Ferrari’s (NYSE:RACE) Business Perplexes Wall Street

Ferrari’s (NYSE:RACE) Business Perplexes Wall Street

Ferrari’s (NYSE:RACE) Business Perplexes Wall Street

$RACE

  • Ferrari exists to build race cars 1st, road cars 2nd.
  • Ferrari lives to race, not to make Wall Street money
  • Morgan Stanley analyst Adam Jonas thinks Ferrari needs to go electric to survive.
  • Selling cars to survive so it can sell more cars is not what Ferrari is or has ever been abouy
Morgan Stanley (NYSE:MS) auto analyst Adam Jonas is pushing his auto industry theories too far.

Thursday in a research note about Ferrari (NYSE:RACE) and the prospects for the iconic Italian automaker switching from gasoline engines, with their trademark Ferrari sounds, to all-electric power-trains.

He is 180 degrees out of phase, he does not understand Ferrari, so should not be taken seriously

Ferrari avoids the Question of whether it will someday make an SUV, but as of late, CEO Sergio Marchionne has been toying with queries about whether Ferrari will develop hybrid engines beyond what it already does with its very, very expensive HyperSupercars.

Mr. Jonas writes: In our opinion, there are a number of regulatory paths that could present a serious impediment to the manufacturers of all internal combustion powered auto firms 1 to 2 engineering cycles in the future. While a Ferrari may be designed for performance on a test track or in the Chianti hills, some folks like to go for a leisurely spin around Belgravia, Madrid, Munich, Shanghai, Hong Kong … Los Angeles … even Mountain View or San Francisco. You may have seen these folks, or perhaps you’re lucky enough to even be one of them. Will the legal operation of Ferrari be grandfathered because of its exotic or artistic qualities.”

Consider this, investment-bank analysts are perplexed as to why Ferrari exists and is at the Top of the automotive sector’s performance list.

Ferrari stock is up 111% over the past 12 months and demand for its road cars drives the sexy story.

But Ferrari only sells cars to fund its racing program.

That’s the way it has always been, since Enzo Ferrari, decided to create Scuderia Ferrari, a race-car-making works.

Racing is expensive, so Ferrari started building “normal” cars to fund the really passionate side of the organization.

I know that might sounds as if the Ferrari clienti is not the first thing on Ferrari’s mind. But that is the the fact, and the clienti are happy to have it that way.

Ferrari’s focus remains on F1, the most prestigious competitive motorsports series in the world.

Every car Ferrari sells, from the entry level Portofino to the La Ferrari Aperta, supports the F1 racing effort. Read; everybody who buys Ferrari stock also supports the racing effort.

And the racing effort is almost literally a Top-Secret black box about which investors nothing about.

At the factory in Maranello, Italy, there is a huge, windowless Red chamber where the F1 technologies are developed.

Racing is very much about sound for fans, and while there is an all-electric series, Formula E, you go to see Ferraris race to listen to the roar.

When Ferrari made a big switch with its 488 Supercar to a turbocharged V8 motor, the carmaker had to address in the 1st order whether the new machine would sound right, yes it is all about the sounds.

Mr. Jonas errs when looking at Ferrari Vs Tesla’s (NASDAQ:TSLA) Model S in terms of acceleration, Tesla is just a bit player in the automotive world, hyped by Wall Street and its hypster Elon Musk to the extreme. Comparing Tesla to Ferrari is silly, and Mr. Jonas knows it. Morgan is painfully short.

“The Tesla Model S P100D accelerates from 0 to 60mph in 2.28 secs per Motor Trend,” he wrote. “By comparison, the $1.4-M LaFerrari accomplishes the same feat in 2.4 secs. While acceleration isn’t the only measure of a sports car’s performance, it is a factor that matters to some people.”

I have been a Ferrari clienti for 52 years, and nobody that I know who owns a Ferrari thinks it is not fast enough.

The Ferrari is a Ferrari, beautiful and thrilling to drive.

Mr. Jonas thinks he is being contrarian in arguing that Ferrari must be seriously thinking about going electric, despite an all-electric future being pretty speculative at this point. Mr.  Jonas appears to be building a Bear case, and if you dig deep enough you will find a big short position at Morgan.

Friends, Ferrari is Ferrari because of racing, not because people need amazing red Italian sports cars to drive around in. Perhaps Ferrari will race electric cars one day, but I do not think so.

Ferrari is art, and art does not care to survive just so investors can make money no matter what happens.

The Big Q: Will there be an all-electric car world without Ferrari?

Symbol Last Trade Date Change Open High Low Volume
NYSE:RACE 113.07 5 October 2017 -1.38 114.14 114.47 112.89 249,596
HeffX-LTN Analysis for RACE: Overall Short Intermediate Long
Bullish (0.26) Bullish (0.33) Neutral (0.21) Bullish (0.25)

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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