Ferrari’s prancing horse needs its skilled rider

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If there’s one takeaway from the strategy update Ferrari NV gave at its Maranello headquarters this week, it’s this: The Prancing Horse will not change its winning gait.

Aside from a mixed record on the Formula 1 circuit, Ferrari has made little mistake since going public in 2015. It’s persuaded investors to view it as a luxury brand like Hermes International rather than a metal-bashing car company, and enjoys an equally princely valuation: Ferrari’s €30 billion ($32 billion) market cap — even after a drop of a third from its 2021 peak — is astonishing considering the company sold barely 11,000 cars last year.

However, given its reliance on powerful internal combustion engines, there are understandable concerns about what the landmark shift to electric vehicles means for its excellent financial performance. The impending launch of Ferrari’s sporty SUV, the Purosangue, also worries purists: one look at the ugly (if very profitable) tractors from Bentley, Lamborghini and others explains why.

Benedetto Vigna, who has been the automaker’s chief executive officer since September, brings plenty of technological know-how from his background at STMicroelectronics NV, but he doesn’t have much experience in the automotive or luxury industries.

But Vigna and his team will have assured Ferrari purists that their company is in safe hands. The company plans to increase sales by more than half by 2026, but the boost will come mostly from raising prices and offering desirable models, rather than compromising on exclusivity.

The fact that Ferraris are also collectors’ items is a great advantage in times of inflation: customers often have several in their spacious garages and pay what the Italian company charges. Ferrari sales have also proven resilient in past recessions, a trait that could soon be put to the test again. While there are undoubtedly a few crypto brethren who can no longer afford an SF90 Stradale starting at around $500,000, Ferrari hasn’t seen demand deteriorate.

In fact, the company could undoubtedly sell a lot more vehicles than it plans to, particularly with the Pursoangue due to arrive in September, offering the Ferraristi a more practical family runabout to complement their racing machines. However, the company says the Purosangue will account for no more than 20% of its sales; the comparable Urus accounts for 60% of Lamborghini sales volume.

I think that’s the right call: Ferrari’s luxury cache would be jeopardized if its vehicles became as commonplace as Range Rovers.

Fortunately, Ferrari investors are not left empty-handed. Already industry-leading operating profit margins of 25% are expected to increase, and the company aims to generate nearly €1 billion in free cash flow per year by 2026 by staying disciplined on spending. Electrification has priority; fully autonomous driving less (after all, customers still want to drive their sports cars).

Battery-powered vehicles remain a risky venture for Ferrari given its association with V12 engines, so the company is taking its time: The first all-electric Ferrari won’t be on the market until 2025. In 2030, hybrid and full fossil fuel cars are still expected to represent 60% of its model range. The company expects customers to be able to continue driving internal combustion models with cleaner synthetic fuels. There are also plans to seed a forest in Italy to achieve carbon neutrality.

To me, its approach to electric vehicles feels too slow, but at least its delay doesn’t do much damage to the planet: Ferrari’s carbon footprint is tiny – the company estimates it accounts for 0.001% of global emissions, partly because customers’ thirsty sports cars are leaving rarely the entrance. Junkyard emissions are also not an issue, since customers usually keep their valuable vehicles forever.

But Ferrari cannot afford to rest on its laurels. The European Union wants all vehicles sold from 2035 onwards to have zero tailpipe emissions, and while Ferrari has so far avoided the trap of becoming an old man’s brand – almost 40% of customers are under 40 – there is a risk that faster-moving rivals will redefining what a luxury electric car looks and sounds like.

Porsche AG’s electric Taycan is already outperforming the 911 model, and soon the very profitable Volkswagen AG subsidiary will have its own stock exchange listing, offering competition for portfolio managers’ investment funds as well as their car budgets. Mercedes-Benz AG is also trying to position itself as an electric luxury leader.

Still, I’m confident that Ferrari, with tech expert Vigna at the helm, will eventually produce electric vehicles that are just as enviable as their gas guzzlers. The thoroughbred Italian remains in good form but should not let up.

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This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. He was previously a reporter for the Financial Times.

For more stories like this, visit bloomberg.com/opinion

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