Horse trading

You may not be able to afford a Ferrari, but soon you will be able to buy a share of the company

FAMED Italian supercar builder Ferrari is expected to make its initial public offering (IPO) on the New York Stock Exchange before the end of 2015.

The offer price will dictate how much the IPO will generate for its parent Fiat Chrysler, and whether you should buy the shares. And it depends on what kind of business the market thinks Ferrari is.

So, what is Ferrari?

Fans want to believe that it’s still primarily a sports car producer and an F1 team. But is it? Until now, Ferrari only revealed headline revenue and profit figures, so outsiders had little insight into how much its road car, racing and merchandising activities make. A more detailed picture of Ferrari’s financials have come to light as part of the protracted IPO process.

Last year, Ferrari posted a record profit of $589m overall on revenue of $3.7 billion. Deliveries increased four percent to 7255 cars, yet, thanks to the high-priced LaFerrari, revenue increased by 18 percent.

Since 2005, turnover and profitability have doubled. Over the same period, Ferrari has opened a global chain of Ferrari stores and even a theme park in Abu Dhabi, leading some to speculate that Ferrari-branded gear is now as important to its finances as cars.

Sergio Marchionne, chairman of Ferrari and CEO of Fiat Chrysler, has stoked that speculation, telling analysts: “I actually think the cars are almost incidental to Ferrari. I know this sounds sacrilegious given what we produce, but it is truly a luxury brand.”

Marchionne’s comments were intended to encourage investors to put a higher value on Ferrari, generating more cash for its debtladen parent. Luxury goods brands trade at higher earnings multiples than carmakers.

The more pessimistic analysts value Ferrari at around $6b.

Positioning it as a luxury goods maker, and assuming strong growth, Marchionne claims Ferrari could be worth as much as $13.9b.

In a series of reports, investment advisor Bernstein Research, led by renowned car industry analyst Max Warburton, has investigated Ferrari’s finances. Using more detailed accounts filed with Italian authorities, data from related fields including F1, and interviews with rivals and former employees, Bernstein X-rayed Ferrari’s business for the first time.

The result is an estimate of the firm’s finances. It is also a compelling picture of how one of the world’s most successful and most opaque brands works. And it’s clear that whatever else Ferrari is, it’s a veritable money machine.

Wheels’ Ben Oliver contributed to the report, and here presents its most interesting findings.

Ferrari is still a carmaker

THE report estimates that more than 80 percent of Ferrari’s revenues and 90 percent of its profits still come from road cars.

Among premium carmakers, only Porsche is as consistently profitable as the Prancing Horse.

No other car company has Ferrari’s combination of sky-high average price point (global average about $330,000) and volume, which

has in recent years been capped at about 7000 per annum.

Ferrari has driven its prices up without losing customers, and invented new ways for them to spend more money, such as its bespoke service, and low-volume, high-priced special editions like the F60 America.

Of the standard range, the 458 has been Ferrari’s cash cow, contributing $1.2b in revenue, compared to the F12’s $450m and the California’s $350m.

The California – Ferrari’s entrylevel model – is considered a disappointment, having sold poorly and not attracted enough new buyers to the brand.

Each 458 cost Ferrari just $86,000 in materials, meaning it repaid its $400-500m development budget within a year. The new 488 GTB, based on the 458, is sure to be equally profitable.

Ferrari breaks even on F1

THE F1 division probably broke even last year, but is likely to have been loss-making most years.

Revenue came from sponsors (around $300m) and from Ferrari’s share of F1’s rights revenues ($230m), and accounts for about 14 percent of total revenue.

A more aggressive, cost-focused, publically listed Ferrari will probably try to make its F1 operations consistently profitable.

Without Ferrari, F1 would be a much duller contest, and it may use this influence to further increase its already disproportionate share of revenue.

Merchandising is very profitable, but small

THE income Ferrari generates from everything other than its road car and F1 operations only accounts for about four percent of total revenues, or $140m.

These other activities are hugely profitable, with a margin of around 50 percent, because Ferrari either simply licences its name (as for that theme park) or sells Ferraribranded products from suppliers at high margins.

But, although it is profitable, the merchandising business is thought to be struggling to grow.

Ferrari stores have been closed. The audience for Ferrari-branded items may be limited. While the prancing horse looks evocative and exciting on the nose of a road or race car, on a baby suit it risks looking tacky and exploitative.

Ferrari will break its selfimposed 7000-car limit

SPEAKING to investors last year after controversially deposing the long-serving Luca di Montezemolo – initiator and firm defender of the 7000-unit cap – Marchionne made his $13.9b valuation estimation. He based this on sales of 10,000 cars generating profits of $1.5b, with a luxury-goods sector valuation of 9 to 12 times profit.

