Ferrari's electric car debut spooks investors, but risks appear limited

Ferrari's shares took a significant hit, falling 8.4% after the company revealed its first all-electric vehicle, the four-door, five-seater Luce. Designed by former Apple design chief Sir Jony Ive, the car was met with investor skepticism and online mockery, with one meme suggesting it would be powered by the company founder spinning in his grave.

However, the article contends that investors may be overreacting. Even if the €550,000 Luce proves to be a commercial failure and Ferrari struggles to establish a viable electric vehicle strategy, the company's overall valuation remains strong. Ferrari's stock has already seen a downturn over the past year, and its current valuation is considered sustainable even in a worst-case scenario for the EV venture.

Analysts project annual sales of fewer than 800 Luce models, a mere 6% of Ferrari's usual 14,000 annual sales. While loyal customers might contribute to this trickle, potentially to maintain their position in the queue for limited-edition supercars, the company has flexibility. Its advanced e-building has ample spare capacity that can be repurposed for other models.

Furthermore, Ferrari's core business of selling internal combustion engine sports cars is insulated from the risks of the EV venture. The company is small enough to be exempt from European Union mandates on increasing EV and hybrid production. Given the global shift away from aggressive net-zero carbon emission goals since the Luce project began in 2022, Ferrari can continue selling its traditional sports cars as long as demand persists. This resilience underpins its valuation, which, at over 24 times forecast 2030 earnings, aligns with luxury group Hermes, but arguably with a stronger connection to its core product.