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luxury cars are a bit of an oxymoron cars are Commodities that lose value the second they roll out of the dealership and the more they get driven the faster the depreciation the broader automotive industry is highly mature with some of the lowest projected future growth out of any sector yet the number of cars on the road continue to grow year after year and consumers have become pragmatic gas has gone up year after year to record highs financing and insurance have steadily risen regardless of make and model and the price of a new car has grown at a much faster Pace than household income on top of it all having more cars on the road means worse congestions in cities and the type of
car you drive really doesn't matter when everyone is stuck in bumper-to-bumper traffic luxury cars like Lamborghini and Ferrari are a rare site and for good reason their base models are priced between 5 to 10 times that of a standard sedan or SUV owning an exotic car is deeply impractical and has been for Generations these cars are made for performance and not fuel economy their aerodynamic bodies mean eye-catching Aesthetics but come at the trade-off of limited visibility low clearance and scrapes anytime they go over a speed bump or driveway the aggressive design and tight Interiors translate to Tiny storage with trunks that are even smaller than that of a Prius or Mini
Cooper drivers feel every bump riding on tight suspensions and stiff seats which are great on racetracks but terrible on public roads ironically these engines are wasted in civilian use where speed limits and traffic prevent these cars from ever achieving the performance that make them so special in the first place yet these vehicles have become the ultimate status symbol for generation of artists athletes International students businesses and Cloud Chasers and that exclusivity is as much a liability as it is a foundation to their appeal beyond the dramatic upfront price there's greater costs after purchase like insurance and maintenance parts are fancy but limited bespoke yet fragile
and service can only be performed by a few select shops meaning that even routine oil changes tire rotations and basic repairs that would cost tens or hundreds of dollars for a regular car instead cost thousands of dollars in months to complete with Exotics as a result these cars must be babied and can notot be daily drivers there's only so many people in the world with the pockets and lifestyle to afford and work around these impracticalities this Rarity is why heads will always turn whenever Lambo or Ferrari rolls down the street this goes back to the same conundrum there's only so many people that can afford these cars and even then those people aren't buying a new Ferrari
every year it's a departure from the Auto industry where manufacturers are always competing to deliver the most cars when we look at the volume between bests Sellers and Exotics the difference is in orders of magnitude when segmented by Revenue that difference is also in orders of magnitude how can these exotic manufacturers sustain such tiny volumes how can they all survive fighting over the same tiny pool of high net worth individuals and in this modern era of Eves and pragmatism how are these Brands adapting and which ones are struggling in this episode we're diving into the economics of luxury cars through the lens of Ferrari Lamborghini McLaren Porsche Aston Martin Bentley and
Maserati when we segment manufacturers by the number of cars they deliver we get an overview into the big players and where they rank relative to the competition when we repeat this exercise by the Exotic manufacturers we can get a landscape of where everyone fits but the picture isn't very clear Lamborghini and Bugatti are bundled together with Audi so it's impossible to know the true financial performance of each of these luxury Brands when we take the Standalone manufacturers and map their top line over the past decade we can see the es and flows Ferrari is thriving Maserati is regressing Bentley and Aston Martin are chugging along and McLaren is struggling yet Adit all these Brands the
Undisputed King is Porsche whose delivery volumes surpass its Rivals naturally their top line also sits heads and shoulders above their crowd Porsche's Flagship product is the iconic 911 which built its reputation through a streak of competitive wins in the 70s as much as people love the 911 for its performance and style there wasn't enough demand at the top of the market for this one model to sustain the company the Precision that had made Porsche successful on the racetrack was an actuality of financial liability at scale as every new model the company introduced had it own components when new variants of the 911s failed to sell cost balloon cash ran low and Porsche found itself on the brink of bankruptcy
in the '90s since the 911 was entrenched as Best in Class the only way to restore sales and to grow was to diversify and to go down Market the Germans found their solution in the late '90s with a boxer and Cayman which reused parts and were priced 20 to $30,000 cheaper than the 911s these cars quickly became a meaningful supplement to revenue in some years even outselling the 911 entirely the success of these midmarket vehicles established a blueprint and strategy that Porsche has stuck with to present day in the 9s consumers began to favor SUVs they offered more space versatility power Comfort safety and style over conventional sedans and minivans the only downside was their fuel economy
