Nick Carey

GAYDON in England (Reuters) – British carmaker Aston Martin Lagonda, after decades of struggle, is now charting a better and more profitable future. Aston Martin Lagonda relies on the technology and support from shareholder Mercedes-Benz for making the expensive leap to electric vehicles (EVs).

Aston Martin underwent a massive manufacturing transformation to increase margins, and to be more similar to rival Ferrari less than two years ago when billionaire Lawrence Stroll came to James Bond’s rescue.

Stroll, Aston Martin’s largest shareholder, is the executive chairman. A passionate Ferrari fan, he says, after vehicle sales rose 82% in 2021, that Aston Martin has begun to transition to long-term profitability. There are new cars on the horizon and financing through 2025.

Analysts believe that Aston Martin is still burning cash, despite having been insolvent seven times since 1913 when it was established. Many question the company’s ability generate sales comparable to Ferraris to pay for the enormous cost of electrification.

Charles Coldicott, Redburn equity research analyst said that the company’s future is uncertain and could go bankrupt. It’s not controversial to speak out, even though Aston would be reluctant to hear it.

When asked to respond to concerns about a uncertain future, an Aston Martin spokesperson reiterated Stroll’s belief that Aston Martin is on its way to profitability long-term and has sufficient cash access.

Tobias Moers is the former head of Mercedes’ AMG brand, and Aston Martin’s chief executive. He gives a guided tour through Gaydon’s factory.

The biggest change has been to place greater emphasis on customer-driven, customized orders that are higher in value – which is a major part of Ferrari’s success. Rather than mass-producing sports cars and selling them wholesale, then these had to be reduced.

“When I came in, the company was manufacturing-dominated instead of engineering-led, which for an auto luxury business is insane,” Moers said. A company of this size requires maximum flexibility and agility.

Moers reduced Aston Martin’s stock to 600 cars, down from 2000. The cars now sell at an average price of 150,000 Pounds ($195,750). Customized orders account for half of the sales, compared with 6% when Moers joined.

After a 2018 disastrous public listing, the company was now in serious financial trouble.

Stroll stated that the new cars will help Stroll achieve a minimum gross margin of 40%, and sometimes as high as 50%. Ferrari is estimated to have a gross profit margin of over 55%, according to analysts.

Aston Martin plans to sell 10,000 cars per year by 2025 – almost 40% more than 2021, which is close to Ferrari’s production.

Stroll states that Aston Martin will reap the benefits of a deal it made with Mercedes-Benz October 2020, in which it gains access to new engines from the German automaker.

Mercedes currently owns 12% of Aston Martin under the deal. That number will grow to 20% in 2023. German luxury carmaker Mercedes is being very secretive about future plans.

Stroll explained that having a bigger brother was important to a large company like ours, with the prospect of electrification. To get Mercedes-Benz’s electric architecture, I struck a very transformative deal.”

Aston Martin will launch the first electric vehicle in 2025.

SAMPLE SIZE ONE

Over the past decades, carmakers have been focusing on outsourcing. However, Aston Martin has reversed that trend with increased customization, according to CEO Moers.

Customers can now choose their leather and stitching, which has resulted in a 20% rise in sales prices.

There are 900 options for leather, with 30 available colours and different types of leather. Each car is unique, so it’s cheaper to produce more at-home. Aston Martin, for example, plans to make its steering wheels from scratch again.

Moers stated, “Variation at Mercedes-Benz had been a nightmare. We wanted to cut down on it and reduce it.” This is what we are here for.

“Our sample is 1”

Aston Martin closed Gaydon’s paint shop and now paints all cars at the plant in Wales. This allows Aston Martin to save 1,000 Pounds per vehicle by reducing its two expensive paint shops.

Aston Martin can hand-paint any colour that customers request, at an extra cost.

Aston Martin is now delivering the Valkyrie Limited Edition, which starts at 2,000,000 pounds and can be used on streets.

The Valkyrie was a costly project, and Aston Martin will continue to focus on sports cars.

Moers claimed that there is not a business case.

MERCEDES WILL BE BASE

Aston Martin has a range of engines that will be available before it goes electric.

The carmaker will launch its first mid-engine sportscar in 2023. This car is located behind the driver, providing better weight distribution and performance.

Aston Martin’s peers and Aston Martin are finding it challenging to switch to electric, as luxury sports cars have a strong internal combustion engine.

Stroll stated that “more people who are our customers, and are more petrolheads, would like to feel, hear, smell, and see a combustion engine for long periods of time.”

He said that for electric vehicles, however, Mercedes will be the basis of all our activities.

Redbush’s Coldicott claimed that Aston Martin is lacking Ferrari’s wider appeal. He also said Aston Martin likely can’t sustain the 10,000 unit annual production required to make long-term investments into new vehicles. Coldicott stated that Aston Martin is limited in time, as the company anticipates burning through nearly 125million pounds this year.

He said, “If I were to be armed with a gun, I would declare that my base case was Mercedes will acquire this business.” Although I don’t know the exact price of it, I think it will be substantially lower than what is currently available.

Tobias Just from Mercedes stated that they are “very pleased with the existing cooperation” with Aston Martin in an email.

If the British carmaker fails to make a turnaround, he declined to speak on German carmaker’s plans for Aston Martin shares.

Philippe Houchois from Jefferies said that Aston Martin was aspiring for years to be like Ferrari. However, the current management of Aston Martin have consistently done right by moving their brand upmarket, “by moving towards more content, more customization, and underproducing.”

Houchois stated that Aston Martin is now “walking the talk.” “But, it is a matter of time and financial resources.

($1 = 0.7663 pound)