Most major car manufacturers have cottoned onto the fact that they can make use of their gargantuan balance sheets and flat lining interest rates to sell new cars……it is the age old trick of the left hand lending to the right. But the implications of this are far more concerning for the new car buyer than anyone is really paying attention to…..and it is only compounded when it occurs in the already depreciation hungry SUV market.

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Unsurprisingly, developing the Porsche EV platform has been a hugely capital intensive project. Not only did it cost over $1bn to develop the Taycan alone but Porsche has guided that it intends to spend more than $6bn on electric mobility by 2025. They have even increased their stake in the Croatian EV supercar builder and electric battery/drivetrain developer Rimac to 15%......in other words, Porsche are committed to electric and the implications of that are really twofold.

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Like any to-do list governed by procrastination, it’s always easier to keep moving the things you least want to address further down the list rather than actually spend any time on them. For the bosses of GM, that was “googling the Nurburgring”. However in February 2007, a Corvette ZO6 development mule was pictured by a logistics operator in Michigan being loaded onto a plane en route to Europe…..something was amiss.

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2020 most definitely has the potential to be an eventful year for the automotive industry and in particular, investable classic and modern cars. In the UK, the Brexit shaped cloud that has been hanging over our economy finally appears to be clearing as we find ourselves with a majority government not only capable of moving forward to a definitive Brexit solution (for better or worse) but also no longer hand tied and able to implement significant policy changes in the UK.

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Being a low volume sports car manufacturer in the present day must be a fairly frustrating and wretched existence. You benefit from none of the economies of scale that your larger mass market counterparts achieve, work on a relatively miniscule R&D budget and at the end of it all, are expected to meet the same rigorous emissions and safety regulations imposed by the nanny state……oh and hopefully make some money as well.

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But by the late 90s/early 00s, the rose tinted spectacles had really begun to fade and even cars like the monumental GTV and the little 147 seemed to be a long way behind what the rest of Europe was producing…..Alfa were in trouble. However, unlike most car manufacturers who would have focused on rebranding or consolidating product lines, Alfa built a supercar.

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The most tangible example of the current state of the automobile market (particularly in the UK) was the recent Bonham’s Bond Street Sale held on December 7th. Of the 36 lots up for sale, only 10 ended up trading. This to me was not a function of inappropriate cars or unrealistic prices…..far from it. For investors, the FOGI (fear of getting involved) seems to far outweigh the FOMO (fear of missing out) at the moment. No one wants to catch the falling knife and that is exactly the buying paralysis we now find ourselves in.

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If you are fortunate enough to ever find yourself at Monza for the Italian Grand Prix you will experience first-hand the incredible Tifosi. A fan base like no other, a sea of red supporting Ferrari and everything Italian engulfs the historic race track and makes any other nations home advantage on the calendar pale into insignificance. And that for me personifies Ferrari as a manufacturer. Whether they are winning races or not, the passion which surrounds them seems to flow through to the DNA of every car they build.

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“Copying is the highest form of flattery” my mother use to say. If I’m honest, I have always taken the view that copying is the highest form of laziness. After all, it’s much easier to jump on the band wagon when you have seen a proven concept working than it is to have a go at building something from scratch when no one has done so before you. The sad fact is though, in today’s world, copying is deemed an extremely viable business proposition.

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The “CS” nomenclature in BMW terms has historically referred to a halfway house in their model range between the base car and top of the range CSL….sporty but not the sportiest. In a lot of ways it’s like premium economy, a taster of high life travel but not enough to make you think this should be your final resting point.

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“4 cylinder engines sound better than 8 cylinder ones”….. Said no one ever! We read with a heavy heart a rumour that the good people at Mercedes were contemplating replacing the V8 engine in the next generation of their illustrious flagship model, the C63 AMG, with a puny 2 litre 4 cylinder attached to some form of hybrid system….aka witchcraft.

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You see, having a naturally aspirated V12 basking in plain sight as you gently caress the left hand shift paddle and hear the exhaust crackle as it finds a new gear all the while watching the road plunge out of the mountains and down to the Rivera coast is a borderline erotic experience. The bill you receive when you need to change cambelts or a clutch is less so…….unless Sadomasochism is your thing.

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The Cayman R had a somewhat bumpy conception. It was spawned at a time when the market was desperate to see if Porsche could make a Cayman to rival its bigger brother the 911 Carrera. At the same time, Porsche bosses didn’t want to disturb the clearly defined model hierarchy they had worked so hard to forge. A Cayman couldn’t be better than a 911……end of.

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But then in the early noughties, buoyed on by low oil prices and a bullish macro backdrop, car manufacturers began testing the idea of a sporty 4x4. A vehicle that’s off-road capabilities didn’t impede on being able to charge down the autobahn at 120mph or go round a corner without flipping over.

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“Paralysed by uncertainty” is how I would less eloquently surmise the last 3 months. Like most major UK asset classes, Brexit, recession fears and a fragile global macro backdrop have definitely sunk their talons into the investable modern sports and supercar market.

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Back in 2008, Audi were one of the few car manufacturers who truly didn’t give a flying fan belt about the global recession. VW had recently bought Lamborghini and with that, a wave of new resources for them to play with. Most notably, the incredible 5.2 litre V10 power plant that came from the baby Gallardo.

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If we were betting people, the vast majority of these cars will be lucky enough to experience 2/3rds of what they are actually capable of in their lifetime…..and frankly god help us if anyone even attempts to test the actual limits. So ultimately, their sole function is to be used by their owners to flaunt and brag about in front of their equally opulent friends……seems a bit of a waste.

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The problem I see is that your default risk (probability of default) for that borrower has gone up exponentially but no one has really paid any attention to it. What’s more, these are not isolated incidents because as I mentioned before, people’s appetite for discretionary spending is positively correlated.

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In the UK, if every car owner on the road today switched to an electric car, it would result in a ~50% increase in peak energy required from ~61 gigawatts (GW) per annum to closer to 92 GW per annum. As a fairly substantial net importer of energy already and a country that is about to exit the EU (slow clap), how will we be able to get anywhere close to satisfying that demand.

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Any market where it is possible to achieve some form of short term arbitrage or competitive advantage over the rest of the participants involved allows for a quick flip to occur. What remains consistent however is the need for a relatively low downside risk scenario, a meaningfully worthwhile return (interesting but not blowing the doors off) and a relatively short time period for it to play out.

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