Ferrari

Okay, David, so the question, do you have a favorite Ferrari? Ooh, that's a tough one. I would never actually want to get behind the wheel of it. But I think I gotta go with the F forty. Of course. I remember just being like a kid in elementary school and getting a model of one and thinking like, oh my god, this is the most incredible machine that mankind has ever created. Yeah, it's the defining supercar. ¿Cómo about you?

I actually have two. One is the car from Charles Leclerc's wedding. Ooh. It's the nineteen fifty seven two fifty Testerosa. And the car from Ford vs. Ferrari, that 1966 330 P3 is just beautiful. It's got these curves, it looks like a spaceship. It's gorgeous. Ferrari. Yes. Let's do it Welcome to the spring twenty twenty-six season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.

I'm David Dresenthal. And we are your hosts. Almost everyone needs transportation. It is a giant market serving a huge human need, and it is one of the top three things that households spend money on along with their housing and their food. And the automobile has become the default way that humans move around the world. And that is not what we're talking about today. Has absolutely nothing to do with any of that. Today's episode, listeners, is about selling dreams.

We are talking about Ferrari, one of the most paradoxical companies that we have ever studied here on Acquired. Ferrari ships very, very few cars. Around 14,000 per year. That is approximately the number of Toyotas that are sold every ten hours. Yeah. But of course, we know Toyota and Ferrari are a silly comparison. So what about a company that we have covered in the past? Porsche.

Even Porsche ships twenty-two times the number of cars that Ferrari does. And yet, even though almost nobody owns a Ferrari, only about a hundred and eighty thousand people globally, They have among the highest brand recognition. I would argue that over a billion people know what a Ferrari is. Easily. Which means, David, that Ferrari has the highest ratio of people who know about their product. to people who actually own their products of any company in human history.

I I think we gotta scope it to companies that make products that are nominally available for purchase by consumers, but Yes. But yes. Yes, like the space shuttle is a product, but you can't go go buy a a space shuttle. So I would say Ferrari is the only ultra-luxury brand that has reached mass cultural awareness.

There's some fun numbers just to keep putting this in perspective. There are ten times more Birkin and Kelly bags made each year over at Air Mez than there are Ferraris, and there are seventy times more Rolexes made each year than there are Ferraris. Yeah. Wild. The paradoxes continue. People are dying for their SUVs, and yet they limit them to just twenty percent of total volume. Wait, w what is this SUV of which you speak?

Sorry, Ferrari utility vehicle'cause they would never It's the F U V. Yes. Ferrari utility vehicle. Ford, here's another good one, makes 160 times the number of cars that Ferrari does, yet Ferrari has a higher market capitalization. They're worth more than the Ford Motor Company. And Volkswagen, and Honda, and Stellantis, and Mercedes-Benz.

This company is worth so much more than most giant manufacturers. Ferrari makes all of their cars, mostly by hand, inefficiently and one-off in a single town, Marinello, Italy. And they have the highest margins in the entire auto industry. Of the very few cars that they do make, this is my favorite one, David, about eighty percent of them are earmarked. Specifically for people who already own a Ferrari. Right.

So that means there's less than three thousand new customers buying Ferraris in any given year. actually completely insane when you think about it. This funnel narrows pretty tight. So, how on earth did Ferrari manage to build this incredibly valuable business while selling their cars to almost nobody?

Well, the answer is bloody. It is half a century of death and speed and love and feeling alive. And of course, there are some of the most clever business model mechanics that we have ever studied here on Acquire. It really is very Italian, you might say. Yeah. It's beautiful, it's tragic, it's romantic. There's death, sex, betrayal, and uh very, very fast cars. Well, listeners, if you are interested in the big takeaways from each episode in writing.

you should join our email list at acquired.fm slash email. You can also get past episode corrections, exclusive behind the scenes photos that we found during our research. We'll be sending some of those out for this episode. And you can vote on future episode topics. Plus, we will give away a little hint about the next episode each time. That's acquired.fm slash email. Come talk about this episode with us in Slack at acquired.fm slash Slack or by clicking the link in the show notes.

And before we dive in, we want to thank our presenting partner, JP Morgan Payments. Yes, just like how we say every company has a story, every company's story is powered by payments. And JP Morgan Payments is a part of so many of their journeys from seed to IPO and beyond. So with that, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. David Rosenthal, take us to Italy.

Ooh, all right. Well we start. in eighteen ninety eight in the medieval Italian town of Modna, with the birth of our hero, Enzo Anselmo Giuseppe Maria Ferrara. Better known, of course, either by the name of the company he would found that bears his last name, Ferrari, or to his hundreds of millions of fans around the world simply as Ensemble.

So Enzo is born here in 1898 in Modena, the second of two sons, and his mother, Adalgisa, is a beautiful young woman. His father, Alfredo, is twelve years older than his mother. And his father runs a successful metalworking shop and is kind of like a, you know, fairly well to do middle class entrepreneur about town. And Enzo and his father are are often at odds growing up, but uh

Part of his dad does rub off on him in this sort of entrepreneurial influence. His dad uh says something to him which sticks with Enzo for the rest of his life. A company is perfect. when the number of partners in it is odd and less than three. I. e. don't take on partners. Always be self sufficient. It's a great quote. We should say that much of this history, this whole episode comes from the fantastic

really definitive biography of Enzo called Enzo Ferrari, written by Luca Del Monte, who worked at Ferrari and Maserati for many years and then after he retired, dedicated about a decade of his life to researching and writing this definitive biography. It's really So anyway, his mother and his father are always fighting. They're always yelling, arguing, swearing. And this has a very different effect on each of their two children.

For Enzo's older brother, who is named after his father, he's also named Alfredo, nicknamed Dino, to tell them apart, he, Dino, becomes like the golden child. He's the peacemaker, the pleaser, the striver, the smart and successful one. He's gonna make His parents proud and he's gonna take over.

the family business. Enzo, on the other hand, as the younger brother, he just takes right after all the sort of less savory parts of mom and dad. He's mischievous. He doesn't apply himself in school or paying any attention. And you know, why should he? His family's

got money for the place and time. His older brother Dino, the golden child, you know, is gonna make them proud. He's gonna take over the family business. And Zoe can just kinda knock about town. He dreams of someday maybe becoming a journalist or a opera singer, mostly so that he can, you know, hang out with the showgirls. Oh what could have been a very different Enzo Ferrari.

Ah well his life is an opera, as we shall see. So there's one thing though that really captivates Enzo's spirit, which is the new modern sporting and leisure pursuit of automobile research. And one blissful night when Enzo is a teenager, he declares to his best friend his true intention in life. I am going to be a racing driver. And that dream does indeed come true, but probably not in any way that Enzo expected that night. Because very shortly thereafter, World War One breaks out.

And two tragedies happen to Enzo in quick succession. First, his father, Alfredo, contracts pneumonia and dies. Unrelated to the war, he just got pneumonia and suddenly dies. Shortly thereafter, his older brother Dino, the golden child, goes off, enlists in the Italian army, where he also contracts pneumonia. So Enzo is left alone with his mother, that he needs to support. The family business is gone.

And because Enzo has never applied himself, he has no discernible skills or ability to continue it or, you know, really do much else that would uh provide gainful employment for him here. That was supposed to be Dino's role in the family. Now, before Enzo can stop to really think, he too gets drafted into the army, where he also comes down with pneumonia and nearly dies, but he survives. He's the one who survives.

He has a quote later in life where he sort of acknowledged this emotional burden and his life's work that he would go on to create, where he said, I feel alone after a life crowded by so many events and almost guilty of having survived. Yeah. Tells you everything you need to know right there about Enzo's life. Yep. So when he comes back home to Modena at the end of the war, he has no hope.

But he does still have his dream of motor racing. And remember, he's still like a teenager, basically, at this point, a late teenager or early twenties something. He starts making noise to his mom. about selling the family house to finance buying a racing car and that he's gonna go out and race this car and win prize money to support them. It's an audacious.

plan. It's an audacious plan. His mom is like, uh no. How about instead, how about this? Why don't you go try to get a job at a car company? And see where things go from there. Enzo's like okay, okay, fair compromise. So his mom arranges for him to travel to Turin, a big city in the northeast of Italy, where he interviews for a job at Fiat.

And Fiat is the biggest Italian car company at the time, and will come back up many, many times in this story. It is, as you all probably know, essentially the Ford Motor Company. of Italy, and the family behind it, the Agnelis, are the wealthiest and most important industrialists. basically in the history of Italy. And today they own and control both Stellantis, which is the merged result of Viet, Chrysler, and Peugeot, and they also own and control Ferrari.

Don't worry. We'll get there. We'll get there, but not for I mean the better part of a century here. Yes. Yes. Yes. So back to Enzo here in 1918. Fiat, of course, rejects his job application because, again, he has no discernible skills, but Enzo is persistent. And in 1919, he lands a job at a new startup. automobile company called CMN. And there he pledges his future salary, like the next several months of his salary, to purchase for himself one of the company's sports cars.

That he then goes off and takes racing. So he didn't have to sell his house to finance this dream, but he did pledge his future salary.

Yeah. This is an important point to land here. with very few exceptions, one of which we'll talk about in just a minute, motor racing at this point in time was a private individual Drivers generally bought and raced their own cars, either because they were independently wealthy and successful and could afford their own staffs and mechanics to maintain these cars. These were folks known as gentlemen racers. That's right.

Yes, and and this is the group of people that ultimately, once Ferrari gets founded, become Enzo's core client base. Or the other group of drivers at this time are like Enzo. They're these kind of like hustlers and dreamers who manage to glom on somewhere in the car industry and leverage that into entering race. But basically motorsport was this like passionate sort of privateer pursuit. Not organize professional racers on highly paid teams.

Yes. So Enzo enters into this world and he does pretty well. Well enough not only to send some prize money back home to mom. but also to attract the attention of Alpha Romeo, which is Italy's other large car company at the time, although much, much smaller than Fiat. And Alpha has one of Italy and Europe's

few if not only in-house racing teams. So even though most racing that is happening is privateers, Alpha has their own racing team, which is pretty unique for Europe at the time. So they scoop up this young hotshot. talented driver Enzo to come and race for them. And now this is a huge coup for Enzo. Like basically his whole dream as a teenager

is coming true. He's racing, he's making money from prizes, he's part of this Alpha Romeo team that's gonna support him, provide him great vehicles to race and also mechanics and everything he needs. So he hatches a plan that he's gonna cash in on this newfound fame and notoriety by starting his own business. He's gonna be an entrepreneur, just like his dad. So at age twenty-two in nineteen twenty, Enzo starts his first company.

A coach building business in Modena called Carrozzeria Emilia. Now, what is a coach building? This is another really important point to understand about the car business at this point in time. For most companies, and especially car companies that were making sports cars, the actual bodies or the coaches

were built and designed by third-party coach builders. The cars were just an engine and a chassis that the car maker would deliver. And then the clients would go to a coachmaker, like this one that Enzo is starting up. And have them build the body to their taste and specifications that would go on top of, you know, the mechanics of the car.

Yeah, it reminds me of our Rolex episode where the movement makers were totally different than the case makers, which were totally different than the jewelry stores that sold them, not the sort of integrated way that we know it today of the movement maker is often the same as the case maker, and then you often just sell sort of pseudo-direct.

Yes, totally. In this case it's actually a holdover from the horse drawn carriage days, where the coach builders built carriages, but they obviously didn't supply the horses. So the same thing starts to emerge here in the early automobile industry. So Enzo's admittedly pretty half baked plan here, is that thanks to his sure to come, you know, new fame and fortune as an Alpha Romeo race car driver,

Customers, Alpha Romeo customers, and customers of other car companies, are gonna come banging down his door to build their car bodies, to build their coaches. What the connection is between being a good race car driver and being a great coach builder. I'm not sure and uh neither is the market because the business does not go well. It's a failure and within two years Enzo it

Bankrupt. Now, perhaps relatedly, Enzo's sort of medal as a professional race car driver also proves to be good, but he's not great. He has all the talent, all the skill, but he comes to realize he doesn't have the one final thing that separates the true motorsport champions from everyone else. He's too afraid to die. He can't push himself in the car. To the point. That's really, really, really on the edge. Limit, as they say.

The limit, yes. Part of this, of course, is his sort of haunted past, you know, the deaths of his brother and father, death has had this huge presence in his life. But also it's very much his presence. So once he joins the Alfa Romeo team, there's two sort of senior drivers on the team who really take him under his wing.

Mentors and they become friends. And Enzo watches them both die during races at the wheel. The first of which Enzo was the first person to find him, and he actually literally died in Enzo's arms. And so after all these experiences, Enzo just He can't push himself to do the same thing over and over like they did. And that is the sick reality of racing, at least in this point in history, is it is the people who are absolutely willing to go right up to that line and and maybe cross

cross it. I mean it kind of depends where you put the line. Those who win are the ones who are absolutely willing to die. I mean, on our Formula One episode we talked about through the seventies, right? There was an average of more than one death a year in Formula One out of a field of only like twenty drivers. Yeah, that's the reality for a very long time in this business. And paradoxically, that's also part of the appeal. So in nineteen twenty four, Enzo makes the decision to quit racing.

cast off the coach building business, and instead open a Alfa Romeo dealership. No, I didn't know this. He's now married, he wants to have a family, his son, naturally named Dino, would be born a few years later, Dino after his father and brother. Basically he's going down the time honored path of retired ex athlete with some Degree of notoriety opens local car dealerships. Ha ha ha. Pioneering.

Fighting. Now, toward the end of his racing career, Enzo had also gotten more involved in the actual management of the team and gotten to know some of the managers. of Alfa Romeo, the company itself. So he still has these close connections to the company, which are certainly gonna help him in becoming a dealer. And then The very next year, the Alfa Romeo Board of Directors makes the inexplicable decision to drastically cut back on their racing activities.

And they're gonna keep the company team, but only gonna enter a few races and the budget is gonna be cut. And so and so it's like, whoa, whoa, whoa, whoa, whoa. Oh hang on a sec here. I need the publicity from the Alfa Romeo racing team. That's my only like connection to fame here and why people would come to my dealership and buy my cars. Uh I I kind of need to have Alphas racing on a regular basis.

So he goes to Alfa Romeo headquarters in Milan with a proposal. I understand that you want to cut the expense, you know, sort of day to day of running your own racing team. What if I take it over. And all the races that you don't want to run, you bless me, your dealer, Enzo Ferrari, as the official racing agent of Alpha Romeo, and I'll put together my own private team, I'll hire the drivers, I'll hire the mechanics, I'll cover the costs.

Right. It's like a fully outsourced racing team that's just kind of a contract relationship. You don't have to have this on your books. This is a a sort of loose affiliation. And for Enzo, what better marketing activity could you imagine than to become the quasi-official racing agent, sort of second team of Alfa Romeo? Yep. And thus The first Iteration of the Ferrari business is born.

The Scuderia Ferrari, which is the name that he gives to his new racing team, Scuderia being stables in Italy. It's a stable. of drivers and cars for Alfa Romeo. And the Ferrari Racing Team to this very day, in Formula One and elsewhere, is the Scuderia Ferrari. That is the SF that you see on the Ferrari Shield everywhere. Yep, and for a team that would go on to adopt the prancing horse, I I am loving the thick metaphor here with the stable and the

Enzo, as we shall see, is a natural born marketer. So Important to note a couple things. The Scuderia Ferrari is very much intended to be a junior partner to Alpha Romeo, or at least Alpha intends it that way. But Enzo does in the back of his mind have broader ambitions. As we alluded to with the whole coach building thing, unless you're one of the

few, you know, new at this point, really mass assembly line consumer car companies like Fiat or like the Ford Motor Company over in America. The line and the barrier to entry between being a like uh garage who develops and maintains racing cars and graduating to making your own cars that you sell to the privateers who go racing. Pretty thin. Always got this in the back of his mind. And he's got some examples.