auto manufacturers also began to lean into SUVs as they could charge higher prices and net greater profits selling these bigger taller heavier cars that didn't cost that much more to make seeing the rapid growth of the Toyota RAF 4 and Ford Explorers Porsche launched its own SUV in the early 2000s like the boxer and Cayman before it was strategically priced slightly above established SUVs the Cayenne was a massive hit and has remained Porsche's bestseller for the past two decades there are more cayen sold every year than all of the 911s boxers Cayman and panamas added together but then as gas prices have begun to go up fuel economy became top of mine and the Prius became the car of choice in the late 2000s the
Germans responded again to this Market change by launching a hybrid option in 2011 exclusively for the Cayenne to continue pushing SUV sales and margin then in 2013 they launched the McAn a smaller cheaper SUV to make Porsche ownership even more accessible to the average consumer mancans and cayen together make up over 50% of Porsche's annual sales volume every year Porsche strategy is built on lading where there are multiple entry points and all roads lead to the 911 if you want the fastest loudest Porsche with all its impracticalities then that's the 911 if you're in the middle of the market then there's the cayen an and McAn and if you want electric there's the tyan which is
priced on par with the 911 there's a strategic hierarchy in that the 911 is always positioned at the top in pricing and performance with upgrade paths for every life stage by Design the highest tier Cayenne will always be cheaper than a mid-tier 911 and Porsche owners with entry-level machans are prodded to never stop dreaming about one day upgrading to a 911 Revenue has grown by 4.8 billion to 37 billion over the past two decades Porsche's operating profit margins sit in the High Teens well ahead of mainstream car makers like Toyota Ford and Tesla but Porsche ultimately did not accomplish all of this independently as sales and profits grew through the 2000s so did their Ambitions contrary to
popular belief car makers for the most part only design and assemble their cars the vast majority of components are outsourced to smaller specialized third parties and this is a consistent practice in the industry across all brands to reduce costs back in the 2000s Porsche was only manufacturing about 20% in the engines and Transmissions while the rest of all the parts were outsourced to Volkswagen critical parts of the cayenne and Panamera were made in Volkswagen factories across Central Europe and Porsche wanted guaranteed access and prioritization at those facilities so as Volkswagen struggled and Porsche ascended Porsche's leaders began aggressively buying up shares and
options in Volkswagen with the goal of acquiring the company outright Volkswagen shares ballooned upon news of the potential takeover and Porsche's options on paper were worth far more than the vehicles it had ever sold yet yet everything crashed in 2008 the banks that Porsche was relying on to fund its purchase of Volkswagen stopped lending they demanded repayment of their existing loans and the call options that were once worth billions of Euros became worthless as Volkswagen shares crashed in the Great Recession the deal even became a political spectacle as Volkswagen is significant not just to Germany's exports and Manufacturing but also the country's Workforce and unions after two tumultuous years the two
companies settled for a merger with Volkswagen becoming the parent Volkswagen at this point not only owned Porsche in its portfolio but also Audi Bentley and even Lamborghini the net result was the same Porsche was now tied even deeper into Volkswagen where instead of just making parts for one other cars across multiple Brands could now be built on the same vehicle architecture for better margins lower costs and faster time to market the now bestselling mcken was the result of all this consolidation as it was built on the same platform as Audi's Q5 SUV and its A4 and A5 sedans which had hit the market 5 years prior later generations of the Cayenne were naturally shifted onto the same car platform of Audi's
higher-end SUVs and with the shift from gas to electric the tyan was built on the same platform as the Audi rron GT and a new platform is currently underway to enable not just fully electric mechan and cayan but also fully electric Audi SUVs operational consolidation has been how Porsche has adapted to Market changes while maintaining its margins R&D is led by multiple brands at Volkswagen and the winning technology is distributed amongst everyone else but while operational consolidation is a lift for everyone the size of the impact is not the same the challenge with luxury car manufacturing is brand encumbrance while there is objective value in the performance there's little to be found in practicality all the value is in The Branding luxury cars
whether it's Lamborghini or Porsche or Ferrari ultimately derive their value from branding which they've each painstakingly built up year after year for nearly a century without the logos they're just fast cool cars and since their Prestige is rooted so deep in history these manufacturers are handicapped in Innovation and creativity by existing customer expectations the future of cars will never be defined by a luxury car manufacturer who competes on branding Aesthetics and perception rather than Merit this is a flaw of the broader automative space where it's clear that the future is in electricity and not gas and it's most apparent in motorcycles which is what Damon a fast
