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Aston Martin Shares Down 10% This Week, 5% Today – Here’s Why

Tim Worstall
Tim Worstall trader
Updated 18 Jan 2022

Key points:

  • Worries about the China market have hit Aston Martin stock this past couple of days
  • That Chinese economy is slowing and constitutes the second largest market for Aston
  • It’s also the new DBX which is the core of Aston’s offerings in China
  • How to Buy Aston Martin Shares

Aston Martin Lagonda Global Holdings PLC (LON: AML) shares have had a rough ride since their flotation a couple of years back. There’s been at least one recapitalisation and dilution and there’s a certain morbid fascination with the core car business. The current company, Aston Martin, has not gone bust but that core car business has either six or seven times over the years. This means that what would in other companies be considered mild issues can have significant share price effects. For example, when Aston’s FD leaves.

This current fall in the Aston share price of 10% from its most recent high, the 5% or so today, this isn’t stemming from any news from inside the company itself. Rather, it’s worries over the Chinese economy that are hitting Aston’s stock.

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Recent operating results did not make the market happy about Aston’s performance. Delays on delivery of the Valkyrie hypercar may well be just timing issues, the entire production run having been sold. It’s still not a good look.

The thing is though that Aston Martin’s finances are deeply tied up with the success or not of the DBX, the new SUV model. This, in turn, appears to be tied up with the Chinese market. This is the second biggest market segment for Aston after all, after North America. And it’s the DBX which is the big issue in that Chinese market.

At which point, well, what’s happening with that Chinese market? We’ve two major issues here of macroeconomic importance – note that macroeconomics does not directly impact the microeconomic decision of which car to buy. But still, a recession in China would not be good for DBX sales.

That first issue is the property market. Vast portions of Chinese household wealth are tied up in property itself and wealth management products used by property firms to finance developments. Any crash in this market is going to impact household finances significantly. And we do indeed seem to be seeing significant problems in that market – Evergrande and missing bond payments is only the tip of that iceberg.

The second is covid and omicron. China has largely avoided significant covid infection by being extremely tough on lockdowns. This leaves the population-wide open to the much more infectious omicron variant and it’s not obvious that any form of lockdown will be able to stop it. It might be that China is about to have that sweeping pandemic other places have already had.

There’s no certainty to either of those macroeconomic problems, no certainty either way. But the manner that Aston Martin’s fiscal future is so intimately tied up with DBX sales in China is making people nervous. Aston Martin has slightly fragile cashflow projections, it really doesn’t need a slump for its new product in its second-largest geographical market.

This all could be just concern, it could be the start of a significant market reaction. We should probably expect Aston Martin shares to be volatile as this is all worked through.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.