So there are other garages, for lack of a better word, out there in Italy at the time that have made the jump from developing race car versions of Other cars made by other manufacturers to selling their own cars. The prime example being Maserati, right there in Modena, right across town, the Maserati brothers. In the video game world, this is uh modding. Yeah. You're sort of taking someone's kind of basic game and souping it up into something really special for you that you're customizing. Yep.

So Ferenzo, in the back of his mind, he's like, Okay, this is my opportunity to build my own team, hire my own engineers and mechanics. Use hopefully my team's success combined with the Scuderia Ferrari brand that I'm building, maybe someday I too can launch my full-on car company like the Maserati brothers across town. So as he gets going with this Grandmaster plan and

Developing the scuderia, he knows that he needs to build up more than just his own operations. He also does need to build a brand if he's going to sell his own car someday. And specifically, he needs a logo. And he's got the perfect one. But before we tell the story of the legend of the Ferrari Prancing Horse, now is a great time to thank our presenting partner, JP Morgan Payments. Yeah.

And one thing that kept coming up, listeners, in our research for Ferrari, is just how global they have been from their early days. of course, headquartered in Italy, but selling cars to the US and around the world as we will soon get to from those early days. And behind any company operating at that scale, there is a massive engine orchestrating money movement behind the scenes.

That's right. It's an enormous amount of complexity, paying suppliers in one currency, collecting receivables in another, managing exchange risk, adding vendors and suppliers, and of course staying compliant in all these regions. When you're really early stage, moving money across two or three currencies, you can manage it yourself. But going from three to twenty is like a completely different situation. Yeah.

And the companies that get this right, that make those strategic investments in payments infrastructure early, those are the ones that scale. That's what JP Morgan payments cross-currency solutions are built for. They send payments in 120 currencies. They receive payments in 40 across more than 200 countries and territories. That means that you get seamless integration through their APIs that plug directly into your existing treasury workflow.

And that gives you real-time visibility and control over your transaction. The whole goal is to make global money movement invisible. And because there's so much complexity required behind the scenes to make it feel invisible, the stability and scale of JP Morgan's global payments network plus local market infrastructure is really what makes it possible.

It is one of those things where the scale is the product. If you do the math, there are tens of thousands of combinations of currencies that you may need to switch in between. Not something you want to take on yourself. So listeners, if your business is moving money across borders and you need cross-currency payment solutions that do the hard work for you, check out jpmorgan.com slash acquired and just tell them that Ben and David sent you.

Okay, David, so where does the famous Infamous. Prancing horse for Scootery Ferrari come from the right. Yeah, how did all those Ferraris come to have a black prancing horse on them? And I gotta say, it is the strangest thing looking at some of these old pictures because the first thing that the prancing horse went on was these Alpha Romeo cars. Yes. And so there's these old pictures.

Of a Alpha Romeo badged car in the fender sort of in front of the door, there's a Scuderia Ferrari prancing horse. It's bizarre to look at today. Yeah. Listeners will we'll send that out in the email. So back when Enzo was a promising young racing driver, one of his early fans and supporters was a noble Italian count and countess, whose son, Francesco Baracca,

had been Italy's number one ace fighter pilot during World War One, like World War One dogfighting. And Baracca had won thirty-four aerial victories before he was tragically, you know, killed in combat. right before the end of the war. And on his airplane he had painted as his symbol and a good luck charm.

prancing horse. Now he's like a national hero, and everybody in Italy knows about Count Baracca and his exploits during World War One, and his parents are fans of Enzo. And so one night after the war, the Countess tells Enzo Why don't you paint the black horse on your car? It will bring you luck. And to symbolize this gift, she gives Enzo a photo of her son in front of his plane before he was killed with the horse and with an inscription from her below it that Enzo should use this symbol.

That's a official endorsement. Right there. Yeah, absolutely. Oh absolutely. So here we are now. Enzo is launching his his scuderia, his stables, you know, his horses, and he knows that this is the moment to put the gift to use. As the scuderia's logo. It's perfect. Stable horses, but it's more than that. This man had been a national hero. Everybody in Italy knows him and knows the symbol. And Enzo has had it bestowed upon him, not just with,

You know, his mother's blessing, but with the explicit direction to put it on his race cars. So Enzo takes the prancing horse, he places it within a yellow shield, yellow being the city color of Modena, with The three colours of the Italian flag This is just a genius marketing. The prancing horse reflects both the scuderia and links Enzo and the team to this national hero. The shield reflects his intention to do battle on the racetrack, and the Italian colours

reflect the ultimate ambition to establish this team, this company, and its future cars as the Italian national team and sports car company. Yep. So in our research, I spoke to Luca di Montezemolo, the legendary Ferrari chairman who would ultimately succeed Enzo, and really in many ways be his heir, as we will tell in this story. Important to note, different Luca than the Luca who wrote the book, David.

Most of this narrative is based on And I asked you to make a little bit of a little bit of a little bit just about anybody who's still alive today. And there's this kind of popular legend that Enzo was just a racer. He only wanted to race. He didn't really care about business or road cars and the all the road cars only existed to fund his racing activities. Oh, this is the biggest thing about people today when I say, Oh, we're doing an episode on Ferrari

They say, Oh my gosh, yeah, it's such a crazy story'cause, you know, Enzo really just wanted to race cars and he built this car company, but really that was just sorta to finance the racing and he doesn't even care about those road cars. He's not really a business guy. He just wants to make great cars with great engines and and send'em racing. Completely false. Montezemolo confirmed when I asked him. Enzo was a natural born entrepreneur and marketer. He he really was Italy's Steve Jackson.

in every aspect. I mean, think about it. What was Steve Jobs? Steve Jobs was was not an engineer. He was a marketer. The same as Enzo. Enzo is not an engineer. He's not a car mechanic. He can't build the cars himself. But they both had a sort of understanding and deep appreciation for the technical things that enabled their visions to be possible. Yeah. Enzo would say about himself when asked.

That you know, he's not an engineer, he's not a car designer, he's no longer a driver, even though he runs this team. He is quote, an agitator of men. And that perfectly described Enzo. And I think you know perfectly describes Steve Jobs too. Yep. So if you think about it, what is Enzo doing here with the brand that he's building? There's the prancing horse, and then what's the other famous, you know, visual symbol associated with Ferrari, the Red? Yeah, yeah

Ferrari red, Rosso Corsa, that he adopts here. And sure, you know, Ferraris are red because red was the assigned national racing color of Italy. But come on, Enzo is the one who embraced it. and imbued this Rossa Corso with so much more than just the national racing colour of Italy. It's not Alfred Romeo's colours, it's Ferrari's colours.

Right. When you draw a picture of a race car today, let's say you're ten years old, you're coloring it red and you're coloring it red because that is Ferrari red. Yes. And what does red represent? It's passion, it's blood, it's desire. It's all of this that is all deeply wrapped up into Right.

I mean just look at Italy's other luxury supercar company today, Lamborghini. You know what their colors are? Not red. In fact their color is every color but red. Because Ferrari has co-opted it. Yep. So back to the scuderia. After a couple years, in 1933, the golden opportunity arrives for Enzo. Alfa Romeo finally decides that it is going to disband its official racing team entirely and designate

Scuderia Ferrari as its official racing operation in all races all across the globe. So Enzo acquires, quote unquote, the entire alpha operation, engineers, mechanics, everything. And his dream has come true. He is not only Alfa Romeo's official racing team, but by this point in time, Alpha had been nationalized by the fascist Italian state by Mussolini. So he is Italy. official national racing team. There's just one problem though.

Which is that Alpha got out of the racing business for a reason. Because Hitler is coming to power in Germany. And one of Hitler's most, you know, kind of important national agenda items is making sure that his German auto industry. is the best and that he proves it on the racetrack, just like you know, the Olympics. So throughout the rest of the 1930s, the German state is supporting Mercedes and Auto Union, which would go on to become Audi today. And their cars are just

dominating European Grand Prix racing. So Enzo and Ferrari are like sent out there, you know, by Alpha and the Italians to compete, but it it's a fool's errand. And so in nineteen thirty eight, Alpha and Mussolini kinda, you know, fed up with losing. They actually acquire the Scuderia Ferrari and remake it, you know, as part of Alfa Romeo into this official sort of government entity. Huh.

So they decide actually we do want to put resources behind this and now you're kind of the only game left in town since we shut down the other operations. Yeah, I mean at the end of the day this is just rearranging deck chairs because the the the war is coming. So the very next year Hitler invades Poland and World War Two begins. Needless to say, European automobile racing is uh on hold indefinitely. Yeah.

During this period, Enzo gets into a fight with Alfa Romeo management and manages to get himself fired. Yeah, this is n nineteen thirty nine. He cares about one thing and that's auto racing. It's just not the strategic priority for Alfa Romeo as a company or for the country. And so I think this this friction kind of leads to it. The crazy thing is his separation agreement. I I think he got paid to to leave, but yes, you know, he it's it's a firing forbids him for four years.

from A building cars to race them and B using the name Ferrari associated with a racing team or a car builder. Like he he d he lost the rights to his own name for four years. Well, I mean, you know, he gave them up to the Italian government essentially. Yep. So speaking of which, during the war, Enzo creates a new company to feed the Italian war effort that he names Auto Avio Construzioni.

Auto and aviation construction. Which is but he sneaks that auto in there ca Not really supposed to be building cars and racing them, but like I'm doing other stuff too. Yeah. It's not called... That's not called Ferrari, but This same company is better known today as Ferrari Societea per Azioni or Ferrari SPA, the Ferrari joint stock company that is publicly traded on the New York Stock Exchange under the ticker rate. Yes. Best stock ticker ever.

Best stock ticker ever, indeed. So what is this company doing? They're they're not making cars, even though auto is in the name. They're making machine tools in the workshops and the essentially factory that Enzo has created there in Modena. And on each tool, Throughout the war effort that they make, Enzo has them stamp the prancing horse and the word scuderia, Ferrari Modena, clearly signaling his intentions after the war of uh, you know, what what he's gonna do.

I bet those are some very valuable collectors items if you can find them. So anyway, Enzo and his factory are pretty good at making these machine tools, and they become part of the war effort. So as the war wears on and the Allies, you know, push into Europe, Enzo and the government start to worry about them bombing the factory in Modena. So in 1943, he decides that he's gonna move all of his operations out.

To a small little town in the countryside to avoid the bombing, he's gonna go about fifteen kilometers south of Modna to Marinello. And that's why Ferrari, to this very day, Is in the small little you know hamlet of Marinello, not in the bigger city of Modena. Yep. So even despite the move to Marinello, the factory does get bombed twice during the last days of the war. after the war that leaves Enzo kinda at a crossroads. The factory's not quite in ruins, but it's in you know, it's been bombed.

Disarray. Disarray. Significant disarray. Right. And he's just spent the last four or five years building machine tools and gotten pretty good at it. Yep. And then Enzo gets a visit from an old racing pal, an Italian But one who spent the war not in Europe, but in exile in America. Luigi Kennetti, the man who brings Ferrari to America.

So Luigi and Enzo met way back when Enzo joined the Alfa Romeo racing team as a driver. And Luigi was a mechanic on the team who also then became a driver, and he ends up in New York. And when the war is over, Luigi goes back to Italy to visit Enzo and he tells him about America. So this is a quote here from Brock Yeats' biography of Enzo. Brock Yeats was the longtime editor of Car and Driver magazine.

Kennetti described the miracle that was America: the aggressiveness of its people, their childlike acquisitiveness, and their bourgeois credulity. Yet there was a rich upper class whose tastes were European. He had seen them, met them, gained their trust as he kept their aging European automobiles operating through the war years. He knew they would pay a king's ransom for Enzo's elite machines, and he, Luigi Kennetti, meant to exploit that naive colonial lie. What?

What a rating. Enzo Now, legends would say later, and Luigi, I think, would probably perpetuate this himself, that Luigi is the one. who convinced Enzo to abandon the machine tools business and focus only on cars again after World War Two. That's false. Enzo was planning to anyway. There's there's no way that he really was gonna go into machine tools. I mean by nineteen forty three his non compete is up. Yes and he's allowed to use the name again. And so you know the clock's ticking.

But it is true, Luigi definitely convinced Enzo about America. And America was Critical for And you know what wealthy Americans are extremely interested in when they're considering if they're gonna buy a extremely expensive rare automobile? They love that cold shoulder of a artist.

creating the car mysteriously in some small town in Italy who's just interested in racing. He's not interested in mass market cars. You're just lucky to get one of these racing cars and he couldn't even care less about you. Oh yeah. That sells cars. And boy does Enzo know it. Yeah, he totally leans into this. This is like part of the perpetrating of the myth. This is why everybody believes, oh, he wasn't really a businessman, he just wanted to read.

cars. Yeah, I mean oh he the the whole persona of Enzo Ferrari, you know, the dark sunglasses. Oh yeah, what's the tidbit you got on the sunglasses? It was an act. You know, we would wear the sunglasses in public and in you know, press interviews and and meetings with clients or whomever.

And then everybody else would leave the room and he'd just take'em off and put'em on the table. He didn't wear sunglasses all the time. Only when crafting his image. But uh yeah, he leaned to do it. Yep. So, one way or another, machine tool business is out the window. And Enzo is back in cars. Nineteen forty seven is the first year that they get going with the newly renamed Auto Construzione Ferrari, now that he can use the Ferrari name. In nineteen forty seven they build three cars.

For team racing, just for the scuderia, in which during the year they enter 14 races and win seven races. Pretty good. 50% win rate for the uh newly rebuilt Scuderia Ferrari. They didn't sell any of those cars. Yes. Enzo Ferrari to this point in history has not sold a car yet. No how old is he, David? He is in nineteen forty seven, he's forty nine years old. I mean th this is like this great classic

sort of founder myth of the young hotshot who starts this thing. Uh Ferrari, yes, it's a racing team, but it is a car company who sells cars to consumers and by age forty nine, Enzo had never done that. No, he has established the brand and the myth and put all the pieces in place to create Ferrari. But yes, he did not sell a single car to a customer. Until nineteen forty eight. When they introduced the The Ferrari one hundred sixty six Barcetta.

at the Turin Motor Show, and Luca Del Monte in his biography writes, for Enzo Ferrari, the 166 MM Barcetta was a declaration of intent. A sports car with a sensual shape, as fast and powerful as it was beautiful and elegant. It was the foundation on which from that moment on he would build every road model. Cars capable of winning races on circuits and roads all over the world and at the same time being the protagonist of the most prestigious Concorde elegance in the four corners of the earth.

What a great description of what a Ferrari is. Absolutely. Enzo is really figuring out how to create desire here. Yes. Yes. These machines are beautiful. And they're dead. That is the point. You can enter them in a race, you can be competitive, you might even win, as we see in a second. And you can drive them around town and look beautiful and elegant when they work.

Yeah. The Ferraris in this era in history that we're talking about here, you know, the late forties, fifties, the sixties, these were not the most reliable machines, especially the road. cars. I think you could also lump in the seventies and the eighties, large chunk of the nineties. I mean this is this fascinating thing about luxury that reliability is not actually a relevant part of the equation of how desirable how how much do I lust after this machine.

I think it's from the luxury strategy book, uh, anti law marketing number, something or other is ensure that your product has enough flaws. Yes. Boy do Ferraris have a lot of flaws. Yep. So this first Ferrari, the 166 Barcetta, they produce about a dozen of them that year in 1948, both to race themselves with their own team drivers, and also sell them to wealthy private clients.