growing startup that's been praised by Forbes and wired is aiming to disrupt and this episode sponsor the motorcycle industry led by iconic names like Harley-Davidson Honda Suzuki and Ducati have largely followed traditional designs and customer expectations while these brands have set the standard for decades Damon is pioneering the next evolution by prioritizing Innovation over tradition there's been little innovation in motorcycles in the past several decades manufacturers have stagnated keeping to the same design and expectations of the past 100 years a Harley-Davidson has to look like a Harley-Davidson and it would be Unthinkable for them to produce an electric model no one has ever attempted to redefine motorcycles as a vehicle
class Damon is creating an all electric modern new generation of motorbikes that compete on Merit rather than brand their ambition is to make motorcycles accessible to all with an award-winning patented exoskeleton drivetrain an onboard camera and radar powered threat assessment system that communicates Collision warnings through haptic vibration and a two- mode adjustable ergonomic system which allows Riders to achieve both performance and comfort without compromise electric two- wheel vehicles have become more popular and Damon motorbikes have caught the attention of not just the usual hardcore motorcyclists but also casual consumers looking to upgrade beyond their gas-
powerered scooters and mopeds and with direct to Consumer sales rather than the traditional dealership model Damon is committed to building and supporting a tech driven all El electric sustainable future of Mobility making Cutting Edge safety and performance accessible to a broader audience if you'd like to support Damon you can learn more about their company product Innovation and potential at damon.com and Damon is one of the newest listed companies on the NASDAQ Stock Exchange thank you to Damon for pioneering the future of motorcycles sponsoring modern NBA and making this episode possible Volkswagen also owns Lamborghini and everything about the lambo is Extreme from its design to
pricing unlike Porsche there's no lading system the prosperity of Porsche enables Volkswagen to maintain Lamborghini at the tip of the market without having pressure to go downwards only a few thousand Lambos are sold every year and there's less than a handful of models for consumers to choose from but because volumes are so low Volkswagen initially deemed it too risky for Lambo to do its own thing to control boss and to reduce risks Lamborghini launched the Gallardo in 2003 using the same shared platform as the Audi R8 it was no coincidence that both of these cars shared over 70% of the same internals from the engine to the chassis despite their differing price points only once sales grew did
Volkswagen allow greater investment while still controlling for risk as the later Huracan remained on the same shared platform whereas the Aventador was fully inhouse still delivery volumes did not meaningfully grow until 2017 when they released their own SU vs which has since outsold every other model to date however the Lamborghini SUV is positioned as utility for the top of the market rather than a mid-market play that the cayenne and McAn are for Porsche despite volume improvements Lamborghini isn't a meaningful contributor in profits or income Volkswagen continues to blend its financials alongside Audi's and from the volume basis the Lamborghini accounts for less than 1% of all cars sold from
that segment while Lamborghini was regarded internally by Volkswagen as too edgy the Germans had high hopes for the Bentley is distinct from the stereotypical exotic car where Comfort is the leading differentiator over performance at the top of the market there's a lot of competition clustered around speed but less on opulence Volkswagen treated Bentley as a promising growth brand as its volumes and growth were stronger compared to Lamborghini Bentley stuck to its own architecture on top of all its fancy hand craftsmanship from the early 2000s into the mid-20s which kept their margins low despite their strength and volume like Lambo and Porsche before Volkswagen's bet was at an SUV would help Drive sales even though the Benta
was priced at the top of the market overall Revenue like volume continued to flip-flop every year in 2022 Volkswagen folded Bentley in with Lamborghini and Audi into one division conceding that Bentley is just too Niche to be a growth brand when we look at Maserati we can see a similar picture Maserati is owned by the auto giant stantis who owns Fiat Chrysler Dodge Jeep and RAM it was no secret then that Maserati engines were made by Ferrari and stellantis believed that they could jump start volume with midmarket options by the mid-2010s Maserati had pushed the gibl sedan and its SUV at a $65,000 MSRP as the go-to budget Italian alternative to the german-made cayenne panamas mancans and
Audi's Maserati volume skyrocketed year after year Maserati broke the billion Euro Mark and the brand boasted triple digit growth rates for a time yet once the honeymoon ended and the initial leases expired many owners were not willing to renew or reup with Maserati After experiencing the depre ation and maintenance problems firsthand Beyond build quality there was simply not enough dealerships and shops to service so many Maseratis delivery volume has since declined from that Peak and continues to drop year after year while the newer improved models has stemmed the Topline bleeding into a decent Baseline the operating margins of Maserati ultimately over time look less and less like a luxury brand and more
like a mainstream car manufacturer stellantis has since put Maserati on the market in the hopes that some other Auto giant will see promise in buying the Trident if you're an exotic car maker who only wants big money you need volume which ultimately means going down market and you need to do it without diluting your own brand all of which is easier said than done being owned by a mainstream Auto giant guarantees your survival as an exotic car maker having a parent company provides you a Lifeline in funding R&D subsidies and a buffer against these Downstream pressures but that doesn't necessarily translate to Prosperity even after sharing platforms and components the margins can still be
thin thus life is actually much harder for the Exotic Car manufact facturers Who Remain independent Aston Martin was famous on the big screen with 00 7 and through the 2000s was under the ownership of Ford yet when the Auto industry crashed in the Great Recession Ford was pressured under the terms of the bailout to turn a profit and fast they sold off Aston Martin for cash in the early 2010s and its new owners were oil tycoons from Kuwait who wanted to see if they could make Aston Martin as big as Ferrari by the mid-20s Aston Martin had launched a product offensive launching multiple models in the hopes that more options and styles would strengthen appeal and grow volume to
accelerate time to Market they replaced their in-house engines with ones from Mercedes-Benz leadership fiercely resisted pressures to go down market and to make an SUV believing that either move would only taint the Aston Martin brand and reduce profits everything was kept top of the market with annual price increases as the leadership's belief was that the only way to turn a profit from all of this R&D was to keep selling the cars at a high price yet even as volume and average wholesale price grew ASD Martin was no closer to becoming profitable they eventually gave in to the SUV V demands in 2020 which has provided a small boost in volume and revenue the car maker has changed its CEO three times in the past decade the
initial Englishman was fired under the rationale that he had spent too much on R&D he launched too many models that looked all the same and was too late to the SUV and EV party the next CEO was a non-nonsense executive straight from the cloth of Mercedes AMG who killed off the in-house efforts in favor of Greater Outsourcing to Germany the latest CEO is from Ferrari who is now trying the Italian model of bringing everything back into house except for Ev in its first century Aston Martin has gone bankrupt seven times and has only turned an operating profit three out of the past 11 years McLaren is in a similar ballpark it's owned by an oil State and has the lowest delivery volumes of all
the brands we've covered so far like ason Martin they buy their engines elsewhere and have yet to release an SUV or EV Mclaren has only declared an operating profit two out of the past 6 years and continues to struggle with liquidity to this day with constant layoffs there's not enough cash to do things in house and yet they're also too handicapped to expand to other models without any shared vehicle architecture and without incurring even greater expenses the only independent luxury car maker that's flourishing is Ferrari contrary to other car makers Ferrari has been able to grow its volume from its base models the company surpassed a delivery volume of 10,000 cars in a single year even before the introduction
of an SUV in 2022 they're the most profitable car manufacturer in the entire industry and they're even heads and shoulders above even porro with this economies of scale but Ferrari has done this by following the same elements that other luxury brands have built their own Empires on while Ferrari does sell engines to Mazerati that Revenue stream is shrinking and accounts for less than 10% of the overall Revenue every year the same is true with branding and Licensing where Ferrari remains extremely sensitive and picky about what deals it signs and where its logos are used as licensing has accounted for less and less Revenue every year like with all true luxury Brands scarcity is the name of the game as the company sees
itself as a luxury brand first and a car maker second where production must always like demand and new models must be pre-sold like Rolex and Hermes it's not enough to be rich to get the latest Ferraris you need to be on a customer list with a proven history of Prior ownership and it's like a waiting game for the ultr rich Ferrari represents the top of the market meaning that as long as it keeps Supply lower than demand it'll be able to push pricing power in any direction it wants with msrps that exceed that of any other exotic car maker and by making people wait they never worry about not making a return Ferrari sells because it's Ferrari there's no Rhyme or Reason behind the business and their brand gives them a
cushion that no other manufacturer will ever have Ferrari religiously resisted pressures to produce an SUV believing that there was nothing about Ferrari that could fit into that form factor and despite being the latest to the party in 2022 with an SUV MSRP of half a million dollar the per sangue remains sold out for the next few years with the latest one being sold at the dealership for a million doar there's nothing replicable or Ral about what Ferrari has done ultimately Porsche and Ferrari are the exception to the norm like exotic cars in real life these businesses are best observed rather than owned
