F1: Ferrari (NYSE:RACE) 2020 Has What it Needs to Win

F1: Ferrari (NYSE:RACE) 2020 Has What it Needs to Win

$RACE

Ferrari (NYSE:RACE) has everything a F1 team needs to succeed including huge financial resources, an in-house engine supply and a rich history capable of luring the most talented individuals in the sport onto its payroll. Yet for the past 11 yrs, those ingredients have failed to bring the iconic Italian team a championship.

We have to go back to Y 2008 to uncover the last constructors’ championship victory and Y 2007 for the last drivers’ title, thanks to Kimi Raikkonen. A series of false starts in the 2010’s followed those championships, only serving to increase the pressure on the 4 team principals who have worked to reverse the pattern in the past decade.

But for all the failings in recent years, the passion at Ferrari’s HQ in Maranello is undimmed. There is a magic to the place that no rival team can emulate and with it comes the belief that Y 2020 could be the year that the fortune turn up, for that to happen, there are some challenges Ferrari will face.

Although the championship tables do not show it, for 2 of the past 3 yrs Ferrari has had a car capable of securing a title. In Ys 2017 and 2018, Ferrari’s raw pace was on a par with that of MercedesAMG at enough tracks to mount a challenge, but operational mistakes, driver errors and reliability saw its championship campaigns fail long before the final round. A regulation change then tripped Ferrari up at the start of Y 2019, but by 2-H of the season it returned to winning ways and at certain circuits had the fastest car on the grid again.

In Y 2020 there will be no regulation changes, and even the ires, which Ferrari struggled with initially in Y 2019, will be the same. In essence, the Y 2020 season should be a continuation of 2-H of Y 2019, in which MercedesAMG, Ferrari and Red Bull were closely matched.

2 factors were Key to Ferrari’s resurgence during Y 2019 and will remain fundamental for a successful championship challenge in Y 2020. The 1st was the horsepower advantage it held over the rest of the field all year, the governing body found nothing illegal under Ferrari’s engine cover last year and, in theory, the team should retain all of its power advantage in Y 2020. What’s more, speaking at the end of Y 2019, Ferrari team principal Mattia Binotto promised “significant” changes to the power unit’s architecture and cylinder design for Y 2020 aimed at raising the bar further out of reach of The Scuderia’s rivals.

The straight-line speed advantage meant the team’s 2 wins on the long straights of Spa-Francorchamps and Monza came as no surprise, but the win on the tight and twisty Singapore circuit that followed signaled the biggest breakthrough of all.

Based on Ferrari’s performance in 1-H of the season, a street circuit littered with 90 degree corners should not have played to the strengths of the car, it struggled at Monaco and on the tight and twisty Hungaroring. But an aerodynamic upgrade around the front of the car offered the downforce that had been missing. Combined with MercedesAMG struggling on Singapore’s unusually bumpy track surface, Ferrari took its only 1-2 victory of the year.

Race wins in Russia and Japan should have followed, but the most important thing long term was that Ferrari had found a way of extracting more downforce without needing to start from scratch with the Y 2019 regulation changes. Given there were concerns at the start of the year that the SF90’s approach to the revised regulations was fundamentally flawed, the victory in Singapore was arguably the most important moment of Ferrari’s season.

Speaking at the end of Y 2019, boss Binotto hinted that this year’s car will continue with the same aero philosophy, having applied the significant lessons learned in Y 2019 to start the season on a stronger footing.

Building on the Singapore update and the inherent power advantage of the Ferrari engine, the team is aiming to maximise downforce in the knowledge that its extra horsepower will counter the drag that will inevitably come with it.

Our aim is to have a lot more downforce, and by having more downforce, we will certainly have more drag,” boss Binotto said. “So we are not expecting to be as fast on the straight as we have been. But you never know what the others are doing.

With the things that we learned, knowing them now we recognize that we need to have certainly more downforce because, as we saw at the end of the season, there is still a gap to close. So, our car is aiming for more downforce, and by consequence, we will certainly be working with more on drag.

Assuming the car comes close to its targets, there is no reason to believe Ferrari will struggle to the same extent that it did at the start of Y 2019.

Compared with its main rivals, Ferrari is a relatively young team from a personnel perspective. Boss Binotto had only just got his feet under his desk when the covers were taken off last year’s SF90, and inevitably it took some time for his change in management style to set in.

Ferrari’s F1 team operated under a culture of fear before boss Binotto.

Former CEO Sergio Marchionne (dec.) held the team to an uncompromising standard during his reign, and his expectations were enforced, in no uncertain terms, by former team principal Maurizio Arrivabene. As results continued to fall short of expectations, the pressure from above intensified, but in doing so it only served to speed up the negative spiral in performance.

Boss Binotto has attempted to change that culture by empowering those further down the chain of command. Importantly, he has the backing of Ferrari’s new CEO Louis Camilleri, who joined the company from the team’s main sponsor Philip Morris after the death of Mr. Marchionne in Y 2018.

