Will Aston Martin ever make it out of the slow lane?
Aston Martin’s latest attempts to convince markets it is a shrewd investment have all but screeched to a halt.
The marque on Monday issued a profit warning, downgrading guidance for the year ahead and slashing its car production target by around 1,000.
The response from investors was resounding. Shares fell nearly 25 per cent by early afternoon as it became clear that prior promises of a production ramp up in the second half were unlikely to be fulfilled.
The lack of faith from markets is unsurprising given Aston Martin’s disastrous spell as a public company over the last six years.
The FTSE 250 supercar maker has struggled to whittle down a large debt pile since it IPO’d in 2018, despite renewed investment from prominent backers, including the Chinese car giant Geely and the Canadian billionaire Lawrence Stroll.
Production issues repeatedly seem to emerge at critical moments. Last November, problems emerged during the hotly-anticipated roll out of its new DB12 model, weighing on shares for the rest of the year.
Monday’s profit morning means both wholesale production volumes and adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) will come in below market expectations this year.
Gross margins are also expected to be “modestly below” 40 per cent, down from a prior target of circa 40 per cent.
It comes after the Gaydon-based group posted half-year losses of more than £200m in July, compared with £142.2m the year prior.
Aston Martin justified the slowdown with claims production would ramp-up significantly later in the year following the roll-out of a number of new models. But this now looks unlikely, due to supply chain disruption and a slowdown in the Chinese economy, which has hit demand.
“Just 11 weeks after posting its first half results the company is forced to downgrade guidance – perhaps most significantly, the company no longer expects to post positive free cash flow for the second half of the year,” Russ Mould, investment director at AJ Bell, said.
“While the company’s statement looks to paint this as ‘strategically’ realigning planned volumes, in truth the company is a victim of weak Chinese demand and supply chain issues.”
He added: “The acknowledgement from recently appointed CEO Adrian Hallmark that ‘near perfect execution’ was required to meet the plan for 2024 suggests a failure on the part of the previous management in managing market expectations.
Investors in Aston Martin can take solace in the fact its update was not as bleak as rival Stellantis, which also issued a profit warning on Monday.
However, it puts a stellar share price revival, which saw the firm top the FTSE 250 in the first half of 2023, firmly in the rearview mirror.
“Next year’s guidance remains unchanged for now, but the valuation’s likely to come under further pressure until it can prove that the demand outlook remains on track,” Aaron Chiekrie, equity analyst at Hargreaves Lansdown, said.