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Why Ferrari's Profitability Boomed in the Second Quarter

By John Rosevear – Aug 15, 2021 at 8:12AM

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It wasn't about the semiconductors.

We saw again in the second quarter that Italian supercar maker Ferrari (RACE 0.25%) is like no other automaker. Delta variant? Semiconductor shortage? Ferrari just sails above the storms that have been hitting other automakers' top and bottom lines. 

But even for Ferrari, its second-quarter profit margin was outstanding. In this Motley Fool Live video, recorded on Aug. 5, Industry Focus host Nick Sciple and Motley Fool senior auto specialist John Rosevear take a deeper look at Ferrari's most recent earnings report, and find that the secret to its super-profitable quarter was something new for Ferrari: A hybrid.

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Nick Sciple: We've talked about Ford, General Motors, BMW. Are there any other auto stories out there that maybe aren't among these names that folks are following every day that you think should be on investors' radar?

John Rosevear: Well, let's talk about Ferrari, Nick. Ferrari reported this week, and Ferrari is interesting because it's an automaker and it's also a luxury company. In a sense, really, its best comps are companies like LVMH, Hermès, and so forth. Companies like that. In terms of profitability and margin, these are very high-priced cars. They limit supply to ensure exclusivity and so forth. They only build about 10,000 cars a year, and even that's up from 8,000 a few years ago. But that's accommodating the Chinese market as it has matured, and so forth. Ferrari already had terrific profitability in Q2. We get excited when GM reports 12% EBIT margin, when BMW reports a 10, 12% EBIT margin. Ferrari's was 26.5%. We're accustomed to seeing Ferrari's margin in the 22%, 24% percent range. As I said, this a luxury company. Twenty-six and a half is a good result even for Ferrari. But the story isn't about chips. It's not like you go to the Lamborghini dealer and they're fresh out, so you have to go buy a Ferrari, that's not how it works. All these cars are built to order and they're getting enough chips. When you only build 10,000 vehicles a year, you're not having trouble getting chips.

The story here is they have a new model and it's a hybrid. This car is called the SF90 Stradale. Normally when we talk about Ferrari, we talk about the ratio of V8-powered models to V12-powered models. When we look at their profitability from an analytical viewpoint, the V12-powered models are more expensive, they're more exclusive, they have better margins, and so forth. We look at that mix every quarter. The SF90 Stradale is actually a V8 model, but it's a hybrid and it's priced and positioned like a 12-cylinder model, which if you're deep into Ferrari, this is really interesting. Anyway, the price tag, this car starts at $625,000. It is the first Ferrari hybrid that isn't an exclusive limited edition where you have to be invited to buy one. Theoretically, anybody can walk into a Ferrari dealer and order one if you have the means, as they say. From the reviews, I highly recommend picking one up. This is a 1,000-horsepower car that's getting rave reviews from all of the car magazines and so forth. It's what their Formula One drivers drive. They did a whole video of it of their Formula One drivers, Carlos Sainz, Charles Leclerc out on the track playing with these things and so forth. They were both like, these are young guys and they get to drive this car. Like, wow; this is great. What happened in the second quarter is they started shipping this very high-priced new model with great margins for which there has been considerable early demand among their extremely well-heeled client base. It was able to book the revenue and that pushed their margins way up. They did warn that margins will moderate somewhat in the second half of the year because the next new models to come out are V8s, and that's going to make up a disproportionate share as they ship. It's a revised version of their Portofino convertible, and the Ferrari Roma, which is a new product for them. It's sleek, smooth; what they call a gran turismo, a GT. More of a cruiser than a track car. There has been very good demand for it in China. Some interesting notes about Ferrari: they took a record number of orders in June. Record month for them in terms of new orders. Their order book now stretches well into next year. Acting CEO John Elkann also noted that they're seeing more and more women buy Ferraris. In China, it's one in five of their buyers are women. This is very interesting for them. They are noting a positive response, more women coming, particularly with the Roma, the car we just talked about. That's a good trend for them in terms of their longer-term order book and so forth. It's a little business. I know not a lot of people follow it but it's Ferrari, it's cool. I'm a car guy. It's an extremely profitable, successful little business.

Sciple: Well, so I'll give you three maybe bullet points to pull out of there. No. 1, this SF90 Stradale; $625,000 price tag. We just saw the Bezos and Branson go to space. You can get a ticket to space with Virgin Galactic for $250,000. It's literally cheaper to go to space than it is to get this car, No. 1. No. 2, we are in this world of hyper-performance vehicles now, or hybrid. You can get better performance out of our hybrid than you can get out of a traditional vehicle. You see the Formula One cars are hybrid today. This is the development of it. It's not just like, you want to say the environment drive your Prius, if you want to have the absolute pinnacle of performance, a hybrid can help deliver that for you today. Then also just how many rich people are there out there? It's incredible that there are so many people out there buying these cars on a yearly basis. Ferrari, if you look at the market cap, this is a big company. When you look at the size of the business--

Rosevear: It's a company with like 3,000 employees or something. Ferrari is a lot smaller than people think it is as an actual company. It's one factory plus a little body plant, like 20 miles away, and their Formula One team. They're doing very well, thank you.

Sciple: Just looked it up, market cap over $40 billion. This tiny little company they're doing very well. I hope I have the opportunity to pick up an SF90 Stradale. I don't think it's particularly likely. But Ferrari, if you're listening and you want to take me and John out for a test drive, we will take you up on that. But until then, John, always love having you on the podcast.

Rosevear: Thanks very much, Nick.

Nick Sciple has no position in any of the stocks mentioned. The Motley Fool recommends BMW and recommends the following options: long December 2021 $130 calls on Ferrari. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Ferrari Stock Quote
Ferrari
RACE
$218.14 (0.25%) $0.55
Ford Stock Quote
Ford
F
$14.08 (0.36%) $0.05
General Motors Stock Quote
General Motors
GM
$40.46 (0.87%) $0.35
BMW Stock Quote
BMW
BAMXF
$85.45 (2.64%) $2.20
LVMH Moet Hennessy L.V. (ADR) Stock Quote
LVMH Moet Hennessy L.V. (ADR)
LVMUY
$146.03 (0.09%) $0.14
Virgin Galactic Holdings Inc Stock Quote
Virgin Galactic Holdings Inc
SPCE
$5.10 (-0.78%) $0.04
HERMES INTL S A Stock Quote
HERMES INTL S A
HESAY
$153.75 (-0.48%) $0.74

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