Market Reaction - Aston Martin

Aston Martin saw a dramatic drop in share price by as much as 28% this morning. This was on the back of an update stating the following:

Aston Martin Lagonda Global Holdings PLC 

Publish Date: Tuesday 

Time Period: 2024 Outlook 

- The carmaker cut wholesale volume guidance by 1,000 units due to supply chain disruptions and continued macroeconomic challenges in China.

- Aston Martin expects 2024 adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) to be slightly below the GBP305.9 million achieved in 2023.

- The company no longer expects to be free cash flow positive for the second half of 2024.

- The projected adjusted EBITDA margin for 2024 has been lowered to the high teens, down from the previous forecast of the low 20s. This compares with an 18.7% margin in 2023.

- Wholesale volumes for 2024 are expected to decline by a high single-digit percentage from 2023’s 6,620 units, whereas Aston Martin previously anticipated high single-digit growth.

- For Q3 2024, wholesale volumes and adjusted EBITDA will be below current market expectations.

- Aston Martin attributed these challenges to external factors, such as global supply chain disruptions and weak demand in China, which have impacted production and delayed vehicle deliveries.

- The company stated it is strategically realigning planned volumes to match its demand-led strategy and commitment to quality, addressing supply chain challenges while recognizing China's long-term market potential.

- Executive Chair Lawrence Stroll reaffirmed his commitment to the company, emphasizing the long-term nature of the turnaround plan initiated in 2020.

- New CEO Adrian Hallmark, formerly of Bentley, expressed confidence in Aston Martin’s growth potential and supported the decision to adjust production plans for 2024 due to supply issues and the macroeconomic environment in China.

- Hallmark acknowledged that near-perfect execution was required to meet the 2024 plan but emphasized the need for decisive action to balance production efficiency and delivery schedules moving forward.

- Aston Martin's Q3 results will be announced on October 30.

Company RNS: https://otp.tools.investis.com/clients/uk/astonmartin/rns/regulatory-story.aspx?cid=2424&newsid=1869755

I already had a negative outlook on Aston Martin and was considering a short sell on the stock.

Management attributed the cut in wholesale volume guidance by 1,000 units to global supply issues and weak demand in China. They anticipate 2024 volumes to be below the 2023 figure of 6,620 units. However, the luxury car maker faces even larger challenges.

Their volumes don’t need to be higher, but dramatically higher than they currently are. Even if their free marketing visibility expands dramatically, driven by the affiliated F1 team’s success, brand visibility isn’t the issue. They don’t have enough variety in their car lineup, and they’re unlikely to reach demand levels three times or greater than current figures.

Realistically, the company probably needs stronger ties with a major manufacturer to share technology for producing luxury vehicles, or it needs to broaden its appeal to a wider audience.

I don’t expect this to be an easy path for the company. Brand exposure isn’t its weakness; it's the lack of appeal to a broad enough audience at these price points. Additionally, the company lacks sufficient margin.

I plan to short sell the company in the future, but after such a significant share price drop within a day, I think it’s best to wait for the price to stabilize.