Ferrari: Off to the races

Key takeaways

• Best-in-class, customizable, high-end luxury car maker with average profit margins at 20.3% versus 9% for the luxury car market
• Developing electric vehicles (EVs), with its first EV expected to be launched in 2025.
• Committed to sustainability and working to reduce environmental impact by using more sustainable materials in its cars and developing renewable energy sources for its factories.
• Investing in new technologies, such as artificial intelligence and machine learning, to improve its cars and operations.  
• Partnering with other companies in the luxury and technology sectors to expand its product range and reach new customers.

A luxury sports car

Ferrari operates in the luxury sports car segment. This segment is characterized by high-performance cars with exclusive designs and cutting-edge technology. Ferrari’s cars are known for their speed, handling, and style, and they are some of the most sought-after vehicles in the world. The luxury sports car segment is a relatively small segment, but it is also very profitable. Ferrari is one of the leading brands in this segment, and its cars are in high demand among wealthy buyers around the world.

In addition to its luxury sports cars, Ferrari also produces a line of lifestyle products, such as clothing, accessories, and home goods. These products are also targeted at wealthy buyers who are drawn to Ferrari’s brand image. Ferrari’s main competitors in the luxury sports car segment include other high-end brands such as Lamborghini, Aston Martin, and Porsche. However, Ferrari is able to differentiate itself from its competitors through its unique brand heritage and its focus on exclusive design and performance.

Ferrari’s position in the luxury sports car segment is also supported by its strong financial performance. In 2022, Ferrari reported record revenue and profits, driven by high demand for its new models. The company has a strong brand, a loyal customer base, and a focus on exclusive design and performance.

Luxury car trends

The luxury sports car segment has grown steadily over the last decade. In 2013, the global market size was estimated at $35 billion. By 2022, the market had grown to $64 billion. This represents a compound annual growth rate (CAGR) of 6.5% (see Figure 1).

The market is expected to continue to grow in the coming years, driven by rising disposable incomes in emerging economies and the increasing popularity of luxury cars among millennials. According to a report by Statista, the global luxury sports car market is projected to reach $71 billion by 2027.

Figure 1: Luxury sports car industry growth. Source: Statista

As you can see, the global luxury sports car market has grown steadily over the last decade, with the exception of 2020, when the COVID-19 pandemic caused a temporary decline in sales. 

In recent years, there has been a trend towards electrification in the luxury sports car segment. Many brands are now offering hybrid and electric models. This trend is expected to continue in the coming years as governments around the world implement stricter emissions regulations.

Another trend in the luxury sports car segment is the increasing popularity of SUVs. Many brands are now offering SUV models in addition to their traditional sports cars. This trend is being driven by the growing demand for SUVs among wealthy buyers.

Overall, the luxury sports car segment is a growing and dynamic market. 

Competitive landscape

The luxury sports car segment is relatively unfragmented, lending itself to scarcity premiums on pricing. The key players in this segment are able to generate high margins on their cars due to the high demand and the exclusive nature of their products.

Figure 2: Luxury car brands market share. Source: Statista

It is important to note that these market shares are estimates and may vary depending on the source. However, this chart as shown in Figure 2  provides a general overview of the competitive landscape in the luxury sports car segment by brand name.

As you can see, Porsche is the leading player in the luxury sports car segment, with a market share of over 28%. Ferrari and Lamborghini are also major players, with market shares of 18% and 10.5%, respectively. Aston Martin, Audi, and BMW are also significant players in this segment.

Superior growth

Ferrari’s total sales and EBITDA have grown steadily over the last 5 years (see Figure 3). The company’s strong financial performance is due to the high demand for its cars and its strong brand image.

Figure 3: Annual sales growth and EBITDA. Source: Company filings

As shown in Figure 4, the company has also seen healthy growth in margins as supply chain bottlenecks have thawed and deflationary trends in materials and labor have reduced cost pressures.

Figure 4: Annual percentage sales growth and EBITDA margins. Source: Company filings

There are a number of reasons for Ferrari’s steady growth over the last 5 years, including:

Strong demand for its cars

Ferrari is one of the most desirable luxury car brands in the world (see Figure 5), and its cars are in high demand among wealthy buyers. Ferrari’s average selling price (ASP) is significantly higher than that of other luxury car brands. In 2022, Ferrari’s ASP was €341,000, while the ASP for the luxury car market as a whole was €120,000. The company has a strong track record of innovation and performance, and its cars are known for their sleek designs and powerful engines.

Figure 5: Ferrari’s market share. Source: Company filings

Ferrari’s strong market share is due to a number of factors, including its strong brand image, its innovative technology, and its high-performance cars. The company is well-positioned to maintain its leadership in the supercar market in the coming years.

Expanding product range

Ferrari has been expanding its product range in recent years to include new models, such as the Portofino and the Roma. This has helped to attract a wider range of customers and increase sales.

Focus on emerging markets

Ferrari is particularly popular in North America and Europe due to the high level of disposable incomes in these regions and the strong demand for luxury cars. Ferrari is also popular in Greater China due to the rapid economic growth and the growing middle class in this region. Ferrari is focusing on expanding its presence in emerging markets, such as China and the Middle East. These markets are growing rapidly, and Ferrari sees them as a key source of future growth (see Figure 6).