We are very much focused, Mattia and I, on the longer term,” CEO Camilleri added. “You do not build the team overnight. We’ve said quite frequently that this is a young team in the sense that we have a lot of experience and talented people. However, a lot of them are new to their specific jobs and responsibilities.

So we need patience, we need stability and serenity because if you look back in the history of Formula One, where teams have done very well, be it McLaren, Ferrari in the good old days, Red Bull or today Mercedes, there is one common thread, which was that there was a lot of stability within the team and therefore they learned to work very closely together. That is something we are very focused on.

The most high-profile challenge facing Ferrari this year is the management of its drivers, a problem made all the more visible after they collided at last year’s Brazilian Grand Prix. The incident came at the end of a season in which Ferrari’s driver dynamic was turned on its head, with Mr. Vettel starting the year as the #1 but ending it in the shadow of new teammate Charles Leclerc.

Mr. Leclerc’s new 5-year contract, signed in December serves to underline where Ferrari sees its future and will leave Mr. Vettel asking serious questions about how he fits into the team.

Mr. Vettel joined Ferrari in Y 2015 with the aim of being the driver who returned Ferrari to the top. Off the back of 4 titles with Red Bull Racing, he looked poised to emulate his hero Michael Schumacher and cement his place in F1 history books. For many of the reasons outlined above, it did not happen, and now he has just 1 year left on his contract and a teammate who is locked in and loved by the team.

From the outside, he has 2 options in Y 2020:

  1. Become a dutiful Ferrari #2 in the mold of Kimi Raikkonen, Rubens Barrichello or Felipe Massa.
  2. Turn the tables and outperform Mr. Leclerc.

Given Mr. Vettel’s standing as a 4X world champion and his history of internal battles with teammates, the 1st option seems unthinkable, making his desire to pursue option 2 greater. But that relies on Mr. Vettel significantly upping his game in Y 2020 and rediscovering some of the form he last displayed 7 years ago when he won his final title with Red Bull. Possible, but not a safe bet.

If Mr. Vettel cannot raise his game, it is clear that he will soon run out of options, and that could create fireworks that make Brazil 2019 look like votive candle. Ferrari will likely hold one card close to its chest in the form of a contract extension, which has the potential to be used simultaneously as a carrot and a stick. Keep a place open for Mr. Vettel and Ferrari might just keep him in line through some of the stickier situations that crop up — the only issue being that the problem won’t go away once a deal is done.

Publicly, boss Binotto has brushed aside such concerns and claims Ferrari benefited from its drivers colliding in Brazil as it cleared the air at the end of a long and stressful season.

Going into Y 2020, he has pledged to treat his 2 drivers as equal in the hope that the respect he shows to his 2 talents will be reciprocated by them behaving on track.

I think that this stuff was important to clarify at the start of last year, but the situation was quite different by the end of the season,” boss Binotto said when asked by about having a # 1 driver. “At the start of 2019, we had a young driver for the first time in the Ferrari on one side of the garage and on the other a driver who had many races with Ferrari behind him. So that was the right choice at the time.

But if you look at a driver’s ambitions at the start of the year, I’m pretty aware that most of them are starting next season with the ambition to do very well as an individual. So, when we get to Australia, they will be free to race and there will not be a #1.

“But what’s more important is that this team remains as the first priority and we maximise the team points where we need it.”

Perhaps the biggest challenge facing Ferrari in Y 2020 is simply its main rival: MercedesAMG. While Ferrari has struggled for performance and consistent results for over a decade, MercedesAMG has been on an upward trajectory and seemingly gets stronger each year.

Ferrari gained ground on MercedesAMG over Y 2019, but it did so from an underwhelming starting point and moving ahead of its main rival on all types of circuit will not be so easy. It will also face a secondary threat from a resurgent Red Bull-Honda, which was outperforming Ferrari at the final few races of Y 2019.

In Ferrari’s favor, the existence of 2 genuine rivals could see MercedesAMG with its feet held to the fire. In recent years when MercedesAMG has been pushed to the limit, that has occasionally led to errors, such as its disastrous German Grand Prix performance in Y 2019. The onus will be on Ferrari to capitalize on every single one of those in Y 2020, while tidying up its own act so that it makes the most of the occasions when it has the fastest car.

Doing so could see the Maranello Outfit turn a page on its title drought of the 2010’s and kick-start a new era of success in the 2020’s.

Ferrari is the Aristocrat of the automotive sector.

Enzo Ferrari’s iconic Italian Supercar manufacturer claimed the title according to the latest Brand Finance Global 500 2019 report launched at the World Economic Forum in Davos.

HeffX-LTN overall technical outlook for RACE is Bullish to Very Bullish, there is resistance at 175.50, and Key support is solid at 169.45 the stock has established strong long term support.

Ferrari finished at 171.25, +3.20 Monday in NY.

Ferrari will continue to create value in the long term. Ferrari is a quality 1st long term luxury products investment, and I have call it at it at 200+/share long term, adjusting it to 200/share short term and siding with BAML to 230 long term for now.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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