn’t expected in cinemas until 2025, so maybe there’s just time for whoever replaces Daniel Craig to be the first 007 to prowl silently towards his enemies in an electric car, instead of the usual fire-breathing Aston Martin sports car.

There’s just time, according to analyst Tennant.

“Aston Martin is also in talks with Mercedes-Benz, who already provide most of its powertrain technology, Lucid, and Rimac regarding that all-important first electric car due in 2025. This may be the last chance saloon for Aston Martin and its current owners, and I cannot help but feel that a Geely takeover would have been the safer option,” Tennant said.