Two of the very first models are sold to American clients through Luigi Kennedy. One to Tommy Lee, who is a wealthy Cadillac dealer in Los Angeles, and one to Briggs Cunningham. Who is one of the Proctor and Gamble heirs? Right. They're setting the precedent. Others are sold to various European racers and nobility, including Italy's own most celebrated industrialist, Gianni Agnelli, the patriarch of the Agnelli family, which owns Fiat, some might say the Henry Ford of Italy.

the founding family of Fiat. Yeah. Not only the owners but the founders. He was one of the first Ferrari customers. He was. Indeed. He bought a one hundred sixty six. That's an amazing full circle. Poetic. We'll come back to that at the end of the story. Oh, yes, we are. So then the next year, Luigi Kennedy. He's a real believer in the potential of these machines that Enzo is building to make a lot of money and generate a lot of desire. So he takes one of the 166s.

And he enters it in the first running of the twenty four hours of Lemol to be run after World War two. The first you know post-war running of Le Mans. And the the car that he takes, Enzo doesn't think the 166 is ready for Le Mans. He doesn't want to enter, but Kennedy says, No, no, I'm gonna go do it. So he takes a privately owned car owned by the British nobleman and gentleman driver, Lord Selsden, and they win. They win Lamont! Wow. Wow. Like the whole thing.

Endorsed by Ferrari the company, just a sort of gentleman driver. It is the first major international race victory for a Ferrari car. But it's not run by the Ferrari team. So this is a big deal. This is the first time it's being run after the war. And here's this startup Italian oh I mean it's startup. Everybody knows the heritage of Enzo Ferrari and who he is. But here's a Ferrari winning. And it's like the perfect illustration of the business model and Enzo's entrepreneurial genius.

You know, he's got the brand. It's the Ferrari that won. But it doesn't even have to be his own racing team. Right. Oh, that's interesting. It creates just as much consumer desire for those cars, whether it's him entering the competition or not. All anybody knows and all anybody in America definitely knows is a Ferrari just won Lamal. And man, I gotta get my hands on one of those things.

And it really validates the engine. I mean, this is famously Enzo Ferrari's reputation is he was an engine guy. He's got a few sort of great quotes on this. His comment is, I sell engines and the car I throw in for free. Yes. Such a great quote. Another great one. Aerodynamics are for people who can't build engines. That's like that one uh the AMD guy, uh Real Men Build Fabs. Yes. Yeah. Eventually Ferrari would become very much about aerodynamics in addition to engines.

Yes, yes. But we know where Enzo's heart always was. Yes. He also famously was a late adopter of new technology. This is very, very different today, but in the early days, I mean, we're gonna talk about Formula One here shortly, but in those early days of F one Other teams figured out, hey, you should probably move the engine to be a mid engine, sort of above the rear axle, not in the front of the car.

And Enzo is very yeah, like he's biding his time. He's like, Well wait and see and he's got this idea that in a carriage the the horse pulls the carriage. Yeah, got it. I'd put the horse in front of the carriage so the engine's going in front of the car. Surely the engines sh should be in the front. Yes.

years uh to to adopt the sort of correct, most balanced way to do it, because he not only wanted to be a late adopter of technology to sort of let other people prove it out, but also because he was in a position to do so. So as a very early sort of luxury pioneer here, he realized that it only helped build the Ferrari myth. Yes, exactly. To talk about the old ways of doing things. This is the point. It's all about the myth building. Enzo knew exactly what he was doing.

Even there's funny entries in the historical record here where in the same month that Enzo is out there talking about how the engine belongs in the front of the car. In Marinello there are teams who are constructing next year's mid engine car. So th say one thing, do the other. Yes. Yes. Verienzo. It's worth a moment here to talk about

What actually is Ferrari at this point in time after Lamalle and when they're selling the 166? Because it's pretty pioneering. It's three separate things all under the same. It's its own professional racing team. It is a world-class racing car constructor that builds cars both for its own team and for private clients. And it's also all of the support.

infrastructure that you need to do both of those things. So it's not like Canadian Lord Selsden could just buy a 166 and drive it up to France and like enter Le Mans. You gotta tune these things for the race. that you're driving. And Ferrari is providing that for his own team and for his clients. This is

Pretty revolutionary. Nobody else had really created something like this before. You know, other car manufacturers, as we talked about with Alpha or Mercedes or or even for a point in time, even Fiat, had their own racing teams. But they were separate operations. Like think about the Mercedes racing team today. You know, it is a completely separate operation. Yes.

Or most of the F1 operations today that carry the name of a constructor of a a car brand, they're actually separate companies that happen to be owned by Yeah. Yes. The whole thing. Like, yes, there is some tech transfer, I'm sure, from the Mercedes F one team to AMG performance cars, but like It's a tenuous connection. Whereas in Marinello, they're sitting there on the same plot of land.

For many decades, the early history of Ferrari, it's the same people. Yeah. Same people making the same cars under the same roof. Pinnacle of motorsports. road cars that you can buy built and maintained and serviced by the very same

People. That is an incredible proposition as a client. I mean and if you think about it, it's really not that different from any other luxury company heritage out there, like Thierry Hermes and his sons making saddles for the nobility and the new haute bourgeoisie on the boulevards in Paris. and also making saddles for the jockeys jumping and racing on the weekends. They're the same people, making the same saddles. Enzo and his team are the same people making the same cars.

But I think you nailed this point that I think is a little bit lost today, which is even then, in nineteen fifty-ish, you're not just gonna go buy a Ferrari and then race it. This is a highly maintained service. thing that is not just like a product that you own. It is a bundle of product and services that get it ready for any given situation. Yeah, we joked earlier about the you know, you could drive these things on the street when they work.

that was part of the point. Like they were built to be racing machines. Right. And a lot of clients didn't race them or, you know, if they did race them, race them not very well. But the point was you could. This was a weapon. This is not a mode of transportation.

That's a trade-off clients were intentionally willing to make. This is not the most practical car. It's gonna have all sorts of issues if I wanna use it as my daily driver, but it's an amazing race machine. And because I race, or maybe not because I race, I want to own a race machine and so I'm buying it trade-offs and all. Yes. So then in 1950, the pinnacle of motorsport arrives, the new Formula One World Championship Series.

as we talked about at great length on our Formula One episode. And Ferrari, of course, would become one of the founding teams. And the only F1 team continuously operating from the beginning of the sport all the way through to today.

But of course they are. Participating in the pinnacle of motorsport, as we've just been talking about, is integral to what Ferrari is. And if you buy a Ferrari as a client. What you are buying is a direct connection to that ongoing heritage in a way that you are not with any other auto manufacturer. At least not at this point in history in 1950. There have been many others who have tried that strategy since.

obviously less successfully than Ferrari and we'll talk about why. But yes, this is the Ferrari formula that they uniquely execute well. on it. So... as we continue the operatic life of Enzo Ferrari here. The reentry into the racing business and the new pinnacle of motorsport in Formula One unfortunately comes with renewed tragedy. Enzo would hire the young Alberto Ascari, who is the son of one of his two mentors, who died when Enzo was racing for Alfa Romeo.

And Enzo would take Alberto under his wing, treat him almost like a surrogate's son, until in nineteen fifty five, Alberto is killed, practicing in a Ferrari at Monza, at exactly the same age. That his father died. And Enzo vows that he will never become emotionally close to a driver again. He's witnessed too many deaths in his life. But unfortunately, Frenzo, death during this time was only just beginning to reenter his life and his company.

And the next death is really the one that kinda defines the rest of his life going forward. Yeah. But before we continue this beautiful tragedy of Enzo Ferrari and his company. Now is a great time to tell you about one of our favorite companies, Vercel. Vercell is building the defining developer infrastructure platform for the agentic era.

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You can learn more at forcell dot com slash acquired, that's V E R C E L dot com slash acquired, and just tell'em that Ben and David sent you. Alright, so here in the nineteen fifties Truly, truly beautiful and truly, truly tragic opera of Enzo and Ferrari continues. First, let's talk about the beauty. The Ferrari 250 series, which for some of you means a lot. For the rest of you, we're talking about the Ferris Bueller car. Undeniably one of the most beautiful automobiles. ever manufactured.

But, David, did you know? It is the Ferris Bueller car, but the car you see on screen is actually not a Ferrari. Yes, it's a replica. And Ferrari sued the replica maker after the movie, right? That's right. Believe it or not, it is essentially a retrofitted Ford. Yes. Deeply ironic given what we are gonna talk about in a minute here. And then there's a second version of it that I think is even a less real drivable car that they used when it

slid out the glass and fell down and smashed on the ground. So they did not wreck a real Ferrari. In fact, there is not even a real Ferrari in camera in that entire movie. Or at least in that shot. Yes, you don't need to worry. No two hundred fifties were actually harmed in the making of Ferris Bueller's Day Off. Yep. So As we talked about, the first Ferrari that Enzo sold to clients was the one sixty six. But less than a hundred of them were ever made.

Which must mean that there was demand for a hundred and one because there's the the famous Enzo Ferrari quote that is the business strategy today. Ferrari will always deliver one car less than the market demand. I think that actually might be the strategy today. Back then with the 166, there was demand for a lot more than 101. That's true. But they could only make a hundred. So in 1952, Ferrari comes out with the 250 series. And this is the first real production Ferrari. And over the next

set of years throughout the fifties, Ferrari manufactures a few thousand of them. So, you know, still a very, very boutique, you know, essentially handmade sports car manufacturer, but a lot more scale than the hundred or so. Yeah. Yeah. Yeah, and as we were alluding to earlier, this car is just No matter which variant of it you're looking at it, the the one in Ferris Bueller's Day off is a 250 GT California. It is truly, truly beautiful. And it was designed not

By Enzo Ferrari, or even anybody who worked at Ferrari. It was designed by Batista Pinin, it was his nickname Farina. And his Pininfarina coach belt. So remember earlier when we talked about Enzo's first business venture was he was going to be a coach builder? Turns out that was not his calling in life, but that was the calling in life. for Pin and Farina. He was basically the Michelangelo of car body coach builders and Enzo totally realized it. Totally glommed onto it.

And built this beautiful partnership with Pin and Farina, first Batista himself and then his son Sergio, and then multiple generations, that lasted sixty-one years. This was a multi generational partnership. It lasts all the way up until twenty thirteen. The law Ferrari. Ferrari. The La Ferrari Halo car was the first fully in house designed Ferrari. And during those sixty one years, I believe every single roadgoing production Ferrari, except for one, I think, was designed by Pen and Farina. Wow.

It really is. So Luca Del Monte in in his book writes, Enzo was looking for someone who could complement the mechanics of his cars with their body designs. body and engine, elegance and power, had to go hand in hand, and had to be born and grow together. He said that he was not looking for a tailor, but for a coach builder who worked at his side and conveyed in the shape of the body

the power and philosophy of his cars. The coach builder, he said, must be involved from the beginning of the project, not merely called upon to dress a finished project. It really was a partnership. between Enzo and Penant Farina. As much as Enzo would kind of make noise about, oh, I just make engines and then, you know, we slap some aluminum on, I I don't really care what the aluminum is. Uh No, these things were thoughtfully designed and built hand in hand.

Yeah. Pen and Farina was like the Johnny If to the end of Steve Jobs. That's a great analogy. And in fact, Johnny Ive is gonna come back into the story later as we shall see. Yeah. Probably also worth a quick moment here to talk about the sort of Italian nature of beauty and luxury versus the French nature of beauty and luxury that we've covered on Hermes or L VMH. In both cases, French luxury and Italian luxury.

What you are buying when you are buying one of these products is a mixture of craftsmanship. and a dream that it represents. But the sort of nature of those two ingredients are different between French and Italian luxury. The primary ingredient in French luxury is the dream, and specifically the dream-like connection to French royalty and this like mostly imagined past that, you know, if you buy a Birkenbag or if you buy a Louis Vuitton trunk, you too can be like the bygone French royalty.

Of the nobility. Yeah. Exactly, exactly. You can live that dream. You can live that life. And the beauty that's associated with that is, you know, very regal, very soft, very refined, very elegant. And quiet. It's not yelling at you. Yes. There's no engines involved. There are no engines involved, that is for sure. There are French car makers, but we're not gonna make any episodes about them, shall we say? Italy though, doesn't have the same kind of history.

as France. I mean, it's got like the Roman history and all that, ancient history, but it doesn't have the same royal lineage and history. So with Italian luxury, the primary ingredient is the craftsmanship. And that's embodied in the design and the passion. The myth, the dream that you're buying is about reinforcing That passion, that emotion that went into the product. And the best way I can think of to illustrate this.

is just the centrality of the designers. Like who are the designers at Hermes? If you really know the house, if you really know Hermes, you probably know who the designers are, but For most Hermes clients, it's just like, oh, this is Hermes. Yeah. In Italy, it's totally different. You could have Gucci, but it's like,

Well which Gucci is that? Is that Tom Ford Gucci or is that Gucci in the Wilderness Gucci? Or name your other designer like Giorgio Armani or Donatello Versace or Valentino or Brunello Cuccinelli today, like the actual people and the designers and their passion and their personality is much more central than in French luxury.

That's interesting. I'm not sure I totally agree with the distinction, but a thing that I will say is you go to Paris to absorb the history and look at the fine museums, and you go to Italy to feel something. To live the good. Let loose. Yeah. To to live your life in the fullest. To let your hair down. I mean, it's a whole different side of life they are asking you to embrace when you are doing something distinctively Italian. Yes.

It is a very different kind of thing. And in this era, right after World War Two The greatest designers and the greatest innovators in Italy were the car designers. And these are death machines. Totally. You're on the edge. You're living every ounce of life that you possibly could to the fullest. These are death machines and they are being designed by the era and the country's m most esteemed designers. Yes, yes. They are beautiful death machines. Reckoning to risk it all.

That is exactly on point. And thus comes the yang to the yin of beauty, which is this tragedy in death that is such a part of Ferrari and motorsport. So we talked about in nineteen fifty five. Alberto Ascari, the sort of you know surrogate son, if you will, to Enzo, is killed at Monza the very next year. In nineteen fifty six, Enzo's own son, Dino, who he's been grooming to take over the business. He's the Continue the family lineage, his heir, his actual heir.

dies at age twenty four of muscular dystrophy. So not in a race car, but a horrible, tragic disease. I mean, and that's even more tragic. Yeah. It's more romantic if he had died in a race car. And Enzo has spent twenty-four years since Dino's birth keeping him safe. I mean, doing everything that he can control in his worldly power to not be around race cars. Yes, yes, it's such a great point.

He's not racing them. He's trying not to have Dino race them. He's not meeting the drivers anymore. He's trying not to get too wrapped up in the lives of the drivers. And yet his son has still taken from him in this horrible illness that he cannot control and is pure randomness and awfulness. So that's a great point. And it is truly shattering for Enzo. This is the shattering event among many shattering events in his life.

Yeah. Because it's of course the grief for his lost son, but it's also the grief for his empire. Like he is is gone. He has no heir anymore. The line won't continue. So after Dino's death. Enzo stops going to races. It's sort of like a self inflicted punishment that, you know, if Dino can't be here with me to go to the races, then I will no longer travel to and go to the races to my great terrible joys. And it is both the end of his family line

or so he believes at this point in history, but also it's the end of sort of the inherited company. That this is an old school era of capitalism where the company would be passed down through the male air in the family. I mean today Ferrari is a publicly traded company with

m multiple families and owners and parent companies and holding companies involved. Enzo's assumption here is that none of that is gonna happen in the far future. It is that Dino, my son, will own it and his descendants will own it. Well, if you know anything about the shareholding structure of Ferrari today or its board of directors, you might say, wait a minute. There sure is a Ferrari who owns it.

Yeah, isn't there a current member of the Ferrari Board of Directors named Piero Ferrari, who owns ten percent of the company and is also the biological son of Enzo, who very much would have been alive at this time. So Enzo had an affair, Enzo had many affairs, but one of his affairs with a woman named Lena Lardi produced a son, Piero. And the just

devastatingly cruel reality of Italy in that time and place is that illegitimate children by law did not exist. They were invisible. Piero was invisible at this point in time. So Enzo knows he has this other son, who he loves. But who will never inherit his empire. And when you say invisible, he certainly isn't a Ferrari. No. He's not taking that surname. Divorce was illegal at this point. Yes, divorce was not legal in Italy until the nineteen seventies.

