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Is Aston Martin in trouble?

By Ben Oliver, 23 Dec 2019 News

Aston Martin Valhalla 2019

Any interruption to the new product pipeline and additional cash burn could bring the blowtorch

Speculation has been rife about Aston Martin’s financial health. Like its most famous customer in Goldfinger, the laser is heading straight for Aston’s nether regions and CEO Andy Palmer will need to do something smart – and soon – to switch it off.

When it floated a year ago on the London Stock Exchange, Aston was valued at £4.3bn ($A8bn), and returned £1.1bn (A$2bn) to its Italian and Kuwaiti private-equity owners.

That valuation was based on the glorious future envisioned in Palmer’s ‘Second Century’ plan, in which SUVs, sedans and EVs double Aston’s volumes to 14,000 cars by 2023, finally giving it the scale and stability it has always lacked.

Aston Martin DBX

That plan is still on track, just about. The trouble is that old Aston is getting in the way.

The share price had been on the slide for a while, but the announcement in late July of an £80m (A$150 million) loss in the first half, slumping sales in the UK and Europe and a sharp downward revision to estimated full-year sales caused the stock to plummet, leaving Aston worth just a quarter of what it was a year ago.

The share price slump reflects investors’ concern that Aston might break before it can get to Andy’s promised land, its cash burnt up by the toxic combination of turbulent current trading and the cost of developing those new models. It simply needs more money.

Read more: Aston Martin DBX revealed

The proceeds of the IPO didn’t go into the business but straight back to the investors and the execs, including Palmer. They won’t want to dilute their holdings now by raising the required cash with new equity issue at rock-bottom prices. Aston will probably have to borrow the money, but it will be expensive to finance and will add to its debt pile.

So Aston is in a tight, but by no means inescapable, spot. The leading auto analyst Max Warburton has examined Aston’s accounts and in a private note to investors says that he believes the company will find the funding to make it through to 2021, by when DBX production should have ramped up and added around 4000 units to Aston’s sales.

The firm will also need to cut costs sharply, possibly slowing or even pausing development of the mid-engined Vanquish and Valhalla, and, after the DBX launch, revising its growth plans downwards accordingly.

The $4.5m Valkyrie is pretty much done, and despite its low volumes will make a useful contribution to Aston’s coffers once it starts selling at the end of the year. But Warburton warns that there’ll be no wriggle room in Aston’s escape plan: Valkyrie and DBX will both need to arrive on time.

Even if Aston can get DBX and Valkyrie on sale on time, its future is by no means guaranteed. The company is busy completing its new factory at the former RAF base at St Athan in Wales, where Palmer will attempt something few car company bosses would have the stomach for: building two entirely new types of car, in a new factory with a new workforce.

Usually, it’s one or the other: a new car in an existing factory or vice versa. But the scale and pace of Palmer’s expansion plan force him to do both, so St Athan will build both the DBX and Aston’s future electric vehicles.

The main risk is to quality, and that risk is all the greater when you’re a luxury car maker with a reputation for hand-tooled opulence but occasional mechanical and electrical woes.

There’s also no guarantee that the DBX will reach and maintain the sales Palmer needs, and the concern is that the new SUV might not generate the cash on which the latter stages of Palmer’s plan rely. Aston has been bankrupt seven times in its long history. Everyone watching is hoping that, like paper, it won’t fold eight times.

 

Key new models – the cars that must save Aston

2019

DBX

Aston’s first SUV is the single most important car in Palmer’s plan and launches later this year. It is critical to Aston’s success in China, which loves an SUV, and to attract a greater proportion of female buyers. Production of confirmation prototypes has already begun at the new St Athan plant and will ramp up over 2020.

 

Valkyrie

Aston’s pinnacle mid-engined hypercar, designed with the Red Bull Racing F1 team and Adrian Newey. Will cost $4.5m and carry an 865kW hybrid V12. Followed by the track-only Valkyrie AMR Pro, if the road-legal one isn’t quite enough for you. Rivals the Mercedes-AMG One. Only 150 road cars will be made, and 25 AMRs.

 

Rapide E

The first all-electric Aston, the Rapide E will be made at St Athan in limited numbers – only 155 will be built. The ageing Rapide host car loses its V12 but gains a facelift and a 450kW electric drivetrain good for a range of around 320km. Not a very significant car for Aston’s bottom line, but a chance for it to learn how to do electric.

 

2021

Valhalla

Valhalla is designed to bridge the huge gap between Valkyrie and Vanquish, and it sits perfectly between them in its design and engineering. It gets the Vanquish’s V6 but with the KERS system from the Valkyrie, and unlike the Vanquish it gets the direct involvement of Newey and Red Bull. Limited to 500 units.

 

2022

Vanquish

After at least two decades of thinking about it, Aston finally gets a mid-engined rival for the F8 Tributo, Huracan, etc, previewed by the Vanquish Vision Concept. Could be very significant to Aston’s finances – Ferrari’s current mid-engined V8s make huge margins that underpin the company’s profits. Hybrid V6 power and an aluminium chassis.

 

Lagonda SUV & sedan

Last year’s Lagonda Vision concept announced the rebirth of Aston’s other, largely dormant nameplate as an all-electric super-luxury brand to rival Bentley and Rolls-Royce. A sedan comes first, possibly as soon as 2022, followed by a R-R Cullinan-rivalling SUV. Both will be made at St Athan.

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