Is Ferrari's New CEO Up to the Challenge?

MarketsMotley Fool

Ferrari (NYSE: RACE) will hold a Capital Markets Day briefing for investors and analysts on Tuesday. What should we expect?

In the past, Ferrari has used these events to preview its future products and give a road map of its plans to boost profits and reduce debt. This one might be a bit different, as it will be the first Capital Markets Day since the death of iconic CEO Sergio Marchionne. His successor, Louis Camilleri, has big shoes to fill; Marchionne was a master at presenting (and then largely delivering on) business plans that were ambitious, even audacious.

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Here's a preview of what we're likely to see -- and the questions that Camilleri will probably have to answer -- during the presentation on Tuesday.

Ferrari is running beautifully now, but challenges loom

As a business, Ferrari is in an interesting position. Like its cars at their best, it's running beautifully, with strong sales and spectacular profit margins. But as with real Ferrari engines, it wouldn't take much to throw things out of tune.

Ferrari is somewhat unique in that it has four separate groups of stakeholders: customers, racing fans, collectors of older Ferraris, and investors. All four are important to the success of the business in different ways:

  • Customers buy the new cars, including high-priced special models that boost margins. They also attend exclusive (and very profitable) events around the world.
  • Ferrari's legions of racing fans, the tifosi, help its Formula 1 racing team attract top-tier sponsors and drivers.
  • Collectors of classic Ferraris buy parts and services -- a growing and important business for the company -- and also attend factory-sponsored events. (They are often customers for new Ferraris, too.)
  • Last but not least, investors buy the stock.

Camilleri's challenge as CEO will be to address the needs and wants of all four groups, in a changing world that is posing challenges for Ferrari's iconic -- but thirsty -- gasoline engines.

Mass-market automakers are under pressure from new market entrants offering electric vehicles and (soon, perhaps) self-driving technology. Ferrari is feeling those pressures differently. It has so far resisted pressure to launch a fully electric vehicle, and it will probably continue to resist as long as it can. It is, however, increasingly clear that hybrid technology will be important to the company's future.

Self-driving technology probably won't be, as Ferraris aren't likely to be replaced by automated mobility pods. (In fact, in a world in which automated mobility pods are the default, the experience of driving a Ferrari may become even more coveted.) But Ferrari is, and always will be, under pressure to demonstrate that it has advanced technology -- albeit technology that enhances, rather than replaces, the human driving experience. It will have to continue to invest in software and technology in order to stay ahead of (or at least keep pace with) its racing and sports car rivals.

How will Camilleri, a well-regarded executive who spent most of his career in the tobacco business, confront those challenges?

Ferrari investors will want answers to these questions

The good news is that Marchionne probably had plans in place for the next few years, and they're probably the right plans: Camilleri's first priority will be to keep the engine running smoothly.

Those plans likely include a modest increase in Ferrari's sales volumes over the next several years, from 8,398 in 2017 to maybe 12,000 a few years from now. Ferrari has long capped its annual sales in order to preserve exclusivity, but Marchionne observed that rising demand in places like China should allow the company to increase global volumes incrementally without hurting its pricing power.

The plans also almost certainly include new high-end limited-run models. Ferrari's last such model, a supercar called the LaFerrari Aperta, was limited to just 210 units, available only to the company's best and most loyal customers -- for about $2.1 million each. It was the latest in a string of super-performing, super-limited Ferrari models going back to the 288 GTO in the early 1980s. All were sold with huge margins, all had long lines of willing buyers -- and all are now even-higher-priced collectors' items.

Will they include a rumored Ferrari SUV? Marchionne had mused over the possibility of building a Ferrari SUV, but it's not clear that the company would actually go there: There's an argument that an SUV would do serious damage to Ferrari's brand.

But that said, Ferrari went some distance toward an SUV with its current GTC4Lusso model, which features all-wheel-drive and a funky station-wagon-like shape -- and sales have been strong.

The GTC4Lusso has been very well received. Could Ferrari decide to go a step further and build an actual SUV? I expect Camilleri to answer that question definitively on Tuesday.

I also expect him to outline Ferrari's plans for incorporating hybrid technology into its lineup. The company has said in the past that it will continue to offer V12 engines indefinitely, but the engines may have to get smaller. That implies that they'd be less powerful, generally a no-no for Ferrari -- but hybrid technology might be employed to make up the performance difference, improving emissions and fuel economy without sacrificing the engines that make Ferraris, Ferraris.

The upshot: A big test for Ferrari's new CEO

For Camilleri, the pressure is on. Marchionne set aggressive targets for growth, and Ferrari's stock stumbled when Camilleri seemed to walk them back in one of his first statements as CEO, in early August.

Hopefully, that was a useful lesson for the new Ferrari CEO. Simply put, Camilleri now needs to show investors that he can set a convincing profit-growth path for Ferrari while keeping the company's other stakeholders happy. We'll find out on Tuesday whether he's up to the challenge.

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.