Ferrari has quietly nudged past its self-imposed cap in the


Enzo Ferrari born in Modena. Forms Scuderia Ferrari racing team in 1929, also in Modena. He didn’t like to travel


Establishes Ferrari S.p.A at the premises it still occupies on Via Abetone in nearby Maranello, having reluctantly decided to sell road cars his racing team ded ars to fund cing


First victory in the Le Mans 24 Hour, with a 166M driven by Luigi Chinetti, who later moved to New York and became Ferrari’s Ferrari s influential US agent


First Ferrari F1 win, at the British Grand Prix at Silverstone with Argentine driver Jose Froilan Gonzalez (aka The Pampas Bull’ The Fat One’) Gon ‘or ‘T


Ferrari scores its first F1 World Championship for Drivers, with Alberto Ascari, who repeats the feat again the following year


Ferrari initiates its first production line, with the capacity to build an average of one car per day

Since 2005, Ferrari has opened a global chain of Ferrari stores and even a theme park in Abu Dhabi


University of Bologna awards Enzo an honorary degree in engineering; henceforth he prefers to be called Ingegnere Ferrari, dismissing the title Commendatore


Enzo lures Ford into takeover talks, but walks away from the deal at an advanced stage, infuriating Henry Ford II, who vowed revenge at Le Mans, his GT40 ending Ferrari’s domination of the race


Enzo sells 40 percent share to Fiat, with the option of a further 49 percent on his death; secretly gives 10 percent to illegitimate son Piero (now company vice-chairman)


Staff and production both top 1000. Eight years later, roadcar production exceeds 2000 for the first time and it doubles again in another decade


Enzo dies, six months after celebrating his 90th birthday. The last car created in his lifetime is the F40, one of the greatest Ferraris ever built


Fiat appoints Luca di Montezemolo as president with brief to rebuild F1 team and road car range


F355 launch sparks a 21-year run of form in road cars.

Setting an agenda of demand always exceeding supply, di Montezemolo estimates market potential for 400 F50s, so pegs production at 399 tential oduction


Michael Schumacher joins from Benetton, sparking a revival in the F1 team’s fortunes, resulting in six consecutive constructor titles (1999-2004) and five driver titles (2000-2004)


Production returns to 4000 for the first time since the early 1990s recession (sales had dropped to 2345 in 1993)


Montezemolo declares Ferrari will build no more than 7000 cars a year: “I want Ferrari to remain exclusive.

A Ferrari is like a beautiful woman, she must be worth waiting for” b s


At the Paris Motor Show, Marchionne disrespects Montezemolo during his last media conference.

Check it out: au/news/1410/ open-hostility-atferrari/


Debt-laden parent company FCA (the merged Fiat and Chrysler) announces that Ferrari will be floated. Reports suggest that more than the 10 percent suggested by FCA may be offered past without harming exclusivity.

However, 10,000 will be Ferrari’s absolute upper limit for the next few years. A deal struck with the EPA in the US – Ferrari’s biggest market, accounting for 30 percent of sales – exempts it from meeting fuel economy and greenhouse gas regulations as long as sales remain below this level.

Ferrari needs a new model

THE global market for super-luxury cars is expected to grow 11 percent this year, but almost all the growth will be in saloons and SUVs. The market for two-seat sports cars is limited, especially in China.

Other super-luxury makers have found huge growth in China, but it accounts for just eight percent of Ferrari’s sales (compared with Bentley’s 24 percent).

An SUV has been considered and would have been hugely popular in China, but was rejected as too damaging to the brand.

“Marchionne wanted to build a truck, but I talked him out of it,” di Montezemolo said at the press conference announcing his departure as chairman.

Instead, there is likely to be a new entry-level, turbocharged, mid-engined V6 sports car that will share its platform with the car that replaces the 488 GTB.

Growing pains

ADDING those 3000 sales may not be easy as McLaren, Mercedes and other rivals expand their offerings in a limited market.

Di Montezemolo, head of Ferrari for 23 years, was forced out in part for opposing the lifting of the 7000-car cap. Under his leadership, Ferrari’s road cars had a strong run of form. He was a talismanic leader and will be impossible to replace.

Ferrari CEO Amedeo Felisa, who actually ran the business for Luca, turns 69 this year and is due to retire soon, with no obvious replacement. Long-serving technical director Roberto Fedeli has already left for BMW.

Insiders say di Montezemolo ran Ferrari as his personal fiefdom, with little regard for cost.

Shareholders are likely to demand more discipline, but that may affect the appeal of the cars.

The switch to turbocharging demanded by global emissions regulations may also affect its appeal; although Ferrari has produced great turbo cars in the past, it is more closely associated with screaming atmo engines than its rivals. The turbocharged California T won a muted reaction; the appeal of the turbocharged 488 GTB will be critical.

So should you buy Ferrari shares?

DEPENDS how it’s valued. According to Max Warburton: “Ferrari looks like it should be valued at no more than $5.7b. So $8b would be generous. $15b would be wild.”


BETWEEN Ferrari’s production car sales and its merchandising activities nestles two lucrative vehicle-related revenue streams.

Ferrari Classiche was founded in 2006 to maintain the originality of classic Ferraris. Inspection, then restoration or remedial work, generates an invaluable certificate of conformity, rubber-stamped by a committee chaired by vice-president Piero Ferrari. Based in Enzo’s old foundry building, restoration works employ original blueprints and even the same tooling used in period.

Then there are the commissioned one-offs and ultra-low volume models like the recent Pininfarina Sergio delivered to the SBH Royal Auto Gallery in the UAE, and Eric Clapton’s SP12 EC (below), a 458 Italia-based homage to the 512 BB. The Sultan of Brunei was once a regular customer, his collection featuring convertible, wagon and sedan 456s, a 512 TR Spider and oddities like the Mythos and F90.