ASTON MARTIN STARES INTO ABYSS
This time there is a plan. But will time and money hold while it pans out?
SPECULATION HAS been rife about Aston Martin’s financial health. Like its most famous customer in Goldfinger, the laser is heading straight for Aston’s ’s nether regions and CEO Andy Palmer will need to do something smart – and soon – to switch it off.
When it floated a year ago on the London Stock Exchange, Aston was valued at £4.3bn ($A8bn), and returned d £1.1bn to its Italian and Kuwaiti privateequity owners. That valuation was based on the glorious future envisioned d in Palmer’s ‘Second Century’ plan, in which SUVS, sedans and EVS double Aston’s volumes to 14,000 cars by 2023, , finally giving it the scale and stability it has always lacked. That plan is still on track, just about. The trouble is that old d Aston is getting in the way. The share price had been on the slide for a while, but the announcement in late July of an £80m loss in the first half, slumping sales in the UK and Europe and sharp downward revision to estimated full- year sales caused the stock to plummet, leaving Aston worth just a quarter
of what it was a year ago. The share price slump reflects investors’ concern that Aston might break before it can get to Andy’s promised land, its cash burnt up by the toxic combination of turbulent current trading and the cost of developing those new models. It simply needs more money. The proceeds of the IPO didn’t go into the business but straight back to the investors and the execs, including Palmer. They won’t want to dilute their holdings now by raising the required cash with new equity issue at rock-bottom prices. Aston will probably have to borrow the money, but it will be expensive to finance and will add to its debt pile.
So Aston is in a tight, but by no means inescapable, spot. The leading auto analyst Max Warburton has examined Aston’s accounts and in a private note to investors says that he believes the company will find the funding to make it through to 2021, by when DBX production should have ramped up and added around 4000 units to Aston’s sales. The firm will also need to cut costs sharply, possibly slowing or even pausing development of the mid-engined Vanquish and Valhalla, and, after the DBX launch, revising its growth plans downwards accordingly.
The $4.5m Valkyrie is pretty much done, and despite its low volumes will make a useful contribution to Aston’s coffers once it starts selling at the end of the year. But Warburton warns that there’ll be no wriggle room in Aston’s escape plan: Valkyrie and DBX will both need to arrive on time.
Even if Aston can get DBX and Valkyrie on sale on time, its future is by no means guaranteed. The company is busy completing its new factory at the former RAF base at St Athan in Wales, where Palmer will attempt something few car company bosses would have the stomach for: building two entirely new types of car, in a new factory with a new workforce. Usually it’s one or the other: new car in an existing factory, or vice versa. But the scale and pace of Palmer’s expansion plan forces him to do both, so St Athan will build both the DBX and Aston’s future electric vehicles. The main risk is to quality, and that risk is all the greater when you’re a luxury car maker with a reputation for hand-tooled opulence but occasional mechanical and electrical woes.
There’s also no guarantee that the DBX will reach and maintain the sales Palmer needs, and the concern is that the new SUV might not generate the cash on which the latter stages of Palmer’s plan rely. Aston has been bankrupt seven times in its long history. Everyone watching is hoping that, like paper, it won’t fold eight times.
There’s no wriggle room. Even if Aston can get DBX and Valkyrie on sale on time, its future is by no means guaranteed