Ferrari Deep Dive

Welcome to the 65th Pari Passu newsletter.

Today, we are taking a drive through the strategy and performance of one of the world’s most exciting and renowned brands, Ferrari. We have structured this post in the following sections:

• Company History

• Portfolio Strategy - General Public & Clients

• Portfolio Composition - Cars & Lifestyle

• Development & Distribution

• Financial Information

• Risks

• Lessons

The metrics stated in this post come from Ferrari’s 2022 Annual Report unless otherwise noted.

Company History

Ferrari was founded in 1939 in Maranello, Italy by Enzo Ferrari, a former salesman, racer, and team manager for Alfa Romeo. Scuderia Ferrari, which Enzo created in 1929 under Alfa Romeo, is the oldest and the most successful Formula 1 racing team, and Enzo only started producing cars to finance his racing pursuits. He worked obsessively towards racing victory every day until he died in 1988, explicitly stating “I want to build a car that is faster than all of them, and then I want to die.”

Enzo was inspired to become a racer when he was ten years old. Unlike other automobile titans (e.g., Rolls-Royce, Porsche, Lamborghini), he had no engineering, business, or formal education of any kind. Following his discharge from the Italian Army in 1918 due to the Influenza Pandemic, his family’s carpentry business collapsed, and he attempted to work at Fiat - the premiere automobile company at the time - without avail. Enzo started as a test driver for Costruzioni Meccaniche Nazionali, a company that converted WWI trucks into passenger vehicles. He then joined Alfa Romeo as a racer in 1920.

Ferrari produced its current line of consumers cars beginning in 1947, following the end of WWII in 1945 and the establishment of the Italian Republic in 1946. From the initial models sold exclusively to kings and global CEOs, Ferrari has retained an intense tradition of exclusivity to date. In 2022, Ferrari made $5.6bn in revenue / $1.0bn in net income (18% margin) through the sale of just 13,000 cars. These cars range from $350,000 to $2mm+, and two-thirds of them are sold to clients who already own at least one Ferrari.

Similar to the flywheels of Amazon and TSMC, racing success generated short-term financial gains from prize money and initial deposits for new cars. Consistent racing success generated long-term financial gains through elevated demand for Ferraris, greater exclusivity of the Ferrari brand, and stronger Italian heritage. More capital allowed Enzo to attract and deploy the best talent and technology against his racing goals and continue to dominate. He never considered himself to be an engineer, driver, or designer, only an “agitator of men.”

Ferrari has primarily been owned by the Ferrari Family, Fiat (and Fiat Chrysler Automobiles by extension), and public investors. It had its IPO in 2015 (ticker: RACE) at a $9.8bn market capitalization ($52/share) when Fiat listed 10% of the company and distributed its remaining 80% to shareholders in 2016 (FCA investors received one Ferrari share for every 10 FCA shares they owned).

Today, there are four major shareholding entities:

1. Exor NV (24%): the holding company of Giovanni Agnelli (Fiat founder); Exor owns the plurality of Stellantis (14%), so the key individual shareholders have largely remained the same 

2. Piero Ferrari (10%): Enzo Ferrari’s only living son and the current Vice Chairman

3. BlackRock (6%)

4. T. Rowe Price (5%)

In addition to Piero Ferrari, John Elkann, the CEO of Exor, serves as Executive Chairman. Benedetto Vigna, a physicist and former semiconductor executive, serves as CEO. Other executives primarily come from automotive or luxury backgrounds. There are 5,000 employees, with 91% of them based in Italy.

Portfolio Strategy

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