So in the eyes of the law, like not an heir. Yeah. Not capable of being an error. A tragedy is the only word that I can think of to describe it. So that was nineteen fifty six. And then in nineteen fifty seven. At the Mila Miglia race in Italy. Sh this race, this is this amazing legendary race through Italy that ran a thousand miles. Yes. And it runs from nineteen twenty-seven to nineteen fifty-seven. It is

beautiful and bloody. There is at least one death in every single year except nineteen twenty seven. and a small span, nineteen thirty one to nineteen thirty four, and another two year span of thirty six to thirty seven. But basically this was this race that everyone came out for and watched death. And Enzo has a quote on this. He loved the Mile Miglia. He said, it is the race of the people.

One may say that the whole of Italy leans forward with her eyes on the tarved strip of roads somewhere along the course on Mile Emilia Day. It is a day when I feel that my life is useless. Wow, I didn't realize that this nineteen fifty-seven race is the last one. It is the last. It ends with this. So at this race in nineteen fifty seven, again, two years. after the F one crash that killed his driver protege, one year after the death of Dino, a Ferrari flies off the road and into the crowd.

Killing the driver and nine spectators, including five children. And after the race, Enzo is charged by the Italian authorities with manslaughter. Was he even at the race? I don't believe he was at the race. No. But he's the owner of the company that made the car and there's a high death count. Right. Right. Well, it's not just that he's the owner, it's that he is the architect of this slaughter, basically, which is exactly what the Catholic Church.

charges him with. So not only is the Italian state, the police, you know, charging him with manslaughter. The church, the Pope, comes after him. So the Vatican's official newspaper runs a story after the with the headline of Industrial Saturn Saturn, of course, being the Roman god who devoured his own children, and it calls Enzo a modern Saturn become industrial tycoon, he continues to devour his sons, as in the myth.

so unfortunately in reality. Ultimately Enzo is acquitted after long process in the legal case, and he reaches a compromise with the Vatican, That he can continue racing and Ferrari can continue to sort of exist as this sort of national champion within Italy. Oh Oh is this as long as they're not Italian vibes? As long as he agrees to never hire Italian drivers. You know, basically like you can kill young men as long as you don't kill our young men.

Brutal. Oh man. But all of this, this whole era, this just waves incredibly, incredibly heavily on Enzo. And you might be wondering, like, why do the drivers why are they okay with the death? Why is Enzo okay with the death? Enzo viewed this as a fundamental human expression of striving. H his comment is that one drives at high speeds in order to transcend oneself. And

many of the drivers would sort of echo this same thing. Ken Miles, who is a very famous race car driver, actually on the Ford and Shelby U the US side that we'll talk about here shortly. His quote on this is I'd rather die in a racing car than get eaten up by cancer. And it's this idea that look, we're gonna die, but I get to feel like I live the most life. By putting my life at risk and living right on the list.

I mean it's kind of actually like a way of fighting back against death. Yes. These cars are weapons to fight. against death. You can come right up and you can like stare death in the face and you can hopefully say not today or or not. So again, paradoxically All of this tragedy is just great for business. This is part of the attraction. It only makes Enzo and his Ferraris more globally known, more romantic.

More coveted. But it's like for Porsche when James Dean died in the Porsche five fifty spider or in the modern era when Paul Walker died in the Carrera GT. That made those cars legendary. That made people want them. Yep. And here is Ferrari. It's even more. His cars are being labelled by the Pope as forbidden fruit. If you're a young man or if you're a more accurately, a middle aged man having a crisis, like, you know, what more could you desire?

And uh yeah, i if the Pope says you just can't do this one thing, what's the one thing you're gonna be interested in doing? It's like it's like a toddler. No, y you j as long as you don't have candy, we can do anything you want. Exactly. So throughout the late fifties, sales of Ferrari two fifties are just

ramping, you know, they are flying out of showrooms across the world and particularly in America. By nineteen sixty, production reaches three hundred cars a year. You know, they're making more or less one two fifty every working day. And by nineteen sixty two it's five hundred. And I believe at this point, distribution is sort of roughly divided a third, a third, a third between local Italian clients.

American clients and then the rest of Europe. And production just keeps growing by call it fifty to a hundred cars a year throughout the early sixties and there is plenty of demand. Yep. By nineteen sixty three though Enzo is now getting older. He turns 65. He's had all this death. He publishes his memoirs, which, you know, as we

said before, are aptly titled My Terrible Joys. His plan by this point is that he'd be getting ready to hand the company to Dino, but Dino is dead. At a press conference that's held, one of the journalists asked Enzo You know, you're you're older now. What will happen to Ferrari when you're gone? And he replies with the famous quote from King Louis the fifteenth in France Après moi le deluge

Chaos, you know, the French Revolution, it's all coming after me, it's all gonna end with me. And of course Pierrot at this point is already working in Ferrari, he's an employee at Ferrari, but it's a secret that he's Enzo's son and he knows he can never inherit. I didn't realize it was still a secret.

I mean, people within the company know, but it's like you don't talk about, hey, Piero is actually Enzo's son. So the question that the journalist asked remains though, what's gonna become of the company? Yeah. Right. We'll enter.

The Ford Motor Company. And Ford versus Ferrari. Yes. So listeners, most of this is from the book Go Like Hell, which is the book that Ford vs. Ferrari is based on. Am I making So in nineteen sixty three, Henry Ford II, which Notably this is the grandson of Henry Ford I. There was Henry Ford, then Edsel, then Henry Ford II. And he's he's looking to make his mark.

I mean, he at this point it's third generation ownership. Ford is this great American company. There's a lot of people that are sort of throwing barbs saying, Well, I mean, this is your grandfather and then that was your father, but like how much of this is really you? That's starting to kind of weigh on him. He decides that Ford needs to be in the racing business to change their image and stimulate sales for the new generation. Now

Over in the racing land of Ferrari, they're on a hot streak. We've been talking about their production at this point in time, but They had just won Lema in nineteen fifty eight and then all in a row, nineteen sixty, sixty one, sixty two, sixty three, sixty four, sixty five. So if you are interested in entering racing, either you gotta beat Ferrari or you gotta own Ferrari. Yeah. So the Deuce, as Henry Ford II was known. What a great racing moniker, the deuce. Right?

Right? Oh, and Enzo's got some great ones too. Yeah, I mean ultimately in his older age he becomes the grand old man. But what was he before that? il commandatore and the Drake Yes He's he's got some great ones. So the Deuce, over in America, gets word, weirdly through their German subsidiary, that a mysterious letter has arrived from the German consulate in Milan that an internationally known Italian automobile factory was interested in selling.

Hmm. So already you should kinda There's something going on here. be a little suspicious of how this information comes to Ford. But Ford is not. Ford just goes, oh, this is interesting. Let's try and figure out who's thinking about selling. Well it doesn't take him long to figure out that it is Ferrari. That's all.

Yes, they begin sort of a process to try to buy it. And Ford at this point has basically no racing capability of its own. This is an entirely new muscle for them. So they make an offer to buy for us. The asking price was originally$18 million, but somehow Ford manages to easily negotiate it down to$10 million.

So again, a little mysterious, a little suspicious. Like maybe that was a little bit too easy. The agreement that is drafted and hits Enzo's desk. I mean, think about what could have been. This is the craziest. pitch. There are two companies that are formed. One is called Ford Ferrari. It is 90% owned by Ford, and it would make a road car. There's a second called Ferrari Ford that's ninety percent owned by Ferrari. That's the racing. Racing team.

So this document is on Enzo's desk. He digs into it and he's looking through the fine print and he kind of realizes if I want to go racing and Ford does not want to go racing Who decides? And of course Ford says, Well, we're we're buying your company. We have the final say. Ultimately I control the budget. Right. So Enzo of course hates this and in dramatic fashion he blows up the deal right at the finish line, all while the papers had been reporting, you know, the information leaked.

that the Americans were about to buy this Italian national treasure makes big headlines when the deal blows up. You can imagine why this is in Ferrari's public relations interest based on everything that we've been describing about their business strategy, of course. Then Henry Ford the Second is absolutely incensed and he has this great quote In May of nineteen sixty three he goes to his lieutenants and he says, We will go to Lama and beat his ass. We're gonna race him.

And Ed says probably like think of dumb Americans the whole time. Yes. There's this great quote in the Brock Yates book about Enzo and his opinion of the Americans, which is something like he realized the fundamental truth. To selling European luxury goods to Americans. Treat an American like a hick and you'll own him for life. Oof. No that hurts. Ja.

That hurts. So the whole Ford vs. Ferrari movie is what happens next. And it's it's a great movie with Christian Bale and Matt Damon. And while it's of course dramatized, the bones of the story are actually pretty factually correct. So I highly recommend it. So what happens is Ford Who at this point says, we got an unlimited budget. We just gotta go beat these guys, enlists the help of Carol Shelby and the driver Ken Miles.

and sort of a real crack team of American mechanics and and racers. They actually do, after a few years, beat the Ferraris in the nineteen sixty six Lamont race, finishing with Ford's in first second, and third. It's this incredible story, but ultimately, this is a complete sideshow. What's what's really going on? What are Enzo's true intentions here?

So this is done of course to market the exclusivity of Ferrari and how they're the mark to beat and it's a great tactic to sell cars, but it's also to signal that Enzo is willing to do a deal. He is willing to sell the company. That's why he wanted all the papers writing about the fact that he was, but it had to be on his terms with the right partner, and he had to be able to go racing.

Yep. It's kind of like Enzo and Ferrari got a dual benefit out of this whole saga. One as you said, like, this is only great for the myth and the legend of Ferrari of like, oh, we were going to sell to these big, ugly Americans, but They wanted to take our racing from it and we said no you'll have to kill us in order to take it. Exactly. And it is this Italian national treasure. I mean, that's real. That is the cultural export of Italy.

And it was a way to signal to the market, like, hey, I might be open to a D. Yes. So any last little misconceptions you have about Enzo Ferrari not being an excellent businessperson and negotiator, that should be completely dispelled at this point. So, David, what happens next? So all the Ford vs. Ferrari drama was going down between the years of nineteen sixty-three and call it nineteen sixty-six, sixty-seven. Yeah. Yeah. All this.

Enzo's doing great. He's in his late sixties at this point, but he's loving life. As much as Enzo is capable of loving life, he's healthy, he's reinvigorated by this battle. Everything's going And then, after all the Ford drama, in 1968, Enzo contracts kidney disease. And it's pretty bad. Like he thinks This is Probably actually going to be the end. And statistically he was right. Yeah, and it gets so bad, as we'll see in a moment, that

shortly after this, in nineteen seventy, he goes into organ failure and has to be hospitalized for months. Like he he really should have died at this point in time. But as always for Enzo, fate has other plans.

So once he comes down with the disease, he gets serious about actually selling the company. And he sniffs around, he talks to his old buddies Adalfa Romeo, and they sort of work on a deal not to Enzo's liking. Really at the end of the day though, there's only one. Correct buyer for Ferrari. And it's Gianni Agnelli and the Fiat Empire. So in nineteen sixty-nine, Enzo strikes a deal with Gianni to sell fifty percent.

of Ferrari to Fiat immediately there in nineteen sixty nine with a secret agreement. Triggered upon Enzo's death, which again he thinks is imminent, Fiat will acquire another forty percent, taking their stake to ninety percent. And ten percent of the company will transfer to Piero once.

Enzo dies, his plan is to as much as he can legitimize Piero, give him the Ferrari name and give him a ten percent stake in the company so that the bloodline To some extent, as much as it possibly can in that time and place will continue. And part of the deal with Fiat, just like he wanted with Ford, is that Fiat, you can take control of the road car business.

But I'm gonna retain final authority over racing. You know, I know that my end is near and I wanna spend my last days on this earth doing what I love, which is running the racing team. The incredible irony was the end was nowhere near Where dear. And actually the world would change enough between this moment and when he would eventually pass that Piero is able to take over as Piero Ferrari, son of Enzo. Yeah. Yes, yes.

So how many years was it between nineteen sixty nine is when the fifty percent sale to fiat? He doesn't pass away until He lives another twenty years. Yeah. Nineteen years. Nineteen eighty eight, like he lives until I was born. Yes. Is is where's the sort of the end of his life. Well, he lives to launch the F forty, which is the last car that Enzo launches. So there are two really interesting things about this deal. One, Enzo started his career by applying for a job at Fiat and was turned down.

So that's a total full circle moment there. The other full circle moment is that Gianni Agnelli was one of the very first Ferrari customers of their road cars. It's amazing. And when you look at the actual deal, this this blew my mind, David, if you do the Lira to US dollar exchange rate in nineteen sixty nine, They ended up selling half the company for a little under three and a half million dollars, valuing all of Ferrari at six point eight million. Wow. Oh my goodness.

Enzo really wanted to do this deal, and I think he determined at this point in history. I'm I've not seen this written in it anywhere, but I'm reading into this, you know, even Ford thought it was worth somewhere between ten and eighteen million earlier in the decade. Enzo basically had one bitter and he thought, I have no exit path other than this. This needs to land with Fiat and

Whatever the price is, it is. And so I think Fiat basically got a steal on this because it needed to stay in Italy and it needed to go to a strong, thriving country. Car company. Car company and and family and the and Yellies. Yes. Interesting. Well d all of this just underscores the most critical point here. I think this is probably the moment in history where the False.

legend that Enzo only cared about racing and wasn't a real entrepreneur emerges from. Because if you look at the fact pattern, it makes sense here. Like he wanted to spend his last days racing. He did this not great deal with Fiat. Yeah. The only reason this happened is because he truly thought he was about to die. Yep. And he really did just want to spend his last days on Earth.

running the racing team and he wanted to ensure continuity for the company and a role for his son Piero going forward. That's what happened here. The state of Ferrari is kind of grim at this point too. The factory needed investment, the racing program was unbelievably expensive. They're starting to face very real competition from Lamborghini.

They were founded in nineteen sixty three specifically to challenge Ferrari, at least Lamborghini Motors, which we'll come back to. And there was manufacturing headaches happening because of Italian labor unrest. And so Yeah. Asking someone to take on Ferrari's operations was a tall order, in addition to needing to sell.

Yes, I'm glad you brought up Lamborghini. Lamborghini had just launched the Mira, the Lamborghini Mira at this point in time, which was a truly excellent car. Yep. Like a better Ferrari than a Ferrari at the time. So there was Real headwinds in the business. And this is really why Fiat and Gianni and Yeli had to be the buyer to stored Ferrari through this period. Now, as we said earlier, Fate had plans other than death.

for Enzo. Right after the sale in nineteen seventy, Enzo does go into organ failure and is hospitalized. He's away from the business for many months. Which really makes it incredibly fortuitous that he had already done the deal with Fiat, so there was management to keep the company running while Enzo is away. Miraculously though, He recovers. And in the spring of nineteen seventy one, Enzo, the grand old man.

is back in Marinello at the head of Ferrari. But it's a Ferrari that he barely recognizes from when he left. He had his come in. This is where he intersects with another young man who would go on to carry the legacy and the spirit of Ferrari for really the next forty years. and into the next generation and build Ferrari what it is today. We have the break in between. Little break in between. Luca de Montezemelo. But before we tell Luca's story.

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Of Lucas story. So in 1971, when Enzo gets back to the office in Marinello after his hospitalization, he Tunes in to a fateful talk radio show where he discovers a young man who will bring a breath of fresh air into his So Montezemelo, to many of you listening, is already a living legend. I mean, as much as anyone in Ferrari history besides Enzo

Luca DiMontezamelo is Ferrari. And as I mentioned, I was very lucky to get to speak with him for a few hours in research for this episode. And I also got to watch this great movie about him that has just been made. It's called Seeing Red. It's with Chris Harris, the top gear presenter. How did you get that? Because that's not out yet. Yeah, it's not distributed outside of Italy yet, but I got a link to watch it.

