You Only Live Twice: Aston Martin secures £500m rescue deal
February 21, 2020
2 min read
What's going on here?
Luxury carmaker Aston Martin, whose cars are well-known for featuring in the James Bond franchise, received a £500m rescue deal after a rough trading performance in 2019.
What does this mean?
Aston Martin went public in 2018 (AML) but had a poor performance on the day and has struggled ever since. AML’s share price is down over 70% from its IPO peak.
A £500m bailout package will save Aston Martin from almost certain collapse. The rescue group, led by F1 billionaire Lawrence Stroll, will inject £182m for a 16.7% stake in Aston at a price of £4 per share. A further £318m will be raised by a fresh issuance of shares to existing shareholders.
For some time, the British car manufacturer has been struggling to generate enough cash. Last year, the company was forced to borrow £120m at a steep interest rate in order to refinance business and prop up its operations amid a sharp fall in profits. The rescue deal is expected to address the financial issues Aston Martin has been grappling with.
What's the big picture effect?
The £500m will give Aston Martin some much-needed stability and help it pay its mounting debts. However, the deal might not rescue Aston Martin from all of its problems in the long term. One reason why the company is struggling is because it focuses on making high-end sports cars at premium prices but has failed to keep up with the shift to electric.
Recently, the UK government announced that it will ban sales of new gasoline and diesel cars from 2035, in the latest aggressive move to fight climate change and help the UK cut carbon emissions to “net zero” by 2050. Aston Martin’s rescue deal will see investment held back in its electric car programme until 2025, 3 years later than it had initially expected. Such delay might be detrimental to the British luxury carmaker, as it might struggle to keep up with tightened regulation and its competitors in the race to produce electric cars. The newest competitors in this race, Hyundai and Kia, have pumped €100m into UK electric vehicle start-up Arrival, preparing to build thousands of electric vans at plants in the UK and internationally.
A decline in demand for cars has dealt a blow to car manufacturers around the globe. Manufacturers have been forced to choose between sourcing more finance or cutting costs. Recently, it was announced that another British car-making giant, Jaguar Land, is looking to shed nearly 10% of its workforce at its site in Halewood. The job cuts are part of a £2.5bn cost saving drive and a move to improve efficiency at the plant. UK car production fell 14% last year, attributed to trouble in key overseas markets and a shift away from diesel cars in Europe. While Aston Martin opted for new finance, this rescue deal only secures the company’s short-term future. A substantial strategic overhaul will be required to make sure the company does not die another day.
Report written by Long Dinh
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