Wall Street doesn't understand Ferrari's business
- Morgan Stanley analyst Adam Jonas thinks Ferrari needs to go electric to survive.
- But selling cars to survive so it can sell more cars isn't what Ferrari is all about.
- Ferrari exists to build race cars first, road cars second.
Morgan Stanley auto analyst Adam Jonas is to be commended for pushing an investment thesis on the future of mobility so out-there that's it's difficult for the rest of Wall Street to keep up.
But sometimes Jonas pushes too far, as he did on Thursday in a research note about Ferrari and the prospects for the exotic Italian automaker switching from gas engines, with their succulent Ferrari scream, to all-electric powertrains.
Ferrari has consistently dodged the question of whether it will someday make an SUV, but as of late, CEO Sergio Marchionne has been toying with queries about whether Ferrari will develop hybrid engines beyond what it already does with its wildly expensive hypercars.
Jonas raises a thornier conundrum:
This is worth considering, if only as an object lesson in how investment-bank analysts have a confused understanding of why Ferrari even exists.
What Ferrari is really all about
It's understandable to see why some analysts are confused about how Ferrari's business works. Afterall, Ferrari has surged mightily since its 2015 IPO. The stock is up 111% over the past 12 months and demand for its road cars is what's propelling that story.
But Ferrari only sells cars to fund its racing program. That's the way it has always been, since Enzo Ferrari, a former race-car driver, decided to create something called the Scuderia Ferrari - a race-car-making shop. Racing is expensive, so Ferrari started building "normal" cars to fund the really passionate side of the organization.
I know that might sounds as if the Ferrari "client," as he or she is called, isn't the first thing on Ferrari's mind. But that's the reality - and the clients are happy to have it that way.
Fast forward to today and Ferrari's focus remains Formula One, the most prestigious competitive series in the world. Every single car Ferrari sells, from the entry level Portofino to the top-of-the-pile La Ferrari, supports the racing effort. In fact, you could argue that everybody who buys Ferrari stock also supports the racing effort.
And the racing effort is almost literally a top-secret black box about which investors know nothing. At the Ferrari factory in Maranello, Italy, there is a huge, windowless red chamber - OK, it's a red box - where the F1 technologies are developed. It's as good a symbol as I can think of for Ferrari's true mindset.
Racing is very much about sound for fans, and while there is an all-electric series, Formula E, you go to see Ferraris race to listen to the roar. When Ferrari made a big switch with its 488 supercar to a turbocharged V8 motor, the carmaker had to address in the first order whether the new machine would sound right.
Ferraris are fast enough
Jonas then makes a second classic error when looking at Ferrari, comparing it to the Tesla Model S in terms of acceleration.
"The Tesla Model S P100D accelerates from 0 to 60mph in 2.28 seconds per Motor Trend," he wrote. "By comparison, the $1.4 million LaFerrari accomplishes the same feat in 2.4 seconds. While acceleration isn't the only measure of a sports car's performance, it is a factor that matters to some people."
Actually, it matters not at all to Ferrari owners. Nobody who owns a Ferrari thinks it isn't fast enough. They don't care that there might be faster cars. The Ferrari is a Ferrari: gorgeous, ferocious, thrilling to drive.
Jonas thinks he's being stoutly contrarian in arguing that Ferrari must be seriously thinking about going electric, despite an all-electric future being pretty speculative at this point (hardly beside the point, with a $100 price target of Ferrari and an "Overweight" rating - the stock is now trading at $114 - Jonas appears to be building a bear case).
But the thing about Ferrari is that, as the poet wrote, nothing gold can stay. Ferrari is Ferrari because of racing, not because people need amazing red Italian sports cars to drive around in. Perhaps Ferrari will race electric cars one day. But I doubt it. And then we won't have Ferrari's anymore.
What Jonas and all of Wall Street fails to understand is that Ferrari is art, at many levels. And art doesn't care to survive just so investors can make money no matter what happens.
An all-electric world without Ferrari? It might sound shocking, but don't think that the carmaker will just do whatever it takes to stay alive. Sometimes the end comes, and you go out on top.