It's directed and produced by Manish Pandy, who wrote and produced Senna, the Senna movie. It's really, really excellent. When it's available in whatever geography you live in, very, very, very much worth watching. So Luca was born in 1947, the same year that the modern Ferrari commenced operations. Very poetic. in Bologna in Italy, but he moved to Rome as a child, where his best friend growing up is Cristiano Rattazzi, who is the son of Susanna Agneli, Gianna Agnelli's sister.

So Luca grows up almost like a member of the Angeli family. His best friend is, you know, one of the Angeli heirs. And Luca comes to develop a close relationship with Gianni. And he would say Gianni was like a combination of an older brother and a father for me. So in nineteen seventy, young Luca moves to New York City. to go off to study international law at Columbia Law School. Around the same time, though, he's also pursuing another career. has a rally car driver. Really?

Like a rally car driver. Right. Yes. Yes. I don't think I've ever seen a Ferrari rally car. I don't think these two things have ever intersected. These universes are about as far apart as you could possibly get. But this is how Luca starts in motorsport. And so that one fateful day in 1971, Luca, the rally car driver, is a guest. On this popular call-in talk radio show, and an audience member calls in to basically accost Luca and chastise and criticize the entire motorsport industry.

Kind of much like the Pope in nineteen fifty seven, starts just laying into Luca this collar, talking about how motor racing is evil, it's dangerous, it's bad for the environment. Like this is a sport just for rich people, it has no value in society. And Luca, impassioned, rises to the occasion and he gives this passionate defense. He speaks eloquently, poetically, he shuts down this collar and really gives this incredible reflection.

And who happens to be listening to the program but Enzo Ferrar? Unbelievable. You just can't make this stuff up. You really cannot make this up. And he's kind of this perfect person,'cause if Enzo's gonna take a liking to him here, I don't know what you're about to say, but if he's kinda Enzo's guy, but he's also a pseudo family member of the Agnelli family, it's kind of this perfect candidate pool of one. Yes. So Enzo calls up the radio station.

And he's like, I gotta know who this kid is. I wanna get in touch with him. Who is this rally car driver? And literally the quote Luca told me that this is what Enzo told the radio station. Enzo said, This boy has big balls. I want to talk to him. Wow. Oh. So Luca and Enzo meet, and Enzo says to him. I like you. You know, you've got big balls. I've been away from my business for too long and I need some help. What I really need is

I need an assistant, but I need a spy who can go throughout the organization and report back to me what is actually going on in my company. You don't have to ask Luca twice here. He takes the opportunity and goes to work. for Enzo as his assistant here in the early

seventies. Now of course, at some point along the way here, Enzo also learns of Luca's connection to the Agnelli family, which only makes him even more attractive. He's like, ooh, now I can have a spy at the Fiat in the Agnele family too. So great. Right. So the first thing that Enzo assigns him to do is go figure out what's going on with sales of the road car business.

Like go spend some time with the distribution network, understand who the clients are, understand who the collectors are, who are the dealers. So Luca does, he comes back, he reports. It's not good, as you were alluding to, Ben. This is a pretty tough time for Ferrari here in the seventies. The oil crisis is underway. Any car with an engine size over two liters was taxed at a incremental forty percent in Italy and throughout much of Europe.

The whole sports car industry is basically in the dumps. So Luca reports all this back to Enzo, and Enzo's like, okay, great, you passed your first test. Things aren't good on the road car side of the business, but like at the end of the day, that's Fiat's problem now. Okay, my real assignment for you. I want you to go to the next Formula. Just go, just observe. Just tell me what you think is going on with the team. Yep. Now at this point, here in like 1973, 74.

Things are really bad for the Ferrari F1 team. They haven't won a drivers or constructors championship for 10 years. a historic drought for Ferrari. So Luca goes, he observes a race and he calls Enzo up and he says, Hey, look, I advise that we just take the cars home and we don't race them. We have no chance of winning.

And and it's like, okay, okay, well, we're not gonna take them home, but we need to get competitive again. What what are we gonna do? And Luca's like, the issue is that the sport has changed. This isn't just an engine sport anymore or power. We're now in the era of Colin Chapman and Lotus and Aerodynamics.

Aerodynamics and the chassis is way more important and the Ferrari team is stuck focused a hundred percent on the engine. Like we have no chance of winning. So Enzo says, Okay, here's what I'm gonna do. I'm gonna make you, Luca, the team manager of the Ferrari Formula One team. And your mandate is to fix this. I can't fix, I'm Enzo. I'm like the engine guy. You go in, you can be the new blood, you can fix it.

And this is amazing because this is quite the quick promotion for Luca. I mean it's like a guy he found that he brought in to be his assistant. I mean he was a much more than an assistant, but that was his title. He's not even thirty years old yet. Suddenly you're managing the Formula One team, which historically is the driver that creates all the lust that sells the cars. Like this needs to start working.

Yes. Oh, Luca has this great, great quote on the nature of the connection between Ferrari's performance on the track and the business selling road cars. He says, There is not A direct correlation between Ferrari victories on the track and the number of cars that you can sell. If for many years you do not win, it means that you do not add wood to the fire of the myth. The myth of Ferrari is based on competition, on cars.

In the competition, you can win or you can lose, but you cannot only lose. It's so perfect. It is perfect. So Luca comes in as team manager and he revamps the team. He brings in great chassis folks, he brings in great aerodynamics folks, and The most important thing, he goes out and recruits Nikki Loud. To come in. as their number one driver. And in 1975, with the new team, the new approach, Luca as manager, Nikki Lauda wins the drivers' championship.

for Ferrari and Ferrari wins the constructors' championship, ending the 10-year drought. And there is great rejoicing. Luca is now revered across Italy. He's not even 30 years old yet. Wow. As this young hero who has come in and saved essentially the national team of Italy from this despairing period. It's amazing. And the funniest thing is imagining as you describe these conversations that Luke is off doing stuff and he comes back and reports to Enzo.

where is Enzo's house in all this when he's sort of like recovering from the illness and It is around the corner from the Ferrari factory in Marinello. It's this farmhouse. And in this exact period, actually a couple of years before, in nineteen seventy two, so after the illness, but before the Nicki Lauda F one victory.

they actually build a full racetrack adjacent to Ferrari's headquarters that goes around Enzo's house. So Enzo can walk out of his farmhouse and watch them testing the cars on this, I mean, truly unbelievable custom racetrack only for Ferrari's research and development. Yes. It's incredible. But he needs Luca, the young guy, to come in and change the culture. Enzo can't do it. He's too bound. He's a prisoner of his own myth and his own legend. Yep.

Uh so all of this is great. Truly, truly great. There is rejoicing throughout the country. But there's just one problem, which is Enzo's pretty used to Enzo being the guy. So he starts to get a little jealous of young Luca. Now, they always have a great relationship. There's not like personal animosity here. But uh a couple things happen the next year in F one. There's the... truly crazy tragedy of Nicki Lauda catching on fire. Horrific.

actually catching on fire at the Nurberg ring. He's severely burned. He should have died. He does not die and he wants to come back and race. He's in contention for the champion. He ends up not winning the championship that year, even through this great act of bravery to try to come back. But almost does, remarkably. I if you're interested in this, go watch the movie Rush. It's awesome. So good. Enzo though, remember, he's very experienced.

with these race car drivers and their brushes with death. Enzo, I think, kinda loses faith in Lauda as a driver after that. He's like, Oh no, he fears death now. Luca still believes in him though, so there's you know some conflict there. Again, I it never gets personal. I think they truly do always kind of love and respect each other. But all of this combines

Luca can't stay at Ferrari. So they ultimately decide it's better if Luca leaves the F1 team, leaves day-to-day at Ferrari, and goes to work for Fiat. in Terran. He remains on the board of Ferrari, Luca does, but he goes day to day to Terran and kinda closer to the N Yeli Empire. And I think Enzo thinks that he's gonna still have a spy now in Viet with Luca, which Maybe he does, maybe he doesn't, but sadly this is

Another tragedy. This is kind of the end of the glory for Ferrari in racing during Enzo's life. They had this great moment together, and for the rest of Enzo's life. There's some ups and downs, but mostly the Ferrari glory on the racetrack is gone, and doesn't return until Luca returns, after Enzo's death.

Much later. And there's this glorious, amazing return of Luca, and there's this unbelievable run in Formula One and the Ferrari road car business becomes stronger than ever, but basically none of it in Enzo's lifetime, in fact, the last ten plus years of his life is a real whimper in the history of Ferrari. The the road car business falls on some real ugly times.

Yeah, it's funny. I I had written in my script here about the last days of Enzo Ferrari. They do mostly end with a whimper, not a bang. But there is one little bang. There absolutely. His last car, Ferrari's first official supercar Halo car. There were unofficial GTO omalligation versions of race cars. And now those things sell at auction for like Forty, fifty million or more. One of them sold for seventy million. Yeah.

So those cars existed in Enzo's past, but there was never a model that was made just to be a available for purchase by our best clients, but a true, true supercar until the F forty, which fittingly is the last Car. that Enzo makes before he dies in nineteen eighty eight, All right. So tell us about that forty. Oh man. Talk about a death machine. The F forty was just this incredible raw

If you look at pictures or video of the interior of the F-40, this is not a luxurious vehicle. There's no leather. The door handle is a piece of string. This is the rawest. It is uh can we throw out everything that is not absolutely required so we can have the lightest weight vehicle possible? And it's crazy. We'll put a photo of the interior of this cabin i in the email. It is A lot of carbon fiber, but not like cool looking carbon fiber. Like raw carbon fiber.

This is the absolute minimum that we could ship. And David, to your point, this thing, while it is a supercar, the same way that the F fifty and the LaFerrari and the Enzo and the F eighty are supercars. This is not a luxury supercar. No. When you're sitting in this car, y you're not sitting in here thinking like I'm a rich person. You're sitting in here thinking like This thing is trying to kill me at every angle. I'm in some sort of test harness. Yes.

tragic, of course, because they're amazing machines. But if you get in this car and you do not know exactly what you're doing, y you're gonna crash. It's interesting. The F4E sort of punctuated the end of Enzo's life or the end of the Enzo era in this really interesting way because it is a supercar the same way that the modern cars are about supercars. They're these high-performance machines.

But it had every flaw of the Enzo era of Ferrari. It wasn't practical, it was purely about being a race car, and made every compromise possible to get there. Yep, Ferrari will. Never make another one like it again. We should say also what F forty means. It was the fortieth anniversary of the commencing of operations of the modern Ferrari, so from nineteen forty seven to nineteen eighty seven when the F forty came out. Yeah. Then the next year, at age ninety, the grand old man.

Does finally pass away. Enzo Ferrari dies in the summer of 1988. Poetically, just after his death. Ferrari in the neck. Formula One Grand Prix that is run after Enzo's death finishes one two wins at Monza. Oh my god. Italian Grand Prix. And that is the only race that Ferrari won that season. Yeah. Either the gods were smiling upon Enzo in death. Bernie Eccleston's fix was in. Yeah. the fix was in. Either way, it was poetic.

For the next couple of years though, oh ma'am, the sorta slow motion disaster at Ferrari continues unabated on both sides of the business. Real quick before that though, it's worth highlighting. So the Agnelli family ends up getting the forty percent. Piero ends up getting the ten percent. But an interesting thing to note, the valuation is extremely different this time around. Yeah, you found detail on this. I couldn't find it.

So a good friend of the show, Arvan Navaratnam from Worldly Partners. uh scoured all of the old annual reports that he could find and in the nineteen eighty eight annual report it reports the amount of lira to acquire the remaining forty percent of Ferrari. I'm so curious. What was it? If you do the exchange rate at that time, it is$77 million, which valued the company at$192 million in 1988. Much different than the, what was it?

Six, seven million in nineteen sixty nine. Yeah. I mean two things are simultaneously crazy right here. One, how much the valuation increased from the first time. Second, that Fiat and the Agnelli family acquired 40% of Ferrari for a valuation of 192 million. Unbelievable. Or that they acquired ninety percent of it for what, seventy two million dollars.

Wow. Or that as recently as nineteen eighty eight it was worth only one hundred ninety two million dollars. I mean this is a company today that's worth Uh uh recently over ninety billion dollars, but today fifty-five billion dollars. Yes. In nineteen eighty-eight, a hundred and ninety-two million. Well, this really just highlights. how different a company Ferrari was when Enzo died. Yes. And how much Luca de Montezemolo transformed it when he came back and became the chairman.

But for the moment when Enzo dies, the sort of slow motion disaster just Continues unabated. Fiat's attempt their best solution to fixing the problem of the road car business. is to produce more road cars, which is the cardinal sin of luxury strategy management. Just as one example, Ferrari during these years before Luca comes back. Ferrari produced 7,000 testosas over the seven years that the testosterone was in production. Compare that.

To Lamborghini, Lamborghini only produced 2,000 Kuntashes during a period twice as long. They made Kuntashes for 16 years. by any normal car company, we're talking s tiny numbers no matter what, but when you're talking about something rare and exclusive and so special as what a Ferrari should be. And then you have a company that you don't even really consider your competitor over there making a more exclusive product and managing it better. That's not a good situation.

No, it is not. And another crazy frame on that, if you look at the production of total Ferrari cars, not just one model, but total cars, in 1982, it was 2,200. If you look in nineteen ninety one, that grew all the way up to four thousand five hundred. They just kept ramping, ramping, ramping and making more cars. Yeah. Not the right fix. Not the right thing. So you mentioned nineteen ninety one. That was the last year of this interregnum period.

Luca comes back. It's so bad. Demand has evaporated so much for Ferraris that for the first time in history, cars are going unsold. They have to furlough the factory workers and shut down the factory. And so when it comes to this, Gianni Agnelli finally calls up Luca and says It's time for you to return. We need you to come back. We are quote putting Ferrari in your hands.

And Luca DiMontezemello returns to become chairman of Ferrari. We should note it's gonna be important here in a minute. In Italy, chairman of the company is actually the most important and powerful title and the CEO reports. to the chairman. So at this point when Gianni calls Luca back, he's been gone from the day to day at Ferrari for almost fifteen years. after Ferrari, he did a short stint at Fiat.

And then he stayed in the Angeli empire. He became CEO of the beverage company Cinzano, which is another Angeli family company. And so he had gained CEO experience. And then the reason that Luca couldn't come back to take over Ferrari as soon as Enzo died, was he had become the organizer and president of the Italia 90 World Cup. So the World Cup in 1990 was in Italy. And Luca organized the whole thing. And there's great stories associated with that. My favorite is that he

convened for the sort of final evening ceremony of the World Cup for the first time the three tenors. The three tenors Didn't exist until the World Cup. And the way he convinced Pavarotti to join,'cause he was the big star, he didn't want to join, was he gave him an F forty. And thus the three tenors were born. That is awesome. So once the World Cup is over, Johnny's like, Okay, enough messing around, you gotta come back. Fix this. So the first thing Montezemolo does.

when he knows he's gonna return to take over Ferrari after Enzo, he goes and he buys a 348, the flagship Ferrari sports car. at the time, just to sort of see the state of things. Like how bad was it really? I'm gonna go buy my own 348 and test it out. And Luca's actual quote on this is The Ferrari 348 was a shit car. It was the worst car we ever made. Everything was missing. It had no personality.

It had no technology, it wasn't state of the art in anything. It had no power. It was all missing. He he talks about when he was driving it, he would pull up to stoplight. and try and race the other cars off the line and see how it performed. Alright. Brutal. What do you attribute this to? What like the Ferrari has deteriorated, it's fallen apart in this era, the cars have no personality, but they also have no performance.

