The British luxury carmaker, Aston Martin has agreed to a £500 million bailout from Formula One Canadian Billionaire, Lawrence Stroll in exchange for a stake of 20 percent of the company. This deal comes after Aston Martin’s poor performance in 2019 which, despite rising sales, saw losses of more than £100 million. This cash injection prevents Aston Martin from almost certain collapse, as its piling debt threatened to cause it to go bankrupt for the eighth time in its 107-year history.
Aston Martin announced the investment on 31 January 2020 after an emergency meeting with the board. At the meeting, Aston Martin chose Stroll’s bid over a similar equity financing bid from Geely, a Chinese car group. As part of the deal, Penny Hughes, the chair of Aston Martin, will resign and Stroll is set to join the company’s board as the new executive chairman. Hughes said that a disappointing 2019 has left Aston Martin with ‘no alternative’, but to seek a new financing deal. Stroll also commented that their investment underpins the company’s financial security and that the fundraising was necessary in order to support the company in the long-term.
Since its disastrous stock market debut in October 2018, Aston Martin has been in a precarious financial state. In the first year of being listed, its shares were priced at £19 each but lost 75 percent of their value after the initial listing price was significantly overvalued. The worsening outlook has released a slew of disappointing updates and added to the company’s mounting financial pressure. Moody’s, the rating agency, downgraded Aston Martin’s corporate rating in July, making it more expensive for the carmaker to borrow money. The increasing competitive pressures in the automotive industry and the trade war disrupting its supply chains has only exacerbated the situation.
The company has also reportedly suspended its first electric vehicle, Rapide E for an indefinite period of time. Rapide E has been a very troubling project from the start. Shortly after Aston Martin announced plans to develop Rapide E in a joint venture with LeEco, a Chinese technology group, LeEco went bankrupt under an enormous debt pile. In 2018, Aston Martin also announced plans to revive it’s Lagonda brand and launch a new line-up of luxury electric cars; however, this has now been scaled back as the British carmaker refocuses on it’s short term survival.
Aston Martin is now focusing most of its efforts on the launch of its first sport’s utility vehicle, DBX, a crucial model that it hopes will revive sales. The short-term capital from Stroll will give Aston Martin some much needed financial stability. It now has a stronger safety net to get the DBX into production, and prop up its operations.
Article written by Sidney Chin