Figure 6: Ferrari’s regional market share. Source: Company filings

Ferrari is less popular in Africa and Central and South America, due to the lower level of disposable incomes and the presence of competing luxury car brands.

Ferrari’s CAGR outlook for the next 5 years is 10-15% (see Figure 7). The company is expected to see strong growth in all regions, but particularly in China and the Middle East. Ferrari is well-positioned to capitalize on this growth, as it has a strong brand image and a wide range of products to choose from.

Figure 7: Regional growth outlook. Source: Company filings

Strong brand image

Ferrari is one of the most iconic brands in the world, and its logo is instantly recognizable. The company has a strong brand image, which helps to attract customers and maintain high prices for its cars.

In addition to these factors, Ferrari has also benefited from a strong global economy in recent years. This has led to increased disposable incomes among wealthy buyers, which has boosted demand for luxury cars.

Overall, Ferrari’s steady growth over the last 5 years is due to a combination of factors, including strong demand for its cars, an expanding product range, a focus on emerging markets, and a strong brand image.

Growth doesn’t come without risks

We’ll break down the risks from a macro and micro perspective. First, let’s look at the macro risks:

• Economic slowdown: A global economic slowdown could lead to a decline in demand for luxury cars, including Ferrari’s cars.

• Increased competition: Ferrari faces increasing competition from other luxury car brands, such as Lamborghini and Aston Martin. These brands are also expanding their product ranges and introducing new models.
• Government regulations: Governments around the world are introducing increasingly stringent regulations on the automotive industry, such as emissions standards and safety regulations. These regulations could increase Ferrari’s costs and make it more difficult for the company to develop and sell its cars.
• Technology changes: The automotive industry is rapidly changing, with new technologies emerging all the time. Ferrari needs to keep up with these changes in order to maintain its competitiveness.
• Brand image: Ferrari’s brand image is very important to the company’s success. If Ferrari’s brand image is damaged, it could lead to a decline in sales.

Risks pertaining to Ferrari are as follows:

• Supply chain disruptions: Ferrari’s supply chain is complex and global. Disruptions to the supply chain, such as natural disasters or political instability, could impact Ferrari’s production and sales. For instance, in 2022, Ferrari’s production was impacted by supply chain disruptions due to the COVID-19 pandemic and the war in Ukraine. Ferrari’s production volume decreased by 1.5% as a result.
• Quality issues: Ferrari’s cars are known for their high quality. However, even Ferrari is not immune to quality issues. In 2022, Ferrari recalled a number of vehicles due to a quality issue with the fuel system. The recall cost Ferrari approximately €30 million. If Ferrari has a major quality issue, it could damage the company’s brand image and lead to a decline in sales.
• Management turnover: Ferrari has a relatively small management team. If there is significant turnover in the management team, it could disrupt the company’s operations and strategy.
• Reliance on key markets: In 2022, North America and Europe accounted for 61% of Ferrari’s total sales, implying that Ferrari relies on a few key markets, such as North America and Europe, for a significant portion of its sales. If there is a downturn in these markets, it could have a negative impact on Ferrari’s financial performance.

Strategic Initiatives

Ferrari is positioning itself for growth in the coming years by expanding its product mix, geographic presence, and technology investment. The company is also focused on building its brand image and strengthening its relationship with customers. These strategic initiatives will help Ferrari to capitalize on the growing demand for luxury cars and maintain its competitive advantage. Let’s understand the key pillars for Ferrari’s future. 

Electrification

Ferrari’s fleet production and shipments have been predominantly internal combustion engine (ICE) vehicles in the last five years, with a small but growing proportion of hybrids. The company has not yet shipped any fully electric vehicles.

Here is a breakdown of Ferrari’s fleet production and shipments by powertrain type for the last five years (see Figure 8):

Figure 8: Ferrari’s fleet production. Source: Company filings

The proportion of hybrids in Ferrari’s fleet has been gradually increasing, but it is still relatively small. The company has not yet shipped any fully electric vehicles, but it plans to do so in 2025.

Ferrari has been slow to adopt electrification compared to some of its competitors. This is partly because the company is known for its high-performance ICE engines. However, Ferrari is facing increasing pressure from governments around the world to reduce its emissions. The company has also acknowledged that electrification is necessary to maintain its competitiveness in the long term.

Ferrari’s first fully electric vehicle is expected to be a high-performance sports car. The company has not yet released any details about the vehicle, but it is expected to be very expensive and exclusive.

It is unclear what percentage of Ferrari’s fleet will be electric in the future. The company has said that it expects hybrids and EVs to make up 40% of its sales by 2030. However, this could vary depending on market conditions and government regulations.

Technology

Ferrari is using artificial intelligence (AI) and machine learning to personalize the customer experience. For example, Ferrari uses AI to recommend products and services to customers based on their past purchases and browsing history.  Ferrari is also using augmented reality (AR) and virtual reality (VR) to give customers a more immersive experience when buying a car. For example, Ferrari uses AR to allow customers to see how different colors and finishes would look on their car.

