Ferrari’s prancing horse will need its skilled rider

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If there’s one takeaway from the strategy update Ferrari NV gave at its Maranello headquarters this week, it’s this: the Prancing Horse isn’t about to alter its winning pace.

A mixed record on the Formula 1 race track aside, Ferrari has barely gotten it wrong since its stock market listing in 2015. It has convinced investors to view it as a luxury brand like Hermes International rather than a car company scorning metals, and boasts a princely valuation to match: Ferrari’s market capitalization of 30 billion euros ($32 billion) – even after falling by a third from its 2021 peak – is amazing given that it sold just 11,000 cars last year.

But given its reliance on powerful combustion engines, there’s understandable apprehension about what the historic shift to electric vehicles means for its stellar financial performance. The impending launch of a Ferrari sport utility vehicle, the Purosangue, also worries purists: a look at the ugly (albeit highly profitable) tractors made by Bentley, Lamborghini and others explains why.

Benedetto Vigna, who has been the automaker’s CEO since September, brings his technology expertise given his experience at STMicroelectronics NV, but he doesn’t have much automotive or luxury experience.

Still, Vigna and his team will have reassured Ferrari purists that their business is in good hands. The company plans to increase revenue by more than half by 2026, but much of the increase will come from raising prices and offering desirable models, rather than compromising exclusivity.

It’s a huge plus in this age of inflation that Ferraris are also collectables: customers often have several in their sprawling garages and they’ll pay whatever the Italian company demands. Ferrari sales have also proven resilient in past recessions, a quality that may soon be tested again. While there are undoubtedly a few crypto brethren who can no longer afford an SF90 Stradale, which starts at around $500,000, Ferrari hasn’t seen demand deteriorate.

Indeed, the company could undoubtedly sell many more vehicles than it expects, especially with the arrival of the Pursoangue in September, giving the Ferraristi a more practical family runabout to complement their racing machines. However, the firm claims that the Purosangue will represent at most 20% of its sales; the comparable Urus contributes 60% of Lamborghini’s sales volumes.

I think it’s the right choice: Ferrari’s hideout of luxury would be compromised if its vehicles became as mundane as Range Rovers.

Fortunately, Ferrari investors will not be left empty-handed. Its already industry-leading operating profit margins of 25% are expected to increase, and the company aims to generate nearly €1 billion in free cash flow per year through 2026 by exercising discipline in his expenses. Electrification is a priority; fully autonomous driving not so much (customers still want to drive their sports cars, after all).

Battery-powered vehicles remain a risky start for Ferrari, given its association with V12 engines, so the company is taking its time: the first all-electric Ferrari won’t arrive until 2025. Even in 2030, it still expects to hybrid and all-fossil fuel vehicles. motorized cars to represent 60% of its model range. The company expects cleaner synthetic fuels to allow customers to continue driving combustion models. She also plans to seed a forest in Italy to achieve carbon neutrality.

To me, its approach to electric vehicles seems too slow, but at least the planet won’t be much affected by its delay: Ferrari’s carbon footprint is tiny – according to the company’s estimates, it is 0.001% of global emissions. , in part because customers’ thirsty sports cars rarely leave the driveway. Scrap emissions are also not an issue as customers usually keep their valuable vehicles forever.

But Ferrari cannot afford to rest on its laurels. The European Union wants all vehicles sold from 2035 to have zero tailpipe emissions, and although Ferrari has so far avoided the trap of becoming an old man’s brand – almost 40% of customers have less than 40 years – there’s a risk faster rivals will redefine what a luxury electric car looks and sounds like.

Porsche AG’s electric Taycan is already outpacing the 911 model, and soon Volkswagen AG’s highly profitable subsidiary will have its own stock market listing, providing competition for portfolio managers’ investment dollars as well as their automotive budgets. Mercedes-Benz AG is also trying to position itself as a leader in electric luxury.

Still, I’m confident that with tech expert Vigna at the helm, Ferrari will eventually make electric vehicles that are just as enviable as its gas guzzlers. The thoroughbred Italian remains in top form, but should not slow down.

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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.

More stories like this are available at bloomberg.com/opinion

Earnest L. Veasey