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EV race

2 Aug 2021 By Lisa Jucca

Ferrari’s incoming chief executive has just been handed a challenge by the European Commission. Last month Brussels proposed banning the internal combustion engine from new cars starting in 2035, part of its broader “Fit for 55” plan to cut greenhouse gas emissions. That’s likely to force Benedetto Vigna to speed up the $42 billion sports-car maker’s plans to shift to battery power when he joins next month from STMicroelectronics.

Brussels’ new push sounds ominous for the high-performance engines that power beloved models built by Ferrari, Lamborghini and Maserati. Without substantial and rapid technological innovation in green fuels, electric vehicles look like the only option to meet the European Union’s ambition.

Ferrari, which on Monday reported net earnings of 206 million euros in the three months to June, makes some 10,000 vehicles each year, selling nearly half of them in Europe. It has yet to unveil a fully electric car, though the Italian carmaker, 23%-controlled by the Agnelli dynasty’s investment vehicle Exor, is not starting from scratch. It stepped up investments in 2018, earmarking 3.6 billion euros over five years for hybridisation and product expansion. It successfully launched its first plug-in hybrid last year, the SF90 Stradale, a 430,000 euro supercar that can run about 25 kilometres on a battery charge. Its first all-electric model is due in 2025.

In April Goldman Sachs analysts argued that Ferrari may need to speed up the process, estimating a capital expenditure increase to around 800 million euros a year until 2030. That’s roughly 15% more than the average of 700 million euros spent in each of the past three years.

If that’s all that’s needed, it would shave perhaps 1 percentage point off its expected 26% EBIT margin in 2023, Breakingviews calculates. That’s hardly ideal for a company that would prefer to close the gap with luxury king Hermès International’s 36% margin. But it’s manageable, and Ferrari might be able to pass on additional costs to its rich clients.

But the transition to electric vehicles may well not come that cheaply, especially with the EU’s updated goals. The more investment is required, the more deft driving will be required from Vigna to keep its margins, and its market value, free of dents.

 

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