And they're impractical and they're over making them and no one wants them. What's wrong? Like wh why have the wheels come off the bus here?

was fiat. It was all they knew how to do. They came in of like, Oh, the the way we can fix this is we'll increase production. We'll cut costs, so let's share some parts with fiat cars. You know, Ferrari road cars went from being the same thing, built by the same people as the racing cars, as the F one cars and the Le Mon cars in the same factory, to in this period with Fiat control, they're really not the same thing. You know, these are

It's would be too far of a stretch to say they were repurposed Fiat, but they had lost that true connection to race machines. And so Luca comes back and says We gotta fix this. So at at the time, the Japanese sports car industry was on the rise and all the car enthusiasts were saying Ferrari's dead, the Italian car makers are dead, the Japanese have taken over.

Luca has the test drivers at Ferrari go out and buy a Honda NSX and do like his own version of the Pepsi challenge. Like go out there, drive the NSX as hard as you can around the test track. Drive our cars, drive the three forty eight as hard as you can around the test track and they come back and they're like There's no competition. The NSX just blows us away. Wow. Wow. But how sad is that? It's a Honda. A Honda.

That's completely lost to history today. You don't hear anyone talking about Ferrari's this sort of like untouchable Apex brand that it's hard to imagine that happening just, you know, as recently as the early nineties. Right. I mean it's one thing if Lamborghini is beating them. I mean that's bad. That's really bad. But if Honda is making a better sports car than Ferrari, there's a real, real problem. Ja. So how's Luca gonna turn this around? He comes up with three priorities.

The team, the technology, and the myth. So number one, the T. the Formula One team. We have to fix the Formula One team. Going back to his great quote, you know, there's not a direct correlation between victories on the track and cars that you can sell, but The team feeds the myth. If you don't add wood to the fire of victories on the track. The flame of the myth will die. You cannot only lose. Yep. So the team hadn't won a championship since nineteen seventy-nine. Luca goes out and recruits.

I think the greatest set of F one team members that had ever existed in history. Jean Todd, team principal, Ross Braun, race engineer, Michael Schumacher. Ferrari number one driver. And it takes a couple years for Luca and the team to turn this around, but this is just absolute domination that they unleash on the field.

By the end of the decade, there would be five straight years, two thousand to two thousand and four, where Michael Schumacher won every single driver's championship five years in a row and Ferrari won every single constructor's championship five years in a row. As we talked about on the F one episode, it it was a problem for Formula One. The sport became too boring because Ferrari always on. Yep. In total under Montezemelo's tenure.

Ferrari wins nineteen drivers and constructors championships, which is more than Enzo. That's amazing. It's incredible how he turned the team around, just like he did back as Enzo's assistant back in the day. All right, then the technology. The technology. The cost. We can't have a Honda NSA. outclassing a Ferrari. Ferraris are about our heritage and our myth, but they are also about looking ahead. We can't be selling two fifties repainted for the modern era.

Yeah. And this is really where the feelings about technology change, where Ferrari went from a late adopter of technology when it's sort of proven, to really pushing the bleeding edge. And today Ferrari spends a good amount more on R and D as a percentage of their revenue than m most other car companies. It's become sort of a a signature of the company. Yep. And this absolutely was a hallmark of Montezemolo's turnaround. Enzo didn't really care that much about technology. That's interesting.

Yeah. Yeah. So first thing they do, we gotta fix the 348, the flagship sports car. So they revise it, they do some stop gap. But ultimately as soon as possible they kill it and replace it with the three fifty five. Which was just a glorious car. And this just checked every box. Amazingly, it was modestly priced. So it was a$127,000. So modest by Ferrari's standards anyway. It was much more sort of user friendly to drive. It actually made sense if you weren't a track car driver to drive this car.

It was really the workhorse of the turnaround, and by 1997, it accounted for 70% of sales. Wow. Wow. The 355, I would put it in the category of like a Rolex submariner of this thing that is a signature of the brand, is perfect product market fit, is priced perfectly and just The other thing to note before they launch the three fifty five.

is Luca massively cut production. So I mentioned that in 1991, Ferrari had made 4,500 cars, which is just this giant inflation. By 1993, just two years later, Luca brought this down to 2,300.

So cut it almost in half in those two years. And production would start climbing again. You know, as I mentioned, the three fifty-five was really well received and they started really building up their back order list again. But interestingly It would not eclipse that nineteen ninety one peak of four thousand five hundred cars again until two thousand and six, a full fifteen years later.

Yeah. We need to not just fix the myth of Ferrari, but we need to protect it and this was Luca's third and most important priority, the myth. Luca came from a very different background and life experience than Enzo. Luca is the one who realized that Ferrari is a luxury company. To Enzo, Ferrari was

A racing company that sold a connection to that to its clients. And Enzo was a marketing genius and he came up with the prancing horse and the red and the myth of Enzo. But you couldn't talk to Enzo about how Hermes was managing its. You know, Enzo had no idea what Jean-Louis Dumas was doing over in Paris. Luca knew exactly what Jean-Louis Dumas was doing over in Paris. Luca is the one who institutes weightless. Luca is the one who institutes presentation ceremonies when your car is delivered.

Luca is the one who institutes custom luxury leather luggage that comes perfectly fitted to your Ferrari. Luca institutes the luxury strategy at Ferrari. Where did Luca come up with this strategy? Like did he adopt the luxury strategy from somewhere else? Did he invent it from whole cloth? I think it's just he comes from such a different background and world experience than Enzo. Enzo didn't know a Birkin from a coach bag. Right. He grew up in Mod.

He grew up in Mona and then after Dino's death, he never gets on an airplane again. He doesn't leave this one region of Italy. Whereas Luca has lived all over the world. He's run the Italian Cup. He's been CEO of an alcoholic beverages company. He knows all the luxury families. He knows all the luxury companies and he studies what they do.

Yeah. It's interesting. That makes total sense. The other big piece of his strategy is anytime you see a Ferrari, it needs to scream Ferrari at you and in a way that was really exemplified by the three fifty five. It looked like all the cool classic Ferraris in the race cars, but it was much easier to drive. So there should be sort of a unification between the stuff we're selling to people and the race cars. Yes, this was another key understanding of Lucas.

These cars needed to be drivable. In Enzo's day, you could get away with the excuse of, yeah, these cars aren't really gonna function on the road because they truly are intended to be race cars. By the nineteen nineties into the two thousands, that's not gonna fly anymore. The people who are the clients who are buying these cars, they wanna be able to drive'em on the street. Yep. He does a handful of other tactics that I would say Set the company up for success in the short term, but add risk.

in the long term. And there's a big need to. I mean, Ferrari was operating in the red when he came in. They generated losses, like real income statement losses from nineteen ninety two to nineteen ninety four. And by ninety six they were back to break even and and by ninety seven they were profitable. But

I would say all the ways to generate profits were not the best long term solution and it took them time and a lot of effort to dig out of that hole. One of which was licensing the brand for merchandise. Yes. Now th there's a pro and a con here, but yes, I thought that's where you were gonna go with it.

Yeah. So there were some smart things, licensing the brand to put on luxury goods and some sportswear. They even started licensing it for toys. And when you're licensing the brand, that's basically a hundred percent margin. I mean it drops straight to the bottom line. So when you're dire straights, it's it's really good. And so it has obvious allure, but

They put the prancing horse on some real garbage over time. My favorite is by 2009, so you know, this is a full fifteen years later, they put the prancing horse on an Acer netbook. Yeah. Oh yeah. I was wondering if you were gonna find this. Just so destructive to their brand. It's the Apex luxury brand of cars, like one of the greatest brands in the entire world. And they have licensed it to this like underclock.

plastic little piece of crap computer. That is like the microcosm of brand destruction, like the reason to resist the heroin of brand licensing. Yes. The Acer laptop was a real low point. But there's a lot of crap that it's It's on. There's a lot of crap that there's on. Now There is some nuance here. If we were talking about Louis Vuitton or Hermes or Patek Philippe or Rolex, This would be all bad. There would be no good reason besides easy profit dollars to do this. フラーリー is A different thing.

Yes. It is an Apex luxury brand, unquestionably in the same way as all of those companies, but unlike those companies, it also has a couple hundred million rabid fans. Yeah. That it needs to serve. And also unlike those other companies, there's not actually attention. Ferrari clients and Ferrari collectors. aren't upset by the fact that Ferrari has a couple hundred million, you know, commoner fans out there. In fact, they're happy about

Right. Ferrari is both a luxury brand and a giant international sports team. Yeah. Yes, exactly. They always talk about the tefosi. Yeah. You know, the hundreds of millions of people who are just fans of the brand and the the spirit and the team. Yep. Yeah, Hermes doesn't have a couple hundred million teenage girls around the globe that have posters of Birkens on their walls that they have to please.

Right. Ferrari is Hermes and Manchester United smashed together. Yes. Yes. Yeah. And that makes it super different. So I guess to your point, that does validate the licensing their brand for merchandise strategy much more. Hey, look, it doesn't validate the uh you know Acer netbook, but uh there is like some actual justification to the activity. Yeah. Manufacture. Should we talk about how that changes under Lucas tenure?

Yeah, so I know a lot about manufacturing today. Did Luca really bring Ferrari's current manufacturing to life? I think so, or at least he started. It was really important to him that the factories be first rate. So he brought in great architects to redesign the factories. And this is when if you look at video or photos of Ferrari factories today, they have trees in them. He brought in the trees.

Yeah, they're absolutely beautiful. We'll link to some factory tours in the show notes. I think my favorite thing about Ferrari. is the manufacturing process. And it's both because of how cool it is from a nerdy perspective, but also the business model that enables for them. So After nineteen ninety four

Ferrari does not have a stock of cars. They're not just sitting there at dealerships. They're not just sitting there at the factory. They don't manufacture them and then find buyers. It's the other way around. So for every single car, they only start manufacturing it After you order and you customize it. And it's important to know that by this point in history, every Ferrari is unique.

There's so much customization that starts happening that every one that rolls off the lineup is actually its own custom car. I mean, maybe just a little detail here or there is different, but you will not find two that are identical. Yep. So Ferrari factories are vertically integrated to the nth degree. Most car manufacturers these days are systems integrators.

Kind of lame. They're just buying from a network of thousands of companies that make common parts that basically go in all of our cars as contracts to the big brands. And yes, the brands do some specification and then they take. whatever it is, some long time frame, five to ten years, to actually build out the full supply chain, source the thousands of parts from all the suppliers, and then integrate them into a car.

Not Ferrari. They have trucks that roll up to the factory with raw ingots of aluminum, and they are casting entire engines themselves right there in Marinella. Everything happens on one plot of land. They build engine molds out of sand. They have 700 degrees Celsius furnaces. and they operate an entire foundry right there on site. They do the same thing for body panel work and stitching the seats and more.

Yes, it it really reminds me of Rolex in this regard. And there's another dimension that it's not. different from just about every other car manufacturer out there. Most other car companies, even the Porsches and the Audis and the Lamborghinis, A lot of the models that they're making are based on shared platforms. So like we'll get into this more toward the end of the episode here, but the Lamborghini Uris, the Lamborghini SUV.

That is the same platform as the Porsche Kayan, which is the same platform as the Volkswagen Toreg. When you buy a Lamborghini Uris, you are buying a car that is essentially a Volkswagen Toreg. Or an Audi Q eight. Is that right? the cues, yeah, no Ferrari shares a platform with any other car. But you're right. When you're a big family of brands like this, you are looking for economies of scale and ways to share more across your line. And you're right, not Ferrari. It's the complete opposite.

And some of this was starting to creep in in the last years of Enzo and the interregnum period when Fiat was taking control. Like there were some Fiat parts and switches that were making their way into Ferraris. And Luca stops all of this. It's like no no no no the only things that go into Ferraris are Ferraris.

It's what makes us different. Yes. And because everything is so customizable, like we were talking about, every single one that rolls off the line is unique, they have left their manufacturing process to be very flexible and manual. They can make any car on any line. There's humans doing manual work at every station except for one, and that one is where they affix the windshield, because you for safety reasons don't want to have people doing that.

But it is crazy and unheard of across the car industry to be able to make any car on any manufacturing line. Now you might say, well, that's really inefficient. And it is. I mean they they don't Efficiency is not the point for Ferrari. Right. they would make for a terrible scaled car company. Ferrari can operate on a much shorter timescale between design and actually getting a car out to customers.

Since there's less overhead in getting started. And it is, it's a it's a double-edged sword. You would never want to do a hundred thousand cars a year with the Ferrari model. In fact, you you barely want to be doing fourteen thousand. But the pro is that they can be really iterative and really responsive to new ideas. They could change their engine casting spec.

without involving a supplier and asking them to do a rebuild of something. And they can also get learnings from their F1 team quickly into cars since it's right across the street. Yep. I think this is like one of the interesting, nerdy business model characteristics of the pros that come from a manufacturing process that sort of doesn't invest in overhead and doesn't allow for the cheapest incremental marginal car to roll off the line. It's more about

How do we maintain sort of the most flexibility at any given point? Because we're selling expensive cars and we've got the margin to absorb. Well really this is how bespoke handmade craftsmanship applies to a modern automobile company. You know, it's the same dynamic as the other luxury companies as Hermes or you know you think Hermes is investing in efficiencies in their factories? Like hell no.

Right. And part of what you are buying, if you are interested in buying a Ferrari, especially l let's say you came into this, you didn't want a Ferrari, you leave this episode, you're like, actually I do kind of want a Ferrari. Part of what you are buying is the lore that I just shared. You kinda like the fact that this is a, yeah, there's robots, but like a pseudo handmade, bespoke, inefficient manufacturing process to make it. It's wrapped up in the value proposition.

There is a team of artisans and experts. aided by technology that is making my firm. Yes, that's exactly right. Yeah, it's super cool. So that's manufacturing. We've talked about Luca's embracing of the luxury strategy for Ferrari. Let's talk about market. Growth. Yes. And international. Yes. So when we're talking about caps on the number of cars they create. It's not that you can't produce any more units without diluting your brand. It's that you can't sell any more units into your current.

Market without diluting your brand. New markets are perfectly allowed as long as it doesn't change the perception in the current markets that, oh no, there's suddenly lots of Ferraris zooming around the streets. And geographic segmentation can be a great luxury strategy. So he goes to start selling in China meaningfully for the first time, and the timing couldn't have been better, since in Europe it was becoming less fashionable to display your wealth. China, it was Very fashionable.

Extremely fashionable. And this is a strategy that they then continued to run. Anytime a new geography sort of came up in global wealth or disposable income or was okay with becoming flashier, then suddenly Th there's a whole new area where you can sell your Ferraris without changing perception in existing markets. Yes. And there's another subtle point here that applies. very specifically to Ferrari. They make So few cars and sell so few cars to a given geography.

that it really is a special experience every time you even see one on the road. Yep. And it's really important not to dilute that. Owning a Ferrari is a truly rare and special experience. But even just seeing Even just being next to one should be a rare experience. The minute that that stops being rare, part of the myth dies.

The funniest thing is since a large number of Ferraris are owned by people with 10, 20, 30 Ferraris, they actually can soak up a lot of the units into garages that you never Bye. Yes. Yeah. So if you're Ferrari and you're trying to manage scarcity, you sort of have an incentive to continue selling to the same person over and over and over because it is a way to generate a sale without having the problem of a Ferrari out on the streets feeling commonplace.

Yes. Now There is one other related thing that Ferrari takes on during this time, which is a lot of Ferrari clients, particularly American clients, Really Wanna family Ferrari. They've got more use cases in their life for automobiles than Ferraris give them opportunity to use it for. You mean to tell me that a forty-five year old man who really, really wants to be out on the track or sort of envisions himself out on the track.

actually has most of his time where he can't be on the track, but he wants to feel awesome and fast and risking his life and associate with a brand kind of like Ferrari, but gosh, that's actually just not the reality of his life these days. Right. Right. He might need to drive his kids to school or you might need to be driven by your chauffeur to an important business meeting. Really you would like a four-door Ferrari for that. David.

