Ferrari (RACE) risks hurting the brand’s exclusivity and heritage as it pushes into new markets and segments such as China and sport utility vehicles, a top analyst said.
X The sports car maker said at the recent Detroit auto show that it plans to launch the first Ferrari SUV by 2020 as well as an electric supercar to rival offerings from Tesla (TSLA), as it looks beyond the niche market for sports cars and special-edition cars.
An “FUV” — CEO Sergio Marchionne’s preferred term for a Ferrari SUV, which he promises will be “the fastest on the market” — could well be the Ferrari chief’s swan song. The long-running CEO is set to retire in 2021. (Marchionne is also CEO of Fiat Chrysler (FCAU), which spun off Ferarri in 2015, and will step down from that job next year.)
But Morgan Stanley’s Adam Jonas wrote Wednesday that investors may be underestimating the “disruption to profitability” from expanding Ferrari’s model line-up to include electrified vehicles, including a potential fully electric car.
Ferrari will have to spend big in capex, R&D and higher variable costs on electric powertrains, Jonas said. He added that is likely to keep earnings before interest and tax margins near 2017’s 23%, rather than the high-20s range that some investors expect.
Meanwhile, Ferrari’s SUV move is likely to raise its dependence on the Chinese market, pushing it into unfamiliar and potentially more volatile territory.
“We see expansion into new markets (China) and new segments (SUVs) as presenting a challenge to the brand’s exclusivity and residual value retention,” Jonas said, while calling Ferrari a strong and unique company that is no longer attractively valued.
He added that the company would be “incrementally” more exposed to the economic and cyclical risks of other automakers.
Finally, potential “copycat IPOs” of ultra-premium car companies — Aston Martin, McLaren and Lamborghini, for example — would dent Ferrari’s exclusivity in public equity markets, Jonas said.
On the plus side, luxury brands such as Ferrari with stable cash flow are more resilient during times of economic uncertainty, he noted.
Jonas cut earnings estimates for 2018 by 7%, for 2019 by 11% and for 2020 by 17%, citing the company’s guidance, currency headwinds and launch/change-over costs.
However, he raised his price target on Ferrari stock to 105 from 100, noting a euro-dollar conversion rate change, improved year-end balance sheet and long-term lower tax rate.
Shares of Ferrari rose 1.7% to close at 125.88 on the stock market today. General Motors (GM) and Ford Motor (F) gained roughly 1% each Wednesday while Fiat Chrysler popped 3.7% and Tesla (TSLA) lost 0.4%.
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Jonas on Tuesday also raised his price target on GM following a plant closure in South Korea.
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