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Friday, March 31, 2023


Ferrari Named Top Car Pick Over Tesla At Morgan Stanley

Could the automobile love affair at Morgan Stanley be shifting?

Analyst Adam Jonas, long known for his affection of Tesla and Elon Musk, has penned a note to start this week introducing Ferrari as a top pick by the firm, which has raised its price target on the company to $310 from $280.

Jonas has an overweight rating on the name and called the company “the most defensive name in his coverage” that avoids much of the “EV hype and EV risk”, according to a Monday morning Bloomberg wrap-up.

“We believe RACE is the best positioned company in our coverage in a highly uncertain macroeconomic and geopolitical tape. In addition to its strong fundamentals, we believe RACE has levers to pull for both growth or downside protection, within a wide dispersion of macro outcomes,” Jonas and peers wrote in their note.

“Ferrari has built its moat on scarcity, desirability, and brand values around performance (“driving thrills”) and luxury which is the key driver for continued demand. These factors make it hard for a competitor to replicate the Ferrari model overnight. In our view, buying a Ferrari today is not so much about ‘the sound of the engine’ or the ‘performance’ in and of itself,” it continues.

“Rather, we think it is a totality of factors that drive customers to want the elements that a Ferrari possesses: scarcity, desirability, connotations of luxury and performance (stemming from Formula 1 racing pedigree),and exquisite Italian design and engineering. The brand and scarcity drive unprecedented demand for the vehicles, which Ferrari is able to leverage with tight supply control.”

Jonas also likes that Ferrari has the longest order backlog, greatest earnings visibility and highest pricing power of any of the companies he covers, the Bloomberg note also said. 

Long-term opportunities, a predictable business model and a “near unmatched brand and market moat” were cited as additional factors for the believe in Ferrari. 

Jonas wrote: “We believe investors over-estimate the risk of EVs to Ferrari and misprice the inherent opportunity in EVs coupled with continuing the ICE business on an exclusive basis with price points for ICE approaching $1mn/unit.” 

“The key concern we field from investors on RACE is the shift to EVs. Although the shift away from the ICE engine which has been at the heart of RACE’s brand since inception presents a profound shift in Ferrari’s powertrain technology, it need not threaten the company’s DNA. We believe the engine is only part of the reason why Ferrari has been able to create one the strongest brands in the world,” it reads. 

The firm also didn’t seem to see risks of Ferrari shifting their model to EV from traditional ICE, concluding that Ferrari “can offer an EV that will be just as high in demand as what investors are used to from ICE.”

Broadly, however, Jonas is getting more cautious about the sector in general, citing the “rebound in equity prices and continuing signs of unaffordability and auto credit pressure”.

This post was originally published on this site

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