Customization

Ferrari is digitizing its customer interactions. For example, customers can now order cars, book test drives, and schedule maintenance appointments online. Ferrari also uses data to identify customer trends and preferences.

• Ferrari ailor Made: Ferrari Tailor Made is a program that allows customers to customize their cars to their exact specifications. Customers can choose from a wide range of options, including exterior and interior colors, materials, and finishes. Ferrari uses technology and digitization to help customers through the customization process. For example, customers can use a VR configurator to see how their car will look with different options.
• Ferrari Genuine Maintenance: Ferrari Genuine Maintenance is a program that ensures that Ferrari cars are maintained to the highest standards. Ferrari uses technology and digitization to track the maintenance history of each car. This helps Ferrari to identify cars that are due for maintenance and to schedule appointments for customers.
• Ferrari Ownership App: The Ferrari Ownership App is a mobile app that gives customers access to a range of information and services. Customers can use the app to check their car’s maintenance history, book service appointments, and get roadside assistance. The app also provides customers with exclusive content and offers.

Sustainability

Ferrari is committed to sustainability and is working to reduce its environmental impact in a number of ways.

Ferrari publishes a Sustainability Report each year, which outlines its sustainability goals and progress. The company has an Environmental Management System (EMS) in place, which is certified to ISO 14001. The EMS helps Ferrari to manage its environmental impact and to identify and implement opportunities for improvement. Further, the company has put an Energy Efficiency Program in place, which is designed to reduce the company’s energy consumption. The program includes measures such as energy audits, employee training, and the installation of energy-efficient equipment. Lastly, Ferrari has a Waste Management Program in place, which is designed to reduce the company’s waste production. The program includes measures such as waste segregation, recycling, and composting.

Thus, the company’s sustainability initiatives are helping it to become a more sustainable company and to achieve its long-term goals.

Partnerships

Ferrari is partnering with a number of other companies in the luxury and technology sectors, including:

Luxury

• Louis Vuitton Moët Hennessy (LVMH): Ferrari and LVMH have partnered to develop new products and services, such as co-branded clothing and accessories.
• Richard Mille: Ferrari and Richard Mille have partnered to develop high-end watches.
• Hublot: Ferrari and Hublot have partnered to develop high-end watches.

Technology

• Samsung: Ferrari and Samsung have partnered to develop new technologies for Ferrari’s cars, such as advanced display systems and infotainment systems.
• Qualcomm: Ferrari and Qualcomm have partnered to develop new technologies for Ferrari’s cars, such as 5G connectivity and autonomous driving features.
• Amazon Web Services (AWS): Ferrari and AWS have partnered to develop new cloud-based solutions for Ferrari’s operations, such as product development and manufacturing.

Ferrari’s partnerships with these companies are helping the company to expand its product range, reach new customers, and develop new technologies. For example, Ferrari’s partnership with LVMH is helping the company to reach a wider range of customers with its co-branded products and services. Ferrari’s partnership with Samsung is helping the company to develop new technologies that will make its cars even more desirable to customers.

Ferrari’s partnerships with other companies in the luxury and technology sectors are helping the company to remain at the forefront of the automotive industry.

Bottom line

Ferrari is a luxury sports car manufacturer with a strong brand image and a loyal customer base. The company is well-positioned to continue its growth in the coming years, by embracing new trends and technologies. Overall, it is a well-run company with a bright future.

Portfolio fit

Might be for

• Investors who are looking for a luxury brand with a strong track record of performance: Ferrari is one of the most iconic luxury brands in the world. The company has a long history of producing high-performance cars that are highly sought-after by wealthy buyers. Ferrari’s cars are also known for their high quality and craftsmanship.
• Investors who believe in Ferrari’s long-term growth potential: Ferrari is expanding its product range and entering new markets, such as China and the Middle East. The company is also investing in new technologies, such as electric vehicles and autonomous driving. Ferrari’s long-term growth potential is attractive to investors who believe in the company’s ability to maintain its competitive advantage and grow its market share.
• Investors who are willing to take on some risk: Ferrari is exposed to a number of risks, such as economic slowdown, increased competition, and government regulations. Investors who are considering investing in Ferrari should be comfortable with taking on some risk.

Might not be for

• Investors who are looking for a low-priced stock: Ferrari is a high-priced stock. Investors who are looking for a low-priced stock should consider investing in a different company.
• Investors who are risk-averse: Ferrari is a risky investment. Investors who are risk-averse should consider investing in a more diversified portfolio of stocks.
• Investors who are looking for a company with a diversified product range: Ferrari produces high-performance cars. Investors who are looking for a company with a more diversified product range should consider investing in a different company.

Ultimately, whether or not Ferrari is a good investment for you depends on your individual investment goals and risk tolerance. If you are looking for a luxury brand with a strong track record of performance and you are willing to take on some risk, then Ferrari could be a good investment for you. However, if you are looking for a low-priced stock, a diversified portfolio of stocks, or you are risk-averse, then Ferrari might not be a good investment for you.