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Home / Blog / blog / Die Another Day for Luxury Car Brand? 04-10-2019

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Die Another Day for Luxury Car Brand? 04-10-2019

Luxury car brand Aston Martin is spluttering to the end of its first year as a public company, looking like it might be ready for repairs. The car maker’s shares slumped another 6 per cent on Wednesday, standing at 480.00p at the time of writing, a whopping 75% drop in value since it floated a year ago.

The car brand, famous for being James Bond’s favourite, was worth £4.3 billion a year ago but its value has now plummeted to £1.1 billion. Red flags about the brand’s profitability have been coming thick and fast – in February the firm posted a £68 million loss for 2018 and last month it had to borrow an extra £120 million at extortionate interest rates.

So, should investors be looking to offload or are there still champagne days to come for the brand that prides itself on creating dreams not cars? Aston Martin is pinning its hopes on new models such as its upcoming DBX SUV, which it hopes will generate strong sales growth again. Analysts still see substantial risk though – the latest round of borrowing was at an interest rate of 12 per cent compared to the 6% that the firm was borrowing at in 2017. This loan adds to an existing £732m debt which is also due to be repaid in 2022, which makes quite a substantial liability. The uncertainty of Brexit has hurt car makers across the board but with no resolution in sight, this could continue to affect Aston Martin.

Some analysts blame this disastrous first year on the stock market on an over-ambitious valuation though. Its initial £5 billion valuation was calculated on the assumption that it would perform on a similar level to rival luxury car brand, Ferrari. But Ferrari’s sales and revenues are significantly higher than Aston Martin’s, leading analysts to comment that the management team were always ‘on a hiding to nothing.’ The consensus seems to be that there are turbulent times ahead for Aston Martin that could, unfortunately, leave investors shaken not stirred.

It’s looking dispiriting for modern day car manufacturers too, as Tesla saw its share price fall 6 per cent this week when it failed to hit its third quarter delivery targets. Tesla’s share price stood at $233.83 at the time of writing, after its recorded delivery numbers to September reached a record high but still failed to meet its 100,000 target. The firm, headed up by Elon Musk, actually delivered 97,000 cars but analysts were expecting it to break through the 100,000 barrier after an email from Musk to staff suggesting they were on track for this number. So, should investors be concerned that the car manufacturer is losing its spark? Some analysts seem to think so – JMP Securities, for example, downgraded Tesla’s stock to ‘market perform’ saying that its ‘delivery data shows low, single-digit sequential unit growth’ and commenting it doesn’t know of any operational issues which would have prevented Tesla delivering more cars if demand was there. Tesla’s Model 3 car made up the majority of the firm’s third quarter deliveries and that is where revenue is expected to come from for the foreseeable future. Some analysts are concerned that demand for Model 3 has already peaked, and that competition from other electric car makers could derail the firm’s sales figures. Whether Tesla share prices can recover or not probably depends on its ability to meet its full year target of 360,000 – 400,000 cars, which is going to need a sterling effort in the final quarter of 2019.

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.

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