Green Turismo

Image source: JL IMAGES, Johnnie Rik - Shutterstock

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.

Originally posted as part of the Finimize daily email.

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