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  • On May 4th, 2020 something wild happens to automotive stocks.

  • The market value of Italian supercar maker Ferrari soared to 30 billion

  • dollars above those of all three major U.S.

  • automakers, General Motors, Ford and Fiat Chrysler, which was once

  • Ferrari's parent company compared with those three giants.

  • Ferrari is a tiny carmaker.

  • It has long been known for limiting production and makes just about 10000

  • units per year. Compare that with General Motors, which sold nearly eight

  • million cars, trucks and SUV cars in twenty nineteen.

  • While Ferrari is a small company.

  • It is a huge name.

  • One of the most famous and admired in the automotive world.

  • In late May, a 2003 Ferrari Enzo fetched two point six million dollars on

  • an online auction, making it the most valuable car sold in a dedicated

  • online only. Collector car auction to date.

  • We live in a world that's only more and more noisy all the time.

  • I like to say there are more and more things going on there.

  • More and more items competing for your attention.

  • And in a world like that, if you've got a brand that can stand out, a

  • brand that is universally recognized and can kind of step through and rise

  • above that noise, you've got a very valuable brand.

  • And Ferrari in the automotive world would be a perfect example of one of

  • those brands. Perhaps aside from competitor Lamborghini, Ferrari is the

  • name that has given Italy its reputation for producing some of the

  • fastest, sleekest and most eye-catching cars on the planet.

  • That reputation is so strong.

  • Ferrari bets it can carry its world class name far beyond automotive

  • production and sell other goods to the legions of admirers unable to

  • afford a six or seven figure sports car.

  • This gamble, however, is by no means a safe one.

  • Stamping the Ferrari name on fashion, merchandise and even theme parks

  • risks diluting the brand, especially if the famous pony emblem ends up on

  • some less than premium products.

  • The company has acknowledged this.

  • Ferrari has also stumbled in Formula One, the global racing class where

  • elite carmakers battle each other for worldwide recognition.

  • Ferrari did not respond to a request in time for the story over the long

  • term. The car market, really the idea of transportation itself, stands to

  • undergo tremendous changes that could even affect demand for exotic sports

  • cars. As we move into a world where we're getting increasingly electrified

  • and potentially shifting away from vehicle ownership towards shared

  • mobility. Is there still a place for a brand like Ferrari in the twenty

  • 40s and the twenty 50s?

  • Ferrari takes its name from founder Enzo Ferrari, an Italian racecar driver

  • who had been racing Alfa Romeo cars since 1924.

  • In 1929, Ferrari founded his own racing team, Scuderia Ferrari, which

  • exists to this day based in Modena, Italy.

  • Scuderi, a Ferrari, was at first a team centred on racing Alfa Romeos.

  • But about a decade later, Enzo set up a manufacturer called out to

  • Orville, construed Cioni and moved his headquarters from Modena to the

  • city of Maranello, which would become Ferrari's legendary home.

  • Thereafter, Ferrari was a car company that wanted to race, and Enzo Ferrari

  • realized he had to sell a few cars to regular consumers so he could fund

  • his racing program. That was literally the mantra and the vibe that

  • started Ferrari.

  • That was what the owner wanted to achieve.

  • Ferrari commissioned the engineer Dwar Keno Colombo, to build him a totally

  • new car in 1945.

  • Ferrari's first racing car was the one twenty five s made in nineteen

  • forty seven. It came with a 12 cylinder engine, something frequently seen

  • on Ferrari's. Later, a street vehicle called the 166 Integra came.

  • A year later, Ferrari started competing in Formula One, the elite global

  • racing series in 1950 and won its first world title two years later.

  • Racing has always been at the heart of the Ferrari brand Scuderia.

  • Ferrari is the oldest Formula One team and has also participated in famous

  • races such as the endurance races at Le Monde, France and Daytona,

  • Florida, continuously.

  • It's the only brand that has been continuously part of Formula One racing

  • from 1950 onwards when a world championship was established.

  • And they've also been involved in a lot of other motor sports.

  • Unlike other brands, they've always tried to keep it relatively pure heel

  • sports and grand touring cars.

  • Being a small manufacturer of highly specialized cars is never an easy path

  • to travel. Many such automakers have either formed partnerships with

  • larger companies or been acquired entirely.

  • Ferrari was no different.

  • The Italian automaker Fiat took a 50 percent stake in the company in 1969

  • and increased its stake to 90 percent in 1988.

  • Enzo Ferrari son Pietro owned the other 10 percent.

