Will Aston Martin’s shares ever return to pre-pandemic levels?

Aston Martin shares had a painful 2020 but paints a promising future.

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Like the majority of companies in 2020, Aston Martin Lagonda Global Holdings (LSE:AML) saw its share price tumble amid the global Covid-19 pandemic. Starting the year at 3,442p, Aston Martin reached lows of 983p in March. However, also like other companies, Aston Martin’s share price is now rising and currently sits at 2,030p. But can the British car company restore its share price to pre-pandemic levels and, more importantly, can it rise higher?

Economists tell us that luxury goods are subject to high demand elasticity and thus, in a financial crisis, are impacted hard. As a luxury car maker, Aston Martin fell victim to this, with revenue dropping from £650 million in 2019 to £270 million in 2020. Retail sales dropped from 4,482 units in 2019 to 2,752 a year later, too.

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With far less money coming in, Aston Martin raised a total of $1.1bn at a high interest rate of 10.5% in 2020. It’s a gutsy move but a rather unnerving one from a shareholder’s perspective. The additional funds might sprout new opportunities and R&D investments for the firm but could just be used for filling in holes. Coupled with issuing £250m more shares last year for more cash, Aston Martin may have patched up its 2020 dent but would need to outperform to make the debt interest worthwhile.

What’s more worrying to me about the luxury car group is that its pre-pandemic performance was hardly impressive. Just glancing at its share price chart from its 2018 IPO, one will notice a consistent downward trend. 

Aston Martin’s poor performance has largely been attributed to its poor management and the increasing pressure on the car market to shift to environmentally friendly vehicles. The EU has mandated that from 2021, the EU fleet-wide average emission target for new cars will be 95 g CO2/km. The penalty is €95 for each g/km of target exceedance. Aston Martin’s current fleet averages just over 200g CO2. Considering the appeal for Aston Martin surrounds its high performance and robust petrol engines, I believe the luxury car marker has an uphill battle ahead of it.

However, it’s not all bleak for Aston Martin. Canadian Billionaire Lawrence Stroll bought a 16.7% stake in the business and became the CEO of the company. Whilst Stroll’s performance with Aston Martin has yet to be measured, his track record and success with Racing Point Force India, Tommy, Michael Kors, Pierre Cardin and Ralph Lauren is promising.

Furthermore, in late 2020, Mercedes-Benz increased its stake in Aston Martin to 20%. Mercedes’ impressive hybrid and electric engine systems will be fully available to Aston Martin by 2022.

Aston Martin itself is aiming for 20-30% of its fleet to be hybrid by 2024. Additionally, Aston Martin has proven that its engineering can adapt efficiently to greener solutions. Its 612bhp electric super-saloon Rapide E is already outperforming its 552bhp V12 counterpart.

In conclusion, Aston Martin has had a turbulent year and an even more shaky past. However, armed with a new CEO and engineering prowess, Aston Martin’s shares might shift up a gear too.

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Cohan Chew has no position in any stocks mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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