What's going on?
Goldman Sachs changed its recommendation on Ferrari’s stock from a buy to a sell on Monday, and the Italian car company’s eco-friendly ambitions might be the reason it runs out of juice.
What does this mean?
Ferrari’s negotiating a new stretch of track at the moment: the legendarily gas-guzzling auto giant recently announced the development of its first-ever all-electric vehicle (EV) and appointed a new, tech-savvy CEO. But according to Goldman Sachs, this shift in focus could be costly for investors in the short term.
The investment bank agrees a push toward EVs is important for Ferrari’s future, but it reckons the costs involved – an extra $50 million a year of spending between now and 2030 – will put a significant dent in the company’s profitability. In a rare reversal of fortunes, that prompted Goldman to downgrade its recommendation for Ferrari’s shares straight to a sell.
Why should I care?
The bigger picture: Ferrari isn’t alone.
The EV transition has made carmakers some of the highest-spending companies out there right now: they’ve collectively spent more on research and development over the last decade than they’ve made in profit, according to Bloomberg. And all that new tech won’t necessarily pay off: Jaguar Land Rover-owner Tata Motors, for example, recently wrote off over $1 billion worth of previous research spending.
For markets: Beware electric shocks.
The combined global market value of carmakers’ stocks doubled to more than $2 trillion in 2020, despite a stall in overall car sales. But investment firm Research Affiliates thinks shareholders are deluding themselves: almost all automakers’ stock prices have benefited from exciting EV developments, even though many are direct competitors. That means some of them are bound to lose out. Investors got a sharp reminder of that on Monday: electric truck maker Lordstown Motor’s shares slumped after its top two executives resigned, days after the firm warned it was on the verge of running out of cash.