You are here

Vroom! Ferrari Plans To Double Production Shifts - On Track To Smash Earnings, Production Targets

On 2 November 2017, Ferrari NV, which was spun-off from Fiat Chryslerr, announced a 23% rise in adjusted EBITDA to 778 million euros (629 million euros) for the first nine months of 2017. The company increased its EBITDA target for the full year to 1 billion euros versus the previous estimate of more than 950 million. As Bloomberg notes.

The manufacturer raised its 2017 profit target last month as rollouts of limited-edition supercars, including the FXX K Evo racing model, help it achieve a long-held profit goal two years early.

If, like us, you were wondering what a Ferrari FXX K Evo looks like, here it is. It has a 6.3 litre V12 engine and an electric motors, generates 1,036 bhp with the motor providing an additional 187 bhp and is very fast (last time we checked Ferrari hadn’t released top speed or acceleration data).

In 2013, former Chairman, Luca Montezemolo, said that Ferrari would limit production to around 7,000 cars to defend the brand.

“My focus this year and in the years to come is not to grow volume but to increase the exclusivity of Ferrari,” di Montezemolo said. “This protects our margins and residual values for our customers.”

It didn't last long. With Sergio Marchionne in control and the prospect of a listing on the NYSE, Ferrari outlined a plan to increase production to as many as 9,000 cars by 2019. Production is expected to reach 8,400 cars (including supercars) in 2017 and the target can be achieved a year early as Ferrari doubles the number of shifts at its manufacturing facilities. According to Bloomberg.

Ferrari NV, fabled for its fast cars on roads and race tracks, is packing some extra speed into its factories, too. The Italian supercar maker, spun off from Fiat Chrysler Automobiles NV in 2016, plans to boost production by doubling assembly shifts to two a day in 2018 as deliveries are on pace to reach its 9,000-vehicle target a year earlier than scheduled, according to people familiar with the matter, who asked not to be named as the matter isn’t public. A Ferrari spokesman declined to comment.

The increase is part of Chief Executive Officer Sergio Marchionne’s plan to boost profit by expanding Ferrari’s line-up while maintaining the exclusivity of its $200,000-and-up models. Marchionne, 65, will present the carmaker’s latest mid-term strategy early next year, his final one at the helm of the Italian iconic brand.

The Ferrari IPO in October 2015 priced at $52/share which was at the top end of the $48-52 range. The stock, which trades under the ticker RACE, has more than doubled to $106.9, valuing the company at $20.2 billion.

Bloomberg “helpfully” provides us with an explanation for the ramp in Ferrari production. 

Sales growth is being driven as the population of wealthy individuals surges. The number of millionaires worldwide surged 36 percent to 13.6 million people in the 10 years through 2016 and may rise another 37 percent in the following decade, according to the Wealth Report by real estate company Knight Frank. The number of billionaires increased 45 percent in the period, boosted by gains in the Asia-Pacific area.

Besides the global increase in wealth, the extension to the company’s product range will also have a positive impact on sales volumes during the next few years. For example, Marchionne commented that “We’re dead serious about this” when referring to the potential for manufacturing Ferrari’s first  ever SUV – termed a “Ferrari Utility Vehicle” or FUV. As Bloomberg explains.

The plan will include Ferrari’s first-ever sport utility vehicle as it targets annual sales exceeding a self-imposed 10,000-car limit that until now has enabled it to operate under less-stringent fuel-economy rules, people familiar with the matter said in August. Goals include doubling operating profit to about 2 billion euros ($2.35 billion) by 2022, they said.

For now, there is no threat to Ferrari’s prospects, nor its exclusivity. Waiting lists for most models exceed twelve months. Marchionne has said before that Ferrari can preserve its exclusivity as long as it always sells one car less than the market demand, echoing the words of founder, Enzo Ferrari.

If he was still alive, we question whether Enzo Ferrari would have realised that the biggest risk to his company is probably the bursting of the latest equity bubble.