Aston Martin Lagonda Global Holdings (LON: AML) is not a company that has gone bust or bankrupt. But the business within it, what we might call Aston Martin, has a number of times. The history is sufficiently tangled that major newspapers differ about how many times – the Telegraph says “an extraordinary six bankruptcies during its lifetime” and The Times “Aston Martin has gone bust seven times.” If such sources cannot even agree on how many bankruptcies there have been then we can’t even know whether another would be the seventh or eighth.
The basic problem is that the development of a new model of car requires vast amounts of capital. This then, requires significant sales to be able to amortise such capital expenditure across sales – or, each vehicle must be vastly expensive so as to recoup that capital that way. Trying to remain independent while also doing this – especially when trying to operate at the edge of the technological envelope, as a supercar manufacturer must – is a significantly difficult undertaking.
This is made worse when development of a proprietary internal combustion engine is attempted. This being something that Aston Martin has sensibly stopped doing with the Mercedes tie-up. It’s also true that electric motors are very much simpler to develop than the iron and piston kind so the costs of development of their EV range will be lower than if they were attempting to do it all again with new ICEs.
Immediately there’s the fall out from the chief financial officer, Kenneth Gregor, announcing that he is leaving (“for personal reasons” of course) and rumours – denied – that the chief exec will be replaced. There’s also the rather embarrassing delay in delivery of the Valkyrie, the £2.5 million supercar. In terms of cashflow, that will be just a timing issue as all are still sold, even if not delivered.
The problem we’ve all got with Aston Martin is that we’ve simply not got that many examples of companies being able to exploit this space as independents. Near everyone else has ended up inside a larger group which can support the capital spend while using the marque as marketing shine for the rest of the ranges.
True, Laurence Stoll came on board and refinanced but that finance is expensive: “borrowing at a rate of 10.5 percent on more than $1 billion of bonds” according to The Times. That’s expensive money. While it is claimed that that will fund Aston Martin “forever” that’s vastly too expensive to do that. A reasonable bet is that there will be an equity refinancing at some point to replace that with cheaper money and that’s the best likely forecast.
The next crucial information point is the annual results in February. We should also be looking out for sales numbers on the DBX, the SUV recently launched. “The key thing for Aston Martin is how the DBX performs in the marketplace and the volumes.”
It is, about and maybe, possible that Aston Martin will be able to trade out of this, reliant upon those DBX revenues. It’s also possible that near success there would provide the support for further equity fundraising. But betting against a seventh – or would it be eighth? – financial failure of the Aston Martin brand as an independent financial entity needs to be considered.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.