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Rivals Overtake Ferrari As Its EV Directions Are Unclear

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rearview lights of red FERRARI 488 SPIDER Type F142M coupe is a mid-engine sports car produced by the Italian automobile manufacturer Ferrari-Overtake Ferrari-ss-featured

Rivals in the Euro luxury car market overtake Ferrari in the standings as the iconic carmaker reported its works quarter since 2018. The top automobile stock in the Stoxx 600 Auto & Parts index for the past three years is now at the back of the pack. Ferrari’s value fell 5.6% since January 2021. In contrast, rivals such as Volkswagen AG, owner of Porsche, Bugatti, and Lamborghini, are enjoying strong gains. 

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Rivals Overtake Ferrari Due to Their Electric Vehicle Strategy

Meanwhile, Ferrari’s rivals, in particular Volkswagen, received warm support for their Electric Vehicle (EV) initiatives. Meanwhile, Ferrari’s strategy for a full-electric vehicle remains a mystery. During his last analyst call in November, former CEO Camilleri expressed doubts that Ferrari is heading towards EV. He said he didn’t see the carmaker ever being at 100% EV. On the chances it will reach at least 50%, Camilleri said that it will happen, but “certainly, not in my lifetime will it reach even 50%.” In contrast, Elkann declared last February that he foresees Ferrari launching a fully electric car by 2030.

However, other analysts don’t see a problem with Ferrari not following the EV pathway. According to UBS Group AG analyst Susy Tibaldi, concern over the company’s approach toward electric vehicles doesn’t seem justifiable. “We don’t think the company is under the same pressure and urgency as its non-luxury peers, due to the fact that a Ferrari per se is not a means of transportation but rather a status symbol, and is rarely the first car in a household,” Tibaldi said. In her last note issued March 30, Tibaldi issued a ‘Buy’ rating for the carmaker.

Continued Disruption 

Ferrari’s decline actually stems from a number of factors. First is its unexciting forecast. In announcing its February results, the company gave a conservative earnings outlook for this year. The pandemic’s disruption is still widely felt in its factors. “The stock has become too expensive and earnings momentum is fading,” noted Arndt Ellinghorst, Sanford C. Bernstein analyst. Ellinghorst also noted uncertainty over the CEO situation and a lack of clear direction on its EV strategy. 

In addition, the carmaker remains searching for its new CEO. Former chief Louis Camilleri suddenly announced his retirement last December, the second time Ferrari CEO quit in as many years. This left the prancing horse automaker dealing with a leadership crisis. However, the carmaker remains hopeful in its search efforts. Ferrari is “making good progress with the search process to identify the right leader,” said Chairman John Elkann last April 1. There’s hope that the incoming new CEO will balance the need to stay on pace with tightening emissions regulations while providing the cars with traditional thermal engines that power-hungry customers love.

Luxury Play 

It also didn’t help that Ferrari gained a reputation as a wholly luxury play instead of a growth stock. The stock’s lofty valuation multiple relative to other carmakers doesn’t provide enough wiggle room for growth. According to RBC Capital analyst Tom Narayan, Ferrari is less of an auto stock and “more of a luxury play.” In fact, Ferrari stock rose 28% in 2020. This improvement runs similar to the performance of Birkin bag maker Hermes International and luxury leader LVMH. Meanwhile, most auto stocks declined due to the restrictions set by the pandemic.

According to Antonio Amendola, a portfolio manager at AcomeA SGR, Ferrari remains Ferrari, a solid investment that’s not for everybody. “The outperformance last year was due to the fact that the stock is perceived as more defensive and so something to own when everything else falls. In the end, those who can afford a Ferrari can afford it in any conditions,” he said. 

New Dynamics Allowed Rivals to Overtake Ferrari 

With the improvement of the global coronavirus condition due to vaccine availability and a wider understanding of the virus, the stock market dynamics change yet again. More investors are shifting more toward cyclical stocks and away from defensives.  “With the market rotation, it’s normal to see some profit-taking. Ferrari’s fundamentals are solid and this can be an opportunity to accumulate if the underperformance persists,” said Amendola.

Watch the Everything Money episode that discusses how strong are Ferrari stock fundamentals?

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