I know. Well, it is disgusting, and that is why during this era Ferrari takes on The Maserati brand under its wing. So the Maserati brothers that we referenced earlier in the episode. That company after their ownership had gone through a whole series of ownership changes and the brand had had its ups and downs over the years. It ends up in the hands And in the late nineties, Fiat says, why don't we give Maserati management over to Ferrari.

And then we can, you know, have this connection between the Ferraris and the Maseratis, and we can have models that are Maseratis that are not Ferraris. These are not Ferraris. But there is a connection and you know, we're happy to sell you uh Quattraporte if you want it or uh Gran Turismo if you want it. And uh that's what they do. And so this is when the Quattraporte, the Maserati Quattraporte, launches in America and to great demand.

Unfortunately in the beginning it was not a very good car. It took'em a few years to uh iron the kinks out, at least on the reliability front. But it's a brilliant brand strategy. It's almost like Rolex and Tutor. A Tutor is never going to be a Rolex. But you can have a great use case for a tutor. I was gonna make that connection, I was thinking about it, but I don't think I mean Maseratis are not made in Marinello, right? No, they're not. So Ferrari gets the sort of market intelligence of

w what happens when we launch a Maserati in a market and kinda learnings from customers. But it's not like there's uh manufacturing synergies or on campus learnings from prototyping new things. I think they're pretty separate and they're sort of RD. So they showed great restraint in never launching a Fiat Ferrari car or standardizing on platforms the way that the Volkswagen Group does.

Yeah. I I think remarkably Ferrari has had the soul of a standalone company, even though it was for a very long period of time ninety percent owned by Fiat. Yep. And Luca is a huge part of that, as is Piero too. Yep. Him having the ten percent ownership stake and place on the board keeps that continuity to Enzo and the Ferrari family, even in a ten percent minority ownership way, in the company.

Well, speaking of Ferrari also being part of the Fiat and and Yeli Empire, something pretty big is about to change here as we enter the early two thousands. Which is Gianni Agnelli passes away. And all of a sudden, the Fiat Empire is now in crisis. But before we tell the story of what happens next there and how it incredibly ends up with the IPO of Ferrari Now is a great time to tell you about one of our favorite companies, Statsy.

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But when you're moving so quickly, the challenge becomes knowing which changes actually improved the product. Because when you go faster, you also increase the risk of unintended consequences. And that is especially true when AI is involved. LLMs, of course, introduce nondeterminism into the product experience. So the same input doesn't always produce the same output.

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Teams can ship quickly, roll out changes safely, and measure how those changes actually impact users with a much tighter learning loop. Statsig lets you keep moving Ferrari level fast while uh making sure that what you're doing actually does make the product better. So if you want to ship fast and know what's actually working, go to statsig.com slash acquired to get started. In 2003, Johnny Agnelli dies. Tragically, the logical heirs to the Agneli Empire in the next generation.

had also already died young. So when Gianni dies in two thousand three, his brother Umberto takes over. But he only lives for another year and then he passes away in two thousand four. When this happens, the empire is in chaos. Meanwhile, the fiat business is really struggling. Sales have been falling off a cliff. The company has a mountain of debt and the share price is like Trending towards scraping the bottom here. So the last surviving Annelli of Gianni and Umberto's generation is Susanna.

mother of Luca's best friend growing up. She calls Luca after Umberto death. and ask him to take over as Fiat chairman and replace Gianni and Umberto, in addition to Ferrari. So Luca will stay at Ferrari, but he will now come and serve the Angelis as sort of a stored and a bridge to the next generation while they get the house in order and hopefully try to save Fiat along the way. So he's chairman of the parent company. now chairman of Fiat and for Which they know ninety percent of.

And at the same time, the chosen next heir in the generation below in the Agnelli family is a man named John Elkin. Who you might have heard of today is a celebrated investor and head of XOR, the publicly traded holding company, which is the Engelle Fan.

holding company. He's 27 years old at this point in time though. He's a kid. He's like Luca back in the day when Enzo tapped him to take over Ferrari. Yep. So Luca and John Elkan have to work together to try to save So the first thing they do is they turn to Sergio Marchione, who is a turnaround expert and financial engineer extraordinaire, who has been CEO of SGS.

which is a Swiss consumer products testing company that is also part of the Angnelli family investment empire. And he's completely turned around SGS and saved the company there. And they tap him to come in and help them do the same thing. With Fiat. So he joins as CEO in 2004, with Luca as chairman and John Elkin as the Angeli family representative. Which it's interesting to note here, the Agnele family empire is larger than just Fiat.

Yes. And this is how they really differ from like Ford and the Ford family. The Ford family was always focused on the Ford Motor Company. The Agnelli family, Fiat was the crown jewel, but they invested in and built many businesses over the years and throughout the generations. They really diversify it out of just one company. Yeah. So the three of them together.

Miraculously turn around Fiat and save it from the abyss through the combination of a couple things. First, They launched The smash hit new Fiat five hundred. the mass market platform, the city car for Europe. There was some precedent for this earlier. Volkswagen had relaunched the Beatle in nineteen ninety seven and so that was some of the inspiration. But the Fiat five hundred truly was an amazing success. Yep.

Yes, and especially in Europe. Like it's pu it was popular in the US, but if you live in Europe, you saw the Fiat five hundred all over cities throughout Europe. It sells a million units in five years. It wins the 2008 European Car of the Year at the end. It's truly, truly a special car that saves the company. I gotta say, it's so funny that we feel the need here on the Ferrari episode to extol the virtues of the Fiat five hundred.

Uh but it ends up becoming actually very important and path dependent to Ferrari's trajectory from here and why a few things happen to Ferrari. And it was designed by a man named Frank Stevenson who had been Luca's in-house design guy at Ferrari when Luca was just at Ferrari. So there's a Ferrari connection and lineage there. I see.

gets pushed up to the fiat 500. Now the other thing that happens and this is all Sergio's doing, he totally restructured the operations at fiat. He was like an efficiency and cost cutting specialist and at a company like fiat that actually is like really really important the other thing he did is fiat had a ill-fated partnership with GM with General Motors.

Sergio gets them out of the partnership and engineers GM paying two billion dollars to fee it in order to end the partnership. And I think without that two billion dollars. The company almost certainly would have died. Wow, he is a mature. He really is a magician. So Sergio, Luca, and John Elkin come into Fiat in 2004. Within two years, They have returned the company to profitability. They've got a handle on the debt. Two thousand seven, the fiat five hundred comes out. It's a massive success.

The financial crisis. All of the US car companies. Are in really bad. Man, it's crazy that Fiat just barely got their house in order in time. Otherwise they could have been down with the rest of the global economy. Well. Sergio says, We can play offense here. Mm. So he engineers a partnership with Chrysler, which had been quasi nationalized, taken over by the US government at this point in time. Right. They were in the worst of the positions of four GM and

Chrysler. The big three automakers in the US, yes. So they engineer a partnership in two thousand eight, Sergio does with Chrysler, and then fully acquires the company in twenty fourteen. And that creates FCA, Fiat Chrysler automobiles. FCA. And basically for free, Fiat paid either zero or almost zero in sort of equity value for Chrysler.

Yeah, it truly is amazing what they did. And saved the company too. I mean, Chrysler and Dodge and Jeep and all of its brands are a thing today and part of Stellantis today because of what Fiat and Sergio did during the financial crisis. And Stillantis is the name for the merger between Fiat Chrysler automobiles and Okay. The French company. Okay.

Yeah. One of those French car companies that, you know, we're not gonna make an episode about. So as everything is stabilizing at Fiat and returning to success, in twenty ten, Luca steps down from the Fiat chairmanship and returns solely full time to Ferrari. John Elkin assumes the Fiat chairmanship then. He's now ready to, you know, be the steward and heir of the Agnelli family and work with Sergio and running the Fiat Empire. But There is one call.

Two taking over Chrysler, which was that in doing so, Fiat had to assume Chrysler's debt, including about five and a half billion dollars that it owed the US and Canadian governments. So when this happens, the combined debt load for FCA via Chrysler Automobiles balloons up to over eleven billion dollars.

Fiat announces to Wall Street as part of the merger though, Sergio does, hey, we've got a plan and we are gonna reduce that from over eleven billion dollars to one billion or less over the next four years by twenty eighteen. So they are forecasting a lot of cash flow that the hey, this business is gonna be great, super profitable, we're gonna eliminate ten billion dollars of debt. They are forecasting a lot of debt reduction.

Yeah. Some of that will come from cash flow. Okay. And some of that might come from other places. So Sergio needs, you know, a lot of cash to meet his promise to Wall Street and pay down the debt. Where's an easy place to find it? He's gonna IPO Ferrari and use the proceeds to help pay down the Fiat Chrysler debt. Now, we should know. Through all of this, if you couldn't already foresee it, there was a Huge.

conflict and power struggle brewing between Luca and Sergio. These two guys were both incredible auto company operators, but like cut from totally different cloth. Yeah. Luca is the ultimate card. He's a great businessman and he's a great executor of the luxury strategy for Ferrari, but in his mind and his heart, the cars always have to come first. The great business decisions come out of the great car decisions.

Sergio, on the other hand, is not a car guy. He came from a consumer products testing company. He is a financial engineer and an empire builder. And actually the great tragedy to this act of Ferrari is. It could have been a beautiful party. And was Between the two of them and was, truly was. They saved Fiat together. But ultimately, Luca and Sergio are not gonna be able to coexist. share power within the same structure. And for a while, Luca going back to just Ferrari Makes it work.

like it was it w it was the solution that made sense. His passion was Ferrari, his history was there, he could go back to running it and be very happy. And Sergio could leave it alone and continue running the Fiat Empire. But once Sergio needs the cat. to pay down the Chrysler debt and turns to Ferrari, they're on a collision course. Because IPOing Ferrari

is like completely anathema to Luca's way of being. Becoming a public company means you gotta deliver consistent, predictable growth, which means hitting a drum beat. Shipping more cars, making more models, adding more clients, raising prices. It's not like Luca doesn't want to do these things in a vacuum, but he wants to do these things. very thoughtfully and over an extended period of time, not on a Wall Street calendar.

And to have flexibility. Yes. Not opposed to any of those things, just the way that you and I aren't opposed to doing things with acquired, but we don't want to be locked in and committed, you want some organicness to how you run the business. You want the products to be these living, breathing things. You want to be able to rapidly change your mind in the face of new market conditions.

Yep. I mean hell, one of Luca's very first actions when he came back to Ferrari after Enzo's death was to cut production by half. Right. Right. Can you imagine doing that as a publicly traded company? Hope you're with us. Now interestingly at first, yes, they're publicly traded, but don't they only float? ten percent of Fiat's ninety percent.

Yeah. Well so here's what happens. Thanks to the Chrysler acquisition, it's not an option not to pay down the debt. The company fiat the Empire has to get the money. So the choice is kind of made for them. They have to side with certain. Because they have to go public and he's kind of the guy to run it as a public company. I mean taking Ferrari public is part of the plan of how this whole thing is going to be. Yeah. Do you think Luca was not a public company CEO?

I think Luca probably had zero interest in taking Ferrari public, and I think he had even less than zero interest in using proceeds from the Ferrari IPO and the other financial engineering that we're about to talk about. To save. Chrysler and Fiat. Luca did not care about any of them.

of that. Whereas on the other side, Sergio is kind of exactly the guy you would want to manage the street, to look for all the ways that the Ferrari business is quote unquote unoptimized, to realize the full value of the asset. He's like the sort of leader that investors salivate over. Yes, yes. So in September 2014, Sergio unceremoniously fired. Luka. As chairman of Ferrari. The pretext is that the Ferrari F one team has performed poorly in recent years, but Which was true. I mean, yeah.

just a few years earlier Luca had engineered, you know, the greatest dynasty in Formula One history with Schumacher and Braun and Todd and like, you know, everybody knows what's really going on. Also, part of the reason that the Ferrari Formula One team wasn't performing well at this point in time was that Formula One had switched to hybrid powertrains and Fiat never developed.

hybrid technology. So Ferrari didn't have anywhere to turn to to get a head start like some of the other manufacturers that could turn to hybrid technology. So it was gonna take a while for Ferrari, no matter what. At the end of the day though. It's sad. Like, this is not how Luca's time at Ferrari should have ended. So Bernie Eccleston. know the Bernie F1 impresario who Luca did very much not always see eye to eye with.

gives a quote to the press when Luca is fired that sums it up better than I can. Bernie says, Luca leaving is for me the same as Mr. Enzo dying. He has become Ferrari. You see him, Luca, you see Ferrari. You don't see anything else. You don't see Luca. The context that you need to know for this quote that makes it even more impactful is if you listen to our F1 episode, you know that there was the FODA breakaway attempt of the group of teams.

that just a few years before this had tried to bust Bernie's hold on F one and break away and start a rival formula racing league. That was led by Luca. Oh wow. Luca was like Bernie's arch adversary just a few years earlier. Yeah. And here's Bernie paying tribute to him like this. Yeah. So, with Luca gone, the path is cleared to IPO Ferrari.

And in twenty fifteen, Fiat and Sergio float, as you said, Ben, ten percent of their ninety percent ownership stake in Ferrari on the New York Stock Exchange for an initial total market cap. of Ferrari of nine point eight billion, which raises just under a billion dollars in cash that Fiat uses to pay down the debt. So 2015, Ferrari publicly traded worth$10 billion. That is up from the$192 million figure that we had talked about back in 1980. Right.

But still nowhere near the heights that it would reach in the years to come. But that is Luca's legacy, that delta. That totally. That is turning Ferrari into a real business there. Yep. So A billion dollars in cash proceeds from the equity sale in the IPO. That that helps. That that contributes to the total ten billion that you need to reduce your debt by. Yeah, to go from eleven down to one. Yeah. You know, it helps, but it's not a lot. Well, Sergio had another um This one is ridiculous.

Financial engineering coup up his sleeve. As part of the spinoff of Ferrari and the whole transaction, they effectively transfer. another three point two billion dollars in fiat Chrysler debt two Ferrari. So in total Fiat Chrysler out of this transaction gets almost four billion dollars in debt reduction. That'll make a dent. That'll make a dent. That'll make a real dent. The interesting thing is.

It was perfectly fine to do this because Ferrari turns into a great, great business that is perfectly capable of paying down all that debt that was just transferred. Yes, yes, absolutely. You know, we're sort of telling the story from Luca's side here. From Sergio's side, this all makes total sense. Right. There was very little risk involved in this transaction. Right. It's actually quite genius.

Right. It helped Fiat Chrysler become a real going concern, successful company, one that exists today, and Ferrari is a great little engine to pay down debt. Yeah. And not just a little engine, like the value unlock that happens at Ferrari here to use investor speak is unprecedented. The company IPOs at a$9.8 billion market cap in 2015. Within a few years. It's trading at, you know, what, ninety billion, flirting with a hundred billion market cap?

Yeah. As of a few years ago they hit ninety billion. Yeah. Way, way, way higher than Stellantis market cap. Yes. If you're the Agnelli family, this was a great. Financial transaction for the same. for you. It is interesting when you you often hear investors talk about unlocking value by spinning something off and getting rid of the conglomerate discount and isolating centers of value.

That totally happened here. Ferrari was not appreciated by investors when it was nestled inside of Fiat for the real gem that it was. And as a publicly traded company on its own, reporting its own financials, people piled in. Sure attracted a lot of investor demand. Yep. And still does. Yep. So man, like so much about this story, you can't script what happens now.

All is going according to plan. The Fiat Empire has never been better. Fiat is saved, Chrysler is saved, value is unlocked at Ferrari. And then, in twenty eighteen, Just three years later. Just three years later, the same year that Sergio had promised to Wall Street that he would pay down all of the debt at Via Chrysler, he dies. Suddenly and unexpectedly. This story, oh my god, again and again and again, those closest to Enzo himself, Ferrari, the company, tragedy, tragedy.

