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Next CEO to find Ferrari in near-showroom condition

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Ferrari's first plug-in hybrid, the SF-90 Stradale, is attracting younger buyers to the brand.
Source: Ferrari

The next CEO of Italian sports-car maker Ferrari NV will take over a finely tuned machine with a refreshed model line-up, growth plans for China and a recent return to a more delicate management of brand value, analysts say.

Observers have regretted the departure of Louis Camilleri, who abruptly stepped down in December 2020 for personal reasons. Camilleri said a recent bout with COVID-19 was not related to his decision to retire as both CEO of Ferrari and chairman of cigarette maker Philip Morris.

An automotive outsider, Camilleri was thrust into the job in 2018 following the unexpected death of Sergio Marchionne, who had also run Fiat Chrysler Automobiles NV. During a tenure of two and a half years that began with a hesitant welcome from investors, analysts praised Camilleri's moves to elevate the brand, emphasizing more expensive, limited models over sales volumes.

Marchionne too was acutely aware of that fine balancing act, but analysts looked favorably upon Camilleri's more conservative interpretation of how that should translate into sales volumes. That is something they will be watching for closely when a new CEO emerges to take over from interim John Elkann, chairman of Fiat Chrysler.

"I think what we'd been concerned about at Ferrari up until [Camilleri's arrival] was that, yes, it makes very desirable cars, but we feared that the company was trying to push volume, which is the enemy of exclusivity," said Stephen Reitman, an analyst at Société Générale.

Camilleri's pursuit of reinforced brand prestige prompted him to announce a "dramatic purge" of licenses to retail partners selling Ferrari-branded merchandise. He committed to culling one-third of the "stretched" number of product categories carrying its logo, increasing the focus on apparel, while at the same time pushing into novel entertainment offerings and a restaurant partnership.

"Camilleri's major contribution was the diversification of the brand," said Gianluca Bertuzzo, an analyst at Italian investment bank Intermonte. "They decided not to renew some licensed products like perfumes and watches. You won’t see Ferrari in these types of goods going forward."

Bertuzzo said increased car sales volumes have boosted the company's recent performance but noted this has been achieved in "a balanced way," with about 10% unit growth in 2019. This sets it apart from rivals such as Aston Martin Lagonda Global Holdings PLC, which grew sales by 39% in 2017 alone but whose shares have moved in the opposite direction since its return to the stock market in October 2018.

"Ferrari is a very well run business. Camilleri didn't have to implement any turnaround plan. The business is based on the value of the brand, which ultimately relies on a strong order book and preserving residual values of used cars because this provides fuel for a new car sale," said Bertuzzo.

The maker of some of the world's most expensive cars has shrugged off the glum of the global pandemic to end 2020 with a record share price that grew 38.4% during the year despite hundreds of orders delayed by lockdowns. Its performance has aligned it even more closely with the luxury goods sector and set it further apart from the struggling automotive industry, helping it achieve a market cap higher than that of Ford, Fiat Chrysler and several other mass manufacturers.

"Ferrari has attracted an investor base that is much more luxury-focused. This is, I think, a very clever thing that [former CEO Sergio] Marchionne understood when he planned the IPO [in 2015] ... recognizing that the company would attract different investors," Société Générale's Reitman said.

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Ferrari was blighted in 2020 by a seven-week shutdown that cut production volumes by 1,500 units but its strong order book bodes well for 2021 and cancellations have been fewer than expected. Units shipped reached a record 10,131 in 2019 and stood at 6,440 by the end of September 2020.

Noting the healthy demand for the next two years and a 2018-2022 product pipeline of 15 new models, UBS analyst Susy Tibaldi said the most important input of the incoming CEO will be observed further down the line.

"I think there is little scope for the incoming CEO to make change in the shorter term ... I think the big challenge will be driving the company after 2022," Tibaldi said. "Now they will need someone with a vision and not just for execution, because execution ends in two years. After that is what everybody is really wondering about."

