Aston Martin – climbing the hill.
All,
Please find our slightly adjusted analysis here.
Lawrence Stroll’s intervention at Aston Martin in 2020 was enough to rescue the company and give it a fighting chance. However, AML will still struggle to invest in the next generation of high-end cars without outside help. 2022 is going to be weaker than we initially modelled back in June 2021 due to the rapid introduction of new sports car models in 2023 (including part electric models). But we expect these volumes to fall into 2023. On its own, the timing impact on cash flow is easily manageable. In the medium term, the company has enough cash to fund its operations as it seeks to grow to be a 10k unit a year producer. However, long-term AML will find funding the development of new cars challenging, and it is not able to finance the development of part and fully electric powertrains. The engines will increasingly come from Mercedes AMG. For now, that is a 3–4-year problem and the SSNs sit at 110c/$. The equity will remain volatile, and the upside will come from closer cooperation with Mercedes AMG leading to hopes of a buyout by Daimler.
Volumes postponed not lost.
- We have cut our expectations for 2022 from 8,000 units to 6,632 units but we still expect sales to reach 9,000 units by 2025.
- The company will begin introducing new sports car models in 2023 followed by plug-in hybrid engine cars. This is likely to dampen demand in 2022 which will reverse itself in 2023.
- There are certain risks in the timing of new model introductions particularly as there are engine changes (to go part electric). However, these are not radical redesigns of the cars so we would not expect disruption to last beyond 2022.
- DBX sales will pick up some of the slack, the first mild hybrid has been launched in China and a European mild hybrid is expected in 2022. The launch of the upscale version of the DBX (to compete with the Lamborghini Urus) has also gone well.
- An article in the Sunday Times has suggested that the “electrical problems” experienced in the hypercar program has been driven by the unavailability of semiconductors and expect that small-batch orders like AML are being filled but increases are less easy to fulfil.
Is there enough cash for future model development?
- We don’t think so. We have concerns about whether AML has sufficient cash to invest in the next generation of cars, but if they can deliver according to our model, they will have some cash to invest in development. In common with other small-batch manufacturers, they will struggle to deliver the next generation of cars without further capital injections.
- However, we expect AML to have cash of £245m at the 2022-year end and £250m by 2025. The company will need to source more cash but has time on its hands.
- The farming out of powertrain development, including electrification, to AMG is key to reducing the costs of the next generation of sports cars. AML is aiming to be all-electric by 2030 but doesn’t have the cash to develop a new engine. Stroll cancelled the previous project.
Investment Considerations:
- We have not taken a position in Aston Martin at present. We find both bonds to be trading too tight.
- Cash balances are sufficient to allow the current company to develop derivatives of the current stable of cars. Continued success in using AMG’s electric powertrains is crucial for AML so we will monitor the introduction of new models using this technology.
- We are relaxed at company guidance below our original volume expectations. The new refreshed and part electric models are part of the plan to get to 10k units a year and the cash position at AML makes a 12-month delay manageable.
As always, I look forward to discussing this with you all.
Aengus
E: amcmahon@sarria.co.uk
T: +44 203 744 7055