Tragedy. Sergio unexpectedly dies of cardiac arrest following complications from shoulder surgery. Nobody expected that. He was gonna die. No. So once again the whole empire is thrown into chaos. It's in a much better and more stable place than when Gianni died. But still, within Ferrari there ends up being kind of a parade of CEOs over the next couple of years. Caretaker CEOs. Yes.

culminating in twenty twenty one when the current CEO of Ferrari, Benedetto Vigna, is hired. And he's a new choice for the company. Complete outsider. A former, I believe, physicist, or at least physics undergrad, who ended up going into semiconductors. And if my memory serves, he holds the patent. for the accelerometer. Yeah. Or at least one of the patents for the accelerometer in the original iPhone.

Yes, uh in the iPhone and you know, basically all mobile phones today, the accelerometers that are used there. That's that's Benedetto. A semiconductor guy. Which actually makes a lot of sense for the direction that Ferrari and technology is heading. So the question is What happens at the company after the IPO? On the one hand, a lot of the things that you would expect. Ferrari does increase production. They go even further into the luxury retail goods market.

And in particular on this luxury retail goods market, it's interesting. They sort of bifurcate the strategy. The first thing they do is they they clean up all the old crappy merchandising.

and they kind of narrow it to this brand licensing in very specific categories with very specific partners. So Luxotica for glasses, Mont Blanc for pens, Richard Meal for watches, and Puma for shoes. So there's this like sort of cohesive, yeah, we're gonna make stuff for the Tefosi, but like there's a luxury associated with our brand that, you know, we have to stay true to. They go into a lifestyle category of their own of first-party products. Yes. David, what is this?

This is essentially Ferrari runway fashion. That's one pillar of it anyway. But yeah, it's this acknowledgement of hey, there's a lot of people that want to participate in the Ferrari brand who are very affluent. and they don't want to go buy any of these things from our partners. They want products from us that aren't cars. And traditionally, most of our customers

I don't know, ninety percent are men and men in their fifties. I think the average age is fifty two of a Ferrari buyer. I believe thirty five percent of people who are buying the lifestyle merchandise they're creating are women. They're really opening up the aperture of Ferrari represents something and can we give people more tokens to sort of adorn themselves in Ferrari and not just cars? Yep.

It's an interesting strategy. I'm not sure I would do it. I get why they're doing it. I'm not sure I would do it. Yes. All that to say, certainly there are initiatives that come about as a result of Ferrari now being a public company and needing to show predictable growth and new avenues of growth to Wall Street. Including theme parks. Including theme parks. Yeah.

They've opened two very different style theme parks, one in Spain and one in Abu Dhabi, right next to the F1 racetrack there. From what I can tell, it's going well. I I think they're totally outsourced uh third party partners to the the same way that you m would treat a licensing deal.

But yeah, I I'd like to go to one at at some point. Yeah. When I first read that this is what they'd done in the last ten years, I was a little bit of a head scratcher. But I get it that people wanna experience the brand in a more visceral way. These products are so full of emotion and passion that merely seeing one drive by you once every few months on the street is not exactly the way to to cultivate fandom. Yeah.

So that's sort of one side of the ledger. On the other hand, a lot less than you'd expect actually changes. In fact, Ferrari becomes even more independent. You know, if you take as a axiom that the most important part of Ferrari The soul of Ferrari is a Ferrari being a Ferrari and not being a rebadged Fiat five hundred or Volkswagen Toregg. Ferrari today is even farther away from Fiat than it was before the IPO. It really kind of re-established Ferrari as its own separate entity.

Yeah, so today it's still 10% owned by Piero Ferrari. A little over 20% is owned by the Neli family with their holding company XOR. But that 20% was 90% before the IPO and what 81% right after the IPO. So they have really sold down that stake over time. 68% of it is now owned by public shareholders. I mean tha that is an independent company. However, the voting shares are a different story. So together, XOR and Piero have the right to vote about 49%.

of the voting shares. So it doesn't take much for them to control the vote on any given decision as long as they vote together. They just need to go sway one or two percent of the public float to vote with them as a block. Yes, that's true. I think the really interesting thing to look at is how the Ferrari model range has evolved. Yes. in the years since the IPO. Yes. Oh, I'm so glad you took it here. So Ferrari effectively makes four types of cars that consumers can buy.

eighty five percent of units shipped fall into what they call the range. These cars are a few hundred thousand dollars each, of course, before any personalization or customization. So this is the collection of sports cars and GT grand touring cars. that have always been the core of Ferrari. Yep. You've got your mid-engine V eights and V sixes, you've got your front engine v twelves, and you've got your hybrids that have been a relatively new addition.

Yep. This is your Amalfi, your Roma, your Tesserosa, your twelve cylindry, these sorts of models. So that's eighty-five percent. And actually sometimes it flexes up even higher if they are not shipping a supercar at the moment. Because this supercar that we had talked about, the F forty, the F fifty, the Enzo, the La Ferrari, and now the F eighty, these are not being made all the time. They just make them for, I don't know, twenty-four months once a decade.

Special occasions, yeah. Shall we say that? It was the core range and the occasional Halo supercar. That was it. Now ten percent are what they call the special seals. These will run you between 500,000 and a million again before customization. David, what are the

These are like the special versions of the range cars. The high performance. You know, if you take like BMW, you know, you've got your regular BMWs and then you've got your M series or Mercedes, you've got the regular Mercedes, then you've got the AMG series. Ferrari people would scoff at you for making that comparison.

me is dying by making this analogy for Ferrari, but it's telling, right, that this was added. This never existed before. And now there's, you know, essentially the M series or the AMG series of the Ferrari range. Yeah. And they're a little more racy than the typical models. They're not track only. I mean this isn't like

the XX program or the Ferrari Challenge or any of these like cars that they make for racing in very specific competitions. But these are racier versions, higher-end versions, and more limited production of the range cars, more or less. Yep. And there's a lot of demand for them. Yes. And the way I just described that, someone at Ferrari is very mad. Fans of the brand are gonna jump all over me for all the nuance that I missed there. But anyway, that's the special series. Then the remainder

are the Icona series. That'll run ya about two point three million dollars for the current one, this V twelve Daytona SP three, And of course the supercar, which depending on the year is only one to five percent of the units that they ship. but it's extremely important to their profits, given those supercars run three and a half to five million dollars. And and we'll come back to just how important it is to their profits.

Yes. Yes. Yes. So basically what they've done is they've added a second series to each aspect of the core lineup before the IPO. They've kind of doubled the model range. The icona exists for a very particular reason, and I will explain that in a minute when we get to financials. Oh okay. I think they kinda backed into it. The stated reason is that they pay homage to Ferraris from history, you know, the Daytona was this very famous one.

Or the manza, etc. But I'll hold my tongue for now uh on exactly how they they backed into it. Great. I think I know where you're going, but we'll save. It is also worth noting, clients who were invited to the supercar or the icona class. These people own at least 10 new Ferraris, maybe 20 plus Ferraris in a garage. These people are tens of millions of dollars deep into buying Ferraris.

Yes, these are the Berkins and the Kellys. You don't just walk in off the street and buy one. You need to buy a lot of scarves, et cetera, before you get invited to buy an icona or a supercar. Yes. I mentioned earlier that every car that they make is unique as a part of their manufacturing process. They do take that to the most extreme. There are models that are literally called one-up.

Yes. So they will make you, and not just like you can change the seat color. They will make you a custom car with a custom body style for very, very, very special VIP customers, and they never disclose them. Yep. Okay, Ben. One model that you didn't talk about is The FUV.

Yes, and you are not uh speaking with a Lisp there. That is it is the Ferrari utility vehicle. Pure sangue, the pure blooded. Yes, so this is a delicious tidbit of Ferrariism. The market really wants an SU. 60% of Porsches sold at this point are SUV. They're expensive and beautiful soccer mom and soccer dad cars. Yep. And when you go up market from Porsche, even to Lamborghini, which looks a lot like Ferrari from a production volume standpoint, they only make eleven thousand cars a year also.

And importantly, is part of the VW Volkswagen crew. Yes. Along with Audi. Yes. Astonishingly, over sixty percent of Lamborghinis now sold are their SUV. Yes. I mean, the classic idea of like guy driving a Lambo around the street, sixty percent of that brand's cars Soccer Mom and Soccer Dad Mobiles. It's the exact same thing that happened with Portia. If I ever get a distastefully large amount of crypto winnings, I'm gonna go buy a Lambo, but it's gonna be an Urus just to Just for the irony.

I hope in bright green. Yes, yes. Okay. So people really want one from Ferrari. So what does Ferrari do? They don't call it an SEV, they call it an F E V. They debut a low top four-door, almost SUV called the Piro Sangway. And as you mentioned, it translates to pureblood or thoroughbred.

And it's almost as if they're saying, yes, this is still a Ferrari. In fact, we we're we're almost even overcompensating with the name and saying, we really insist it is as thoroughbred of a Ferrari as you could possibly own by naming it that And it has a naturally aspirated V12 as its engine.

Yep. I mean it is it's a it's a real Ferrari under the hood. Yes. The really disciplined thing that they did though, they capped total production at 20%. This ensures that when you see a Ferrari on the road, it will stay your classic idea of what a Ferrari is. It really protects the brand and it sacrifices a lot of short-term profits. And I gotta say I have immense reverence for the company for this sort of discipline. this core pillar of Ferrari that just seeing one should be a special event.

They are not gonna go sell sixty thousand Pyrosangues. They're selling about twenty five hundred to three thousand of them per year globally. You are not going to see one on the streets tomorrow or the day after that or the day after that. Yes. I saw one this week, David, at an event that we were at Valet Parked outside and I thought, Oh, I've actually never seen one of those before. Yeah. Which is exactly how it should be every time you see a Ferrari. Yeah.

So the other thing about their model range is they have become very diligent about their wait list too. They are essentially sold out these days for the next two years. Most car companies could not tell you what their sales will look like next quarter. But as of today, Ferrari knows exactly what their sales will be and to who through the end of twenty twenty seven at least, maybe into early twenty eight. And if you want one sooner, You're gonna have to buy a used one. Yep.

All right, Ben, so how much do these models cost? And what were you teasing earlier with the uh The Ikona. Thoughts on the icona series. Okay, so the average selling price of a Ferrari is about$500,000, up from$350,000 in 2022. Wow. So they have taken price a lot in the last few

Now, the models technically start at two hundred and eighty thousand dollars, such as the Roma Spider, but A, that's on a two year wait list and B that's before you do any customization. And customization adds anywhere from twenty percent to a hundred percent of the price of the car.

Even more importantly, in explaining that five hundred thousand dollar number, that is an average and averages hide the most interesting data. You have to pull it apart and look at the distribution. So as we consider the range, the special series, the icona, and then finally the supercar. Let's look at the distribution.

Ferrari is incredibly top-heavy as a business. And I mean this in two ways. One is the obvious way. The most engaged customers obviously contribute an outsized amount to Ferrari's revenues. If you're a guy buying 20, you're a hugely, hugely important part of Ferrari's business. But two, more interestingly, the most expensive models provide a huge amount of the profits for the entire company.

So let's look at just the F eighty, their current supercar. And by the way, all of these were sold out before the car was even announced to the public. Yeah. That is how sold out. There are reasonable estimates that the F-80 average selling price is about$4 million. They're making$799. So that is$3.2 billion of Ferraris just in that car. Three point two billion dollars of Ferraris in seven hundred and ninety nine. Example.

Yes. Now that's retail. So let's assume a 10% retail margin that goes to the dealership, so$2.9 billion of FAD revenue to Ferrari. Let's assume those deliveries happen about over the course of two and a half years, which means that give or take, one and a quarter billion dollars of revenue in the first 12 months is going to Ferrari from that supercar. That's 15% of revenues for the year, just from that one car model. But that is not the whole story.

Ferrari has disclosed that the Icona and the Supercar models have higher margins than the rest of the line. Of course they do. And I've seen lots of very credible estimates. They're way higher. Like I've seen 80%, I've seen 90%. Gross margins for the supercar. Wow. And this is intuitive. You can imagine when Ferrari throws an extra$10,000 of something nice in the supercar, they mark it up a lot more since the buyers are wildly price insensitive.

I think that it's not crazy to assume that while that car will contribute fifteen percent to revenues in the first 12 months. It's more like 30% of Ferrari's annual profits just from that one supercar in its first year. It could be even higher than 30%. Wow. Critically important. To the business. The business is in the supercars.

I mean this isn't quite true, but it is funny to think about this framing. The Ferraris you see driving around occasionally, those are just peanuts for their business. And it's really all about the ones that are locked away in the garages that you don't see that actually make the money. Right. If you think about the F forty and where Enzo was in his life and where the company was when they released that, I think they had no idea the business model they unlocked with this limited run supercar.

Yeah, that's totally true. And where I imagine you were going with the Icona series is like, boy, wouldn't it be nice if we had a whole nother series with maybe not quite as good dynamics as that, but like Pretty good idea. And gosh, it's a real shame we only have supercars once a decade. Wish we had something that was still pretty expensive and still pretty desirable and still close to as good of margins to smooth out that pesky seasonality. Those down years when we don't have the supercars.

That's exactly right. So that is what you were looking at with the icon. Yep, yep, that makes sense. The other thing that you should know, uh listeners, when you're sort of thinking about Ferrari, because we've said a lot of model names here, and that is odd, right? Most car companies have over the course of 30 years very few car models. They run them for a long time.

when we did our Rolex episode, you you heard us talk about the submariner from, I don't know, nineteen sixty five and the submariner from today. It's one sort of continuous evolving line that maybe your grandpa had and your dad had one and you have one. Ferrari is the exact opposite. Over the next five years, they intend to launch four new models per year on average. That's twenty new model names.

in the next four years and they discontinue models very quickly after launching them. So every four to five years or so to really enforce each one of these things is very unique, very exclusive. Now why doesn't everyone do that? Well, most people have to invest a huge amount up front in tooling. But Ferrari doesn't. They can bespokely spin up a brand new car that never existed because they can do their own really nimble manufacturing process.

Right. They have such a different manufacturing process than any other major or boutique auto manufacturer. And this is the thing that the super boutique hypercar companies like the Paganis or the Koenig Sigs, et cetera. But those are like way, way I don't know, Pagani's probably one fiftieth the manufacturer of Ferrari or something like that.

that. Well, right. And those companies don't have all the tooling and manufacturing prowess that Ferrari does. So they can only make their models once a decade or maybe not quite that long, but they can't Turn around and make new models and keep the momentum going year after year in the same way that Ferrari can. Four new models every year. And the really impressive thing about Ferrari is The cars are just different enough where they deserve different names.

But a lot of the RD and the components are carried over. When you look at the internals from some of these cars to the next generation that carry a different name, that have a different body style, they are different. But you can see the manufacturing learnings. I don't want to say they reuse components, but they're they're heavily inspired by a lot of the fixed cost work that was done before.

Yep. Very interesting. Okay. So you mentioned dealerships a minute ago and their margin. How did dealerships work in Ferrari? Yeah. So in the past Dealerships worked a lot more like the traditional model, where dealers would have clients and they would get to allocate cars. Now the allocation is done centrally by Ferrari, and the dealerships really serve more as distribution, operations, and service.

And I've been thinking about it less as a dealer network and more as a franchised service and delivery infrastructure with Ferrari owning the actual customer relationship. Yeah. It's like you get to own the the local franchise in your city that takes care of this stuff, but they're Ferrari customers and not really your customers. And Ferrari now essentially controls the wait list.

Dealers do, however, play a huge role in the secondary market. And Ferrari knows it's in their interest to have a thriving secondary market since given how few new cars there are, the entry level Ferrari is really uh used Ferrari. Yes. And so it's the way to sort of cultivate the next generation of owners. So they incentivize dealers to buy and sell by giving them a hundred percent of the economic.

on a secondary market transaction rather than being involved in that in