Tibaldi noted that some investor doubts during Camilleri's stint over whether his prudence, which has served the company well, would equip him for other challenges that have crept up the agenda. One prevalent doubt is making a success of planned growth in perhaps the luxury segment's most coveted market, China, as well as the hot-button issue of how and when to risk making a battery-powered Ferrari.

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Electrical storm

The three analysts look favorably on Ferrari's plan to launch the Purosangue, or "thoroughbred," SUV model. Though its arrival has been delayed by two years until 2022, it will be a key product for growth in China. Inevitably, there are diehard fans who see its practical body style as a compromise too far for a Ferrari.

"This is a much-debated point. The world changes and if you don't change you can miss the train, as we say in Italy," said Bertuzzo. "I know a lot of purists don't love the Ferrari SUV but if the world loves SUVs, then why not? For sure, they will do something that will maintain the brand exclusivity."

As blasphemous as it might sound to some, analysts say there are buyers who want to drive a comfortable Ferrari that is well-suited to daily use.

"I think you will never make everybody happy," Tibaldi said, pointing to the success of Lamborghini's Urus SUV, which has boosted sales volumes without posing a threat to brand esteem. Motoring journalists have branded it a "mouth-watering" product with vision-blurring acceleration.

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When it comes to incorporating electrified powertrains, Ferrari also faces a challenge of little consequence to mass-market carmakers: How to maintain the distinct warbles and growls of its gasoline engines. This attribute alone is a big part of why customers part with so much cash to own one and why Ferrari engineers strive to ensure their exhausts hit the right note.

Camilleri in November said he doubted Ferrari would ever go 100% electric and probably not even 50% in his lifetime, but he noted that the company was working to develop appealing acoustics with Ferrari "DNA" for future electric powertrains.

As a low-volume manufacturer of often sparingly used cars, Ferrari has been able to negotiate more lenient emissions reduction targets in the EU and U.S. Its EU limit is 277g per km versus an average 95g for mass-market automakers. The target is periodically revised, increasing the pressure to hybridize or introduce battery-electric cars over time.

Ferrari's first test of the waters in electrification came in November with the launch of the plug-in hybrid SF-90 Stradale, which suffered delays due to COVID-19. While the company aims to reduce a roughly 18-month waiting list, patience is something long-standing Ferrari customers are no stranger to.

Camilleri said he was encouraged that approaching the Stradale's launch it was attracting a more youthful buyer, important to the company's long-term fortunes.

"In terms of its current order book, the new-to-Ferrari customers are the youngest across all the models that we offer. Whether or not this is related to the fact that this is our first range hybrid model remains to be determined, but it is certainly an exciting prospect," he said on an earnings call. The brand is also trying to increase its appeal to a female clientele with the new $230,000 Roma, a sleek but less aggressively styled model.

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Ferrari's new "entry level" sports car, the Roma, through which the company is trying to appeal more to female customers.
Source: Ferrari

Meanwhile, the company continues to tantalize buyers and fans alike with some very limited models within reach only of multimillionaires with a history of loyalty to the brand who, as Reitman said, are "invited" from within Ferrari's "tight-knit community" to purchase them. The latest are the Monza SP1 and SP2 at a reported $2 million apiece.

The rewards for the few Ferrari customers who receive such an invitation can extend far beyond bragging rights. Bertuzzo said the 399 Enzo models Ferrari sold new in 2003 for around €400,000 are currently fetching in excess of €2 million on the used market.

But there can also be downsides to belonging to such an exclusive club.

"If you cancel your order for a Ferrari, you may not get another one in your lifetime. You need to buy two or three then you can buy a more special one," Bertuzzo said. "It is a self-reinforcing environment. Their business model is very attractive in this sense."

"This just creates the buzz, and it creates the demand for the product," Reitman concurred. "They know exactly the psychology of their customers."