  • And in 2016, Fiat, which had since become Fiat Chrysler, spun Ferrari out

  • into a separate, publicly traded company, trading under the ticker symbol

  • race. Ferrari is obviously best known for its cars.

  • But the company has expanded the reach of the Ferrari brand beyond these

  • small, rarefied world of racing fans and lovers of supercars.

  • The late Sergio Marchione, the larger than life CEO of Fiat Chrysler, who

  • also served as Ferrari's chairman and CEO until his death in 2018, had

  • said in 2014 that he thought Ferrari had a future that went far beyond

  • driving. I actually think cars are almost incidental to Ferrari, Marchione

  • said prior to the company's initial public offering.

  • It sounds sacrilegious, but it is truly a luxury brand up to its IPO.

  • Marchione maintained Ferrari was worth at least 10 billion euros, around

  • 11 billion dollars, according to May 2020 exchange rates.

  • Some analysts thought that number sounded a bit high, with at least one

  • valuing the company at roughly half that.

  • But if market capitalization is any indicator, the company is worth about

  • three times that just a few years later.

  • Its revenues have not tripled in that time.

  • Rather, the company and investors have been betting that brand recognition

  • is an underexploited asset.

  • At Ferrari, the Ferrari name and the famous yellow and black prancing horse

  • logo are recognized the world over brand finance, a firm that measures the

  • impact of various brands, considers Ferrari to be the most powerful brand

  • in the world. Its fame either rivals or exceeds that of not only other

  • global luxury symbols such as Rolex and Air May, but also the brand power

  • of massive information technology and entertainment names such as Disney

  • and Google and even purveyors of seemingly ubiquitous products such as

  • Coca-Cola. This is especially striking when one considers Ferrari sells

  • about 10000 cars per year.

  • When Coca-Cola says it hands out one point nine billion servings of one of

  • its drinks every day.

  • They've been quite cautious about what they're doing, but the kind of

  • primary. Primary thing that they've been really focused on is making sure

  • that their models are really strong and they maintain their reputation

  • for just for excellence in motor cars while not devaluing or

  • reducing the strength of that brand.

  • So Ferrari is looking for new ways to leverage that brand power.

  • The company said it plans for branded goods to contribute 10 percent of

  • earnings before interest and tax within the next decade.

  • This includes merchandise such as clothing, coffee mugs and watches.

  • The company operates its own stores and sells goods online through the

  • years. Ferrari has stamped its logo on an array of products, including

  • some very offbeat ones like Acer, laptop computers and mahjong sets.

  • There is also a Ferrari world theme park in Abu Dhabi, complete with

  • roller coasters. But there is definitely an opportunity to make a lot of

  • money from their brand. I mean, if if it's closely connected to their

  • brand and their experience, like in the case of the theme park, then

  • that's probably good, because you can you can maintain the connection and

  • the maintain sort of how the brand is perceived and seen to customers.

  • And you have quite a lot of control over that.

  • Of course, there are risks to this.

  • The company acknowledged in filings that its attempts to reach more

  • customers through merchandising could lead to some missteps.

  • Branding is a tricky business.

  • Part of what gives Ferrari its brand identity is exclusivity.

  • The ten thousand one hundred thirty one cars it sold in twenty nineteen

  • came after the company decided to lift its once strict production limit of

  • 7000 cars per year.

  • Waiting lists for Ferrari cars can be long.

  • Buyers can wait four to five years for delivery of most customized

  • Ferraris. The company is also known for being very picky about who it will

  • even sell some of its limited edition vehicles to.

  • Late racing legend and devoted Ferrari collector Preston Henn, who passed

  • away in 2017.

  • Had sued Ferrari, alleging that the company refused to sell him a Ferrari.

  • Appeared to Hend had gone to great lengths to get the car.

  • Even Mei-Ling million dollar check to Sergio Marchione.

  • The check was returned.

  • Hend slapped Ferrari with a defamation suit, which he later dropped.

  • Then he bought an accurate NSX, a supercar from Honda's premium brand,

  • which he said was better than a Ferrari.

  • Anyway, the company has at times seemed even aggressive in controlling

  • what its cars are associated with.

  • In twenty nineteen, German fashion designer Philip Plein reportedly

  • received a letter from lawyers representing the automaker complaining

  • about pictures on his Instagram account.

  • The lawyers considered persay distasteful, including pictures of shoes on

  • the car and other photos.

  • The letter said, tarnished the brand's image.

  • The letter demanded Plein remove the pictures within 48 hours.

  • The pictures and the image of the letter, which Flynn also posted, were

  • later removed. It remains to be seen whether the company will be able to

  • police the use of Ferrari baseball caps and key chains.

  • But these efforts can fit Ferrari's Lux brand image in twenty nineteen.

  • It formed a partnership with high end Italian clothier Giorgio Armani.

  • For example. The company has cut back on its number of licensing

  • partnerships and reduced the number of licensed products.

  • When you start merchandising into lots of different product categories

  • about which you don't really know the details about how you don't know how

  • to maintain quality, it starts to get more difficult.

  • Which is why I think they they have reduced the number of agreements that

  • they've they've got in terms of licensing by 50 percent and they've

  • reduced the number of categories by 30 percent.

  • Apart from preserving its exclusive brand image, the automaker takes

  • seriously the need to prove its engineering prowess and capability on the

  • racetrack. Scuderia Ferrari has a remarkably successful overall record in

  • Formula One. But Ferrari noted in its 20 19 annual report that the team

  • had struggled that year.

  • Sponsorship brings in about 14 percent of Ferrari's net revenue, but its

  • reputation as a winner on the track is difficult to put a price on speed,

  • as at the very heart of Ferrari's identity.

  • One of its most famous vehicles is referred to as the super fast.

  • Racing is also very important for Ferrari research and development.

  • Many of the innovations that begin life on the track eventually make their

  • way into Ferrari's street vehicles.

  • And unlike a lot of other brands that have had that, you know, that race on

  • Sunday, sell on Monday kind of philosophy, you know, with Ferrari, there's

  • actually been a lot of technology that has filtered down from the race

  • cars into the production cars, you know, when they first went from manual

  • transmissions to semi automatic transmissions.

  • That was technology that they took directly from their Formula One race

  • cars. Ferrari has said it intends to take steps to win on the track again,

  • and despite its branding and merchandising efforts, it remains focused on

  • building cars. Ferrari unveiled a record five models in 2019.

  • Among these. The company introduced its first production plug in hybrid.

  • You know, the Ferrari history is still what's most fascinating to me and

  • the history that that that brand stands for and the things that

  • accomplished. And, you know, you can't live in the past forever.

  • So Ferrari, of course, has to look forward to can't just always look back.

  • Electrification is a trend.

  • Many in the automotive industry are at least ambivalent about an often

  • divided among themselves over on the one hand.

  • Many see it as an inevitable and welcome development that reduces

  • pollution while delivering in many ways comparable or even superior

  • performance. But part of owning a supercar, say some, is the experience of

  • driving one. And the distinctive engine note produced by high end engines

  • is part of that experience.

  • Some also argue that cars stand to lose some of their distinctive

  • performance characteristics.

  • There are tremendous differences in performance among various types of

  • engines. But some argue electric motors are vulnerable to commodification.

  • Well, I mean, one of their most distinctive things is that the kind of

  • ruler of the engine, the engine is what's driving that brand.

  • At the time. But really, when you're really producing 10000 cores and it's

  • pretty likely that some people are going to be able to drive petrol cores

  • probably forever, you know, maybe you don't need to move into those

  • different areas. However, going after high end customers was precisely how

  • Tesla built its reputation.

  • Whereas previous attempts at electric and hybrid vehicles stressed their

  • eco friendliness, Tesla's roadster and later Model S and X models

  • emphasized luxury and lightning fast acceleration.

  • When Tesla debuted its Model S performance sedan in 2016, CEO Elon Musk

  • boasted there were only a few other cars that could beat the Model S S's

  • zero to 60 time of 2.5 seconds.

  • One was the Porsche 918 Spyder and the other was, well, the Ferrari le

  • Ferrari. Ferrari is also working on a sport utility vehicle codenamed the

  • Puto Gay literally pureblood or thoroughbred.

  • The coronavirus pandemic's stands to severely threaten the automotive

  • market around the world. But the high end market is, for better or worse,

  • just not the same as the rest of the market.

  • Investors appear to be betting that companies like Ferrari, which cater

  • exclusively to the wealthy, might be a bit better protected from an

  • economic downturn, always produce at least one fewer vehicle than there is

  • demand. Making sure that they're not overproducing matching production to

  • demand so that they can keep their prices up so they don't have to cut

  • their prices. They don't have to put incentives on their vehicles and

  • managing that so that they and managing their costs at the same time to

  • maintain their margins.

  • Ferrari's margins don't hurt either.

  • Some analysts indicate Ferrari makes an average of about 80 thousand

  • dollars of profit on each car it sells based on the