Aston Martin shares have plummeted by 20%, hitting a two-year low. The drastic drop comes on the heels of a profit warning issued due to supply chain disruptions and production cuts.
These challenges have forced the luxury carmaker to revise its 2024 production targets, creating a significant impact on its financial outlook.
Stock Plunge Amid Supply Chain Troubles
Aston Martin’s shares saw a dramatic fall of 20%, marking a two-year low at 127½p. This steep decline came after the company revealed that supply chain disruptions had severely impacted the production of four newly upgraded models. The car manufacturer missed its annual targets, primarily due to these disruptions.
In response to these challenges, Aston Martin announced a strategic adjustment to its 2024 production volumes. The company will reduce its output to 6,000 cars, a 14% cut from the previous guidance of 7,000 cars. The reduction aims to stabilise production in forthcoming quarters, despite the company admitting it will not be cash flow positive in the second half of 2024 as initially forecasted.
Management’s Decisive Actions
Aston Martin’s new CEO, who joined the firm from Bentley, stressed the need for decisive actions to adjust the production volumes for 2024. He cited a combination of supplier disruption and weak macroeconomic conditions in China as critical factors necessitating this adjustment. “It has become clear that we need to take decisive action to adjust our production volumes,” he stated.
The company’s operations have been notably affected by the insolvencies of key German suppliers, including Recaro and Eissmann. These suppliers were responsible for providing essential components like seats and dashboards, which significantly hampered production capabilities.
Impact on Luxury Models and Sales
Sales of the Aston Martin DBX 4×4, one of the company’s most popular models, have also been sluggish in China. This decline in sales has exacerbated the company’s production woes.
Despite these setbacks, the firm’s billionaire chairman remains hopeful, reiterating his long-term commitment to the company’s turnaround plan. He expressed confidence that the company would achieve its 2025 targets of £2 billion in sales and £500 million in underlying operating profits (EBITDA).
However, analysts remain cautious. Goldman Sachs forecasts a 5% decline in revenues for 2024, down to £1.54 billion, with EBITDA expected to drop nearly 2% to £269 million. Additionally, bottom-line losses are predicted to rise by 25%, nearing a total of £300 million.
Analyst Perspectives
Barclays analyst Henning Cosman has been sceptical of Aston Martin’s profitability projections for some time. He described the latest profit warning as “disappointing” and indicative of the company’s struggle to meet its ambitious 2024 goals.
Cosman’s remarks reflect a broader sentiment among analysts that Aston Martin’s latest setbacks underscore the broader challenges the luxury carmaker faces in a turbulent market.
Future Outlook
Despite current difficulties, Aston Martin projects a stronger performance in 2025. The company is banking on a favourable market environment and improved supply chain conditions to achieve its targets.
Goldman Sachs aligns with this optimistic outlook to some extent, forecasting revenues of £2.07 billion and an EBITDA of £540 million for 2025. The bank also predicts a modest pre-tax profit of £20 million, signalling a potential recovery.
The company’s third-quarter results, expected on October 30, will provide more insight into its performance trajectory. These results will coincide with the UK government’s autumn budget announcement, adding another layer of complexity to the company’s financial landscape.
Chairman’s Optimism and Long-term Commitment
Lawrence Stroll, Aston Martin’s billionaire chairman, saved the company from financial ruin nearly five years ago. His commitment to the firm’s long-term strategy remains unwavering.
Stroll remains confident that Aston Martin will meet its 2025 targets, despite the hurdles. He believes the company’s plans will lead to sustained growth and profitability, provided they can navigate the current supply chain and economic challenges.
The recent slump in Aston Martin’s shares highlights the pressing issues the company faces, from disrupted supply chains to weakened market conditions in China.
While ambitious plans are set for 2025, the road to recovery hinges on overcoming these substantial obstacles.
