Ferrari is one of the most recognized car brands in the world and it’s time for it to go all-electric.
An analyst makes the case for it.
Ferrari has been dragging its feet when it comes to tranisitioning to electric vehicles.
It has been early in incorporating some electric powertrain technology in its supercars but reticent in making an all-electric powertrain.
Earlier this year, the company said that battery technology is ‘not developed enough’ for a supercar and they indicated that they have no plan to move into the space before 2025.
Ferrari might be reticent to make the move because its current business model has been working really well.
The automaker’s stock price has increased over 200% since spinning out of FCA four years ago.
In a new note to clients today, Adam Jonas’ team at Morgan Stanley made the argument that the move to electric will be a net positive for Ferrari’s business:
“For the past couple of weeks, we have been fielding investors’ questions around the rather uncomfortable thought of Ferrari transitioning to an all-EV future given the changing regulatory environment (i.e. California set to ban the sale of ICE vehicles by 2035) and an increasing number of important ‘Ferrari cities’ that are looking to outlaw the use of internal combustion vehicles from operating on public roads by various deadlines around the world. We believe the ultimate outcome of Ferrari’s transition to EVs may be the #1 driver of the share price over the next 3 to 5 years and one which we continue to engage with management on very closely in the quarters to come.”
The team based their argument by highlighting how Tesla is able to achieve Ferrari-like performance on much cheaper vehicles.
They wrote in the note:
“A Tesla Model S Long Range Plus has a starting price of $74,990. Assuming a gross margin of 25% (slightly above company average) with 30% of COGS related to EV powertrain would imply Powertrain COGS of just under $17k (and non-powertrain COGS of $39k). Moving to the Model S Performance (starting price of $94,990) we estimate the EV powertrain COGS of $23k/unit. And finally, moving to Model S Plaid (0 to 60 in <2 seconds), which we believe is the best comp for Ferrari level performance on an offer by Tesla at this time, we estimate the cost of the Plaid power unit is approximately $40k.”
The note was written before Tesla’s price drop on the Model S today. As we reported earlier, those vehicles now start at $71,990 and $91,990.
Regardless, Morgan Stanley believes that moving to all-electric powertrains could actually save Ferrari a lot of money while delivering high performance:
“The potential savings Ferrari could realize moving from ICE to EV are very significant. We estimate the average Ferrari could reduce cost of power unit from roughly $95k for today ICE car today to $50k for a Ferrari EV. The savings of approximately $45k/unit is worth nearly 1,400 basis points of margin to the company’s sports car business. Applied to our 2022 Ferrari forecast, such margin enhancement would be worth $545mm of EBIT and $2.34 to EPS or roughly 50% accretion to our current 2022 EPS forecast.”
The firm maintains a price target of $265.00 on Ferrari’s stock, which currently trades at $185 per share.
I hope Ferrari is listening to this.
While Morgan Stanley’s comparison to Tesla is not perfect, it is clear that Ferrari could produce an electric powertrain that beats the performance of its electric vehicles without increasing costs.
The new Tesla Roadster is the best example. It is likely deliverable at $250,000 with the specs that Tesla announced. Sure, it has been delayed, but that’s because Tesla doesn’t have the bandwidth to be working on the program more than the feasibility of the vehicle.
Ferrari should move quickly on this because if they don’t start moving before 2025 like they previously said, they are likely going to have a hard time catching up.
What do you think? Let us know in the comment section below.
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Author: Fred Lambert