Potholes ahead for Aston Martin

Convertible top down. Hair blowing in the wind. Pedal to the metal. That scenario applies both to a Sunday drive and the vertiginous ending of the 1991 movie Thelma & Louise.

The career of an Aston Martin Lagonda is beginning to resemble the latter. Shares fell more than 3% on Tuesday after the Financial Times reported rising short positions. They have lost three-quarters of their value since October’s stock market flotation.

As faith in the UK luxury carmaker’s growth plan dwindles, attention is focusing on its financial solidity. Aston Martin’s capital expenditure is expected to exceed £300m annually for the next few years. Net debt at June was already three times forward earnings before interest, taxes, depreciation and amortisation (ebitda). Rising bond shorts anticipate growing strains.

In July Moody’s Investors Service noted an unexpected half-year cash outflow of more than £17m due to rising inventories in preparation for higher sales in the second half. The ratings agency downgraded the junk bonds of the group one notch. If another cash outflow occurs in the second half, the market’s doubts about Aston Martin’s future will harden.

At the current pace of cash burn the carmaker ostensibly has enough to last well into 2021. By then its big hope, a new sports utility vehicle called the DBX, will have launched. This £150,000 SUV is expected around April 2020. Supply-chain problems following a no-deal Brexit could spoil that. A bottleneck late in 2018 forced Aston Martin to draw down its bank credit line. That has not all been paid back. Indeed, by June it was almost fully used up, highlighting cash flow pressures.

Aston Martin still has gas in its tank and a highway ahead. But its options, like the heroines of Thelma & Louise, are increasingly narrow. London, August 13 /The Financial Times 2019