Ferrari’s (NYSE:RACE) Plan: Build its Luxury Brand

Ferrari’s (NYSE:RACE) Plan: Build its Luxury Brand

$RACE

Since taking over as CEO Louis Camilleri has largely shunned the spotlight, shunning the media and commenting publicly about the business only during Quarterly conference calls and once at the presentation of its new 5 year industrial plan.

Being a tobacco executive offered relevant lessons for running Ferrari, Mr. Camilleri said in his 1st interview since becoming CEO, because it involved “managing a company which is part of an industry going through major transformation and how to keep ahead of that transformation.”

Mr. Camilleri was a business analyst in Switzerland for a chemicals company before joining tobacco giant Philip Morris International Inc. in Y 1978. He eventually moved to the parent company, which was renamed Altria Group in Y 1996, and remained until retiring in Y 2013. He was Chairman and CEO of Philip Morris International from Y’s 2008 to 2013 and he remains its nonemployee Chairman.

As Mr. Marchionne, CEO of Ferrari and the larger Fiat Chrysler Automobiles (NYSE:FACU) was dying, the head of the family that controls both car companies, John Elkann, asked Mr. Camilleri, a board member to take over as Ferrari’s CEO.

Mr. Camilleri knew the company well as a board member and because Philip Morris had been a Key sponsor of the racing team since the 1970’s. Mr. Camilleri is a fan of the marque, having bought his 1st Ferrari, a 275 GTB, in Y 1977.

He will no say how many Ferraris he owns, but “it’s a lot.”

The difference between Messrs. Camilleri and Marchionne became apparent at Ferrari’s F1 team, the pride of the company and the testing ground for many technologies.

Mr. Camilleri’s measured, soft-spoken style contrasts with the freewheeling and often-abrasive Mr. Marchionne, who would publicly criticize employees, an approach that led to high turnover at the racing team but failed to produce results.

Ferrari this season once again came up short against rival MercedesAMG, but the team won 3 races in a row for the 1st time since Y 2008, an improvement Mr. Camilleri linked to better moods.

Mercedes has had a lot of stability, and we’ve had something of a revolving door. People were afraid of taking risks because if they made a mistake they could get their head chopped off.

All car makers are confronting the shift to EVs (electric vehicles) and autonomous driving technology, the changes are complex for Mr. Camilleri and Ferrari because of the doubts that people will spend out hundreds of thousands of dollars for an electric, self-driving Ferrari, Ferrari owners drive and love the sounds.

EVs have fewer moving parts than a vehicle with an internal combustion engine, potentially making it harder for Ferrari to showcase its engineering prowess, which has produced cars that can accelerate from 0 to 60 mph in 2.4 secs and can hit Top speeds above 200 mph.

“The perception is that the battery is a leveler; it’s up to us to be sure we can differentiate,” Mr. Camilleri said.

This year Ferrari released its 1st series production plug-in hybrid, the SF90 Stradale, and has set a target to have three of every five new Ferraris be hybrids by Y 2022.

Mr. Camilleri said the 1st fully electric Ferrari should arrive between Ys 2025 and 2030, with the precise date depending on the speed of technological advances.

At the time of Ferrari’s Y 2015 IPO, Mr. Marchionne argued that the strength of the Ferrari brand and the price of its cars meant it should be valued in the same way as luxury goods stalwarts like Hermès International SA, which have higher relative market values than car companies.

Since Mr. Camilleri took over, Ferrari’s stock is up more than 25%, and the company’s $31-B market value is more than that of former parent, Fiat Chrysler (NYSE:FACU) which last year generated 33X more revenue and 10X more profit. Fiat Chrysler made 4.8-M cars in Y 2018, compared with 9,251 for Ferrari.

To build up its credentials as a luxury consumer brand, Ferrari has tied-up Armani, the Milan-based fashion company, to oversee the production of Ferrari-branded clothing. Mr. Camilleri did not say what other consumer products he has in mind, only that they should be suitably high-end.

Ferrari does not declare the size of its merchandise business, but financial analysts estimate it accounts for just a few percentage points of total revenue and profit. Mr. Camilleri forecasts selling products other than cars will generate 10% of Ferrari’s total profit within 7 to 10 years.

Mr. Camilleri plans to terminate 50% of the licensing agreements and products that carry the Ferrari mark, which has proliferated on items ranging from key rings to coffee mugs. There will still be Ferrari key rings, Mr. Camilleri said, though they will be better made and higher priced. Products getting the ax include Ferrari-branded computers, credit cards and fragrances.

These are products that have nothing to do with Ferrari and frankly dilute the brand,” Mr. Camilleri said.

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, overhead resistance is NIL at and support at 164.76 as 3 of our 3 Key indicators have turned Very Bullish and the stock has established long term support ahead of this breakout.

Ferrari finished at 165.44, -0.16 Wednesday in NY.

Ferrari will continue to create value in the long term. Ferrari is a quality 1st long term luxury products investment, and I see it at 200+/share in that frame.

Have a terrific weekend

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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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