Aston Martin shares are rebounding: the case for selling its F1 team
Aston Martin Lagonda (LON: AML) share price has crawled back in the past few months as I had predicted in my last article on the company. The shares rose to a high of 180p in December, then the highest level since September last year. They have recovered by more than 93% from their lowest point in 2022.
Does the F1 team ownership make sense?
Aston Martin is an embattled company as its debt soar and as its supply chain challenges remain persistent. As a result, the company was forced to raise cash last year by selling a stake to Saudi Arabia, Geely Automobile, and other investors. The company also diluted existing shareholders by raising more capital.
These measures were warranted as the company was slowly running out of cash. It also had over 1.3 billion pounds in expensive debt. Its revenue growth was also stalling even as Ferrari continued generating record profits.
However, some analysts, I included, continue to question Aston Martin’s stay at Formula 1, the most prestigious racing tournament globally. Aston Martin has no hopes for winning a championship for a sport that is now being dominated by Ferrari, Red Bull Racing, and Mercedes.
Aston Martin spends millions of dollars every year on this team. It is estimated that it spends the cost cap limit of $140 million. It also pays its drivers handsomely. Sebastian Vettel was earning $15 million excluding bonuses, which were about $2 million. Lance Stroll also earns millions.
All this is a lot of money coming from a company that is struggling and losing money. It posted a $347 million loss in the first half of 2022. This means that Sebastian Vettel and Lance Stroll earned more money than Aston Martin itself.
Why Aston Martin should exit Formula 1
There are reasons why Aston Martin should consider selling its Formula 1 team. First, Formula 1 is doing well right now, helped by the highly-successful Drive to Survive series. As a result, the number of teams seeking to enter the sport is increasing.
For example, Audi is expected to enter in 2026 while Porsche, General Motors, and Andretti are considering the move. One of the easiest approaches to do that would be to buy an existing team like Aston Martin. Lawrence Stroll has been open about selling the team to Audi.
Second, there is really no need for Aston Martin to be in Formula 1. Teams like Mercedes and Renault stay in the team as a way of marketing since they sell millions of cars every year. Aston Martin sold about 6,000 cars in 2023. I am not sure whether these buyers did so because of Formula 1. Instead, the company would still sell cars without being part of the team. Instead, it could use some of this cash to advertise in F1.
Third, selling the team would bring in much-needed cash, especially now that F1 is at its peak. In 2018, Racing Point was valued at about $130 million. That figure has likely risen in the past few years. By not having a Formula 1 team, the company can focus on product development and boosting its efficiency.
Finally, there is really no need for owning the team. Car companies own F1 teams to boost their R&D. They can use their F1 technology and implement them in their usual cars. I don’t think this reason is worth the expense. Besides, we have seen companies like Toyota and Ford do well after leaving F1.
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