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The ongoing pro-democracy protests in Hong Kong have ravaged the region and are threatening the safety and livelihood of residents — and businesses.
(Bloomberg Opinion) -- The mood music in the car sector is pretty melancholy right now because of Donald Trump’s trade wars and rising technology costs. But Ferrari NV is dancing to a different tune, thanks to its wealthy customers.Revenues rose 9% in the third quarter of 2019 and operating profit jumped 12% year-on-year, the Italian manufacturer reported Monday.Ferrari’s patrons are still ordering new cars despite worries that a recession might be around the corner; many are happy to pay a premium to personalize their vehicle. Ferrari was confident enough to raise its cash flow and profit guidance for 2019. On both metrics it should accomplish this year what it had planned to achieve in 2020. It even announced a more convincing strategy to extend its brand beyond cars, an area where it’s fallen short.The Italian company is making this look easy, but lifting sales while preserving exclusivity is a difficult balancing act in the luxury autos business; just look at the struggles of Aston Martin Lagonda Global Holdings Plc. That company’s shares have dropped 66% this year while Ferrari’s have gained 77%, valuing the prancing horse at more than 28 billion euros ($31 billion). That’s more than its former parent Fiat Chrysler Automobiles NV, which sells as many cars in a day as Ferrari does in a year. Investors would now have to fork out about 41 times estimated earnings to buy Ferrari stock, approaching the exalted 45 times multiple of handbag maker Hermes International. German premium carmaker BMW AG trades on less than 9 times earnings. While this is the very definition of a luxury problem for Ferrari, it still leaves very little room for error.When Ferrari listed its shares in 2015, it implored investors not to think of it as a regular carmaker but rather as a luxury goods company like Hermes. Much of that sales pitch made sense: Ferrari can charge plenty for its cars because customers expect them to hold their value or even increase. Its 25% operating profit margin is much higher than that of other carmakers and should be more resilient. There are waiting lists for some models. Unlike much of the industry, Ferrari sales held up in the last recession.Even so, it has to spend heavily on factory equipment and technology development (including for its struggling Formula 1 racing team). That will always be an impediment to matching Hermes’ operating profit margins, which exceed 35%.The biggest beef with Ferrari’s luxury company aspirations was that its non-car branded products, many produced under licensing agreements, weren’t appealing. What’s the point of a $100 Ferrari polo shirt or $250 wristwatch? Not so long ago you could even buy a Ferrari surfboard. While Ferrari dithered over how to improve things, the brand suffered.On Monday, the company sketched out a plan to slim down its clothing and accessories lines and move them upmarket with the assistance of Giorgio Armani SpA. Meanwhile, it will open driving simulation centers and expand in e-sports to get young customers excited about the brand. Within a decade it hopes these products and services will contribute about 10% of operating profit. That’s still far from certain — brand diversification is notoriously difficult — but the success of the core business leaves room for maneuver.Unlike peers such as Rolls-Royce Motor Cars and Volkswagen AG’s Lamborghini, Ferrari isn’t yet selling high-margin sports utility vehicles. The Italian carmaker’s Purosangue isn’t slated to arrive for a couple more years.But judging by Ferrari’s profit and loss statement, its refreshed product line, including the single-seat Monza SP1 and 812 Superfast, is delivering. Upcoming hybrid models such as the 1,000-horsepower SF90 Stradale supercar should increase confidence that Ferrari has the technical know-how for tougher emissions regulations.Still, it’s surprising that the carmaker seems in no hurry to build a fully electric car. Some caution is natural: An electric Ferrari won’t have the famous engine growl and some Ferrari purists are skeptical, management said on Monday’s investor call. Yet Porsche’s electric Taycan shows sportscar brands can deliver the same excitement with a much smaller carbon footprint. Ferrari proved skeptics wrong once before. It can do so again. To contact the author of this story: Chris Bryant at email@example.comTo contact the editor responsible for this story: James Boxell at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg Opinion) -- At various times during his 14-year tenure as chief executive officer of Fiat Chrysler Automobiles NV, the late Sergio Marchionne held takeover talks with Volkswagen AG.The news that VW is considering a stock-market listing of its Lamborghini supercar division suggests Marchionne continues to influence the German carmaking giant. By spinning off high-value operations such as trucks and sports cars, VW’s boss Herbert Diess would be imitating his Italian peer’s successful approach to creating shareholder value. But Diess is struggling to be as daring, which will make it harder to achieve his goals.When Marchionne took the helm at Italy’s Fiat SpA in 2004, its market capitalization was a pitiful 5.3 billion euros ($5.9 billion). During his reign, he merged Fiat with America’s Chrysler and spun off Ferrari NV and Fiat’s trucks and agriculture machinery business (CNH) into separate companies. When he died last year, the combined equity value of Ferrari, Fiat Chrysler and CNH Industrial NV was 57 billion euros. His successor then completed the 6.2 billion-euro sale of the Magneti Marelli SpA auto parts division.Diess wants VW to hit a market value of 200 billion euros — up from 80 billion euros now, Bloomberg News reported as it broke the news about Lamborghini, adding that a sale of the brand is also under consideration. (VW says there are “no plans for a sale or public offering of Lamborghini”). Including all of Volkswagen’s 12 brands, its financial services arm and its Chinese joint ventures, the company’s sum-of-the-parts valuation could top 215 billion euros, Bloomberg Intelligence analyst Michael Dean estimated in August.In an attempt to realize that value, Diess has started off by following the Marchionne playbook. Fiat began by spinning off CNH in 2012. Diess also kicked off with a June listing of VW’s trucks arm, Traton SE.Marchionne followed the CNH divestment with the listing of Ferrari in 2016, and now it looks like Diess’s next step might be his own supercar brand. A sale of Volkswagen’s industrial machinery operations Renk AG and MAN Energy Solutions, which is being considered, would be akin to the Magneti Marelli sale. Analysts have even speculated that VW’s alliance with Ford Motor Co. could evolve into a merger, similar to the Fiat-Chrysler deal.Yet there’s a difference between the boldness of the two companies. Fiat spun out CNH by distributing the stock to existing shareholders, and it did the same with what was left of Ferrari’s equity after selling 20% of the company in an initial public offering in New York. Volkswagen, by contrast, sold just 11.5% of Traton to new investors in an IPO and then kept the rest of the stock for itself. In fairness, Diess has to manage a difficult set of stakeholders. The Porsche-Piech family controls VW, while the German state of Lower Saxony has 20% of the voting shares. He also has employee representatives on the board. The Agnelli family, which controls Fiat, backed Marchionne’s ambitions — and became significantly wealthier.Because of its arcane multiple voting-class structure, most Volkswagen shareholders have no say in the running of the company. That might explain why Diess opted for an IPO of Traton rather than a spin-off: Replicating the current VW voting arrangements in a new company wouldn’t have been attractive for new investors. But the listing was so small as not to give new investors any real say in the company’s running anyway. If the Porsche-Piech dynasty really want Diess to increase their riches, they should encourage offerings that unpick some of their own control.To contact the author of this story: Alex Webb at email@example.comTo contact the editor responsible for this story: James Boxell at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.