Ferrari’s Margins Are Expected to Expand in 2016 and 2017


Feb. 4 2016, Updated 11:06 a.m. ET

High margins

Ferrari (RACE) has a good reputation of having the highest profit margins in the auto industry. In 3Q15, it reported a gross margin of 48.5% against the industry’s median of ~ 20.5%. Ferrari also reported an EBITDA[1. Earnings before interest, tax, depreciation, and amortization] margin of 29.6% against the 24.2% seen in the corresponding quarter in the previous year.

The main reason behind this margin expansion was higher shipments of the company’s limited edition “LaFerrari.” This yielded high profit margins for the company than other companies. Now, let’s take a look at analysts’ estimates for Ferrari’s margins for the coming years.

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Analysts’ estimates

Analysts are estimating Ferrari’s net profit margins to expand in 2016 and 2017 to 10.9% and 12.2%, respectively. The market expects the company’s net profit margins to have expanded to 10.2% in the last year. Analysts are estimating the company’s EBITDA margins to expand to 27.1% and 28.3% in 2016 and 2017, respectively.

Ferrari’s exclusivity

As we noted earlier in this series, Ferrari follows a low volume strategy to maintain the exclusivity of its brand. This exclusivity enables the company to sell its cars with a premium that’s much higher than those of other automakers (XLY) like Volkswagen (VLKAY), General Motors (GM), and Ford Motor Company (F). The high premium that’s paid by customers is the key reason behind the company’s high margins.

Interestingly, the company intentionally maintains a long waiting list of buyers to make the car appealing to motorsport enthusiasts. Going forward, we may not see any major change in Ferrari’s exclusivity policy in 2016 and 2017.

With growing demand for luxury cars around the globe, we may also see a greater scarcity of Ferrari cars. This could further expand Ferrari’s profit margins, enabling the company to sell its cars with even higher premiums.

Ferrari has developed a special car model known as “FXX K” based on its limited edition car “LaFerrari.” The deliveries of the car model in 2016 may also help the company boost its margins further.


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