Aston Martin bucks the trend
By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets
Since its IPO in October 2018, Aston Martin has had a very difficult time. The stock is down over 85% since then. It is fair to say that the company has struggled to find its footing and the pandemic has made the situation even worse. Earlier this year Lawrence Stroll, the Canadian businessman and investor in the Formula 1 team Racing Point, led a £540 million rescue deal that resulted in him becoming the chairman.
The company is still struggling though; in October, it was forced to pay a 10.5% annual interest rate on $1.1 billion of new bonds, despite previously anticipating a 9% rate. These bonds are triple-C-rated, placing them in the lower end of the junk bond market. This money will be used to pay off part of the massive debt pile and the rest is to bolster the balance sheet.
To survive, the company needs a rethink; some observers believe that it is one misstep away from complete failure. To prevent this, Stroll has decided to focus on the brand recognition that Aston has, and has vowed to stick to the company’s British roots. He also came out recently and stated the company’s goal of continuing to produce combustion only cars beyond 2030 — the cut-off date put forward by the British government. These would be sold to the international market. In this regard, Stroll is choosing to make Aston an outlier as many large manufacturers have already committed to going fully electric almost as quickly as possible. Aston estimates that 5% of their car sales will still be combustion only by 2030, so Stroll is not staking the business on this bet.
The problem is that Aston has been slow to evolve. It does not currently produce any fully electric cars and has been effectively forced to partner with Mercedes to gain access to their hybrid and electric technology. This has cost Aston a 20% equity stake.
This week, a report — sponsored by Aston and other manufacturers — into the real environmental impact of electric vehicles has also caused a stir. The situation has been dubbed "Astongate", as the company allegedly wrote the report themselves with the other co-sponsors to try and dissuade the government from its ban of combustion car sales in 2030.
All this boils down to one fact: Aston is still not moving forward. While Stroll’s commitment to combustion engines and car purists is noble, it is probably not in the best interest of the company. Its entry into Formula 1 next year was also a high cost for Stroll's investment. Aston Martin needs to adopt a forward-thinking policy and focus on electric vehicles. It is far behind its luxury competitors and looking to the past is not the way forward. As a British icon, everyone wants Aston Martin to thrive, but I for one do not think that this new strategy is the way forward, though I would be pleased if Stroll and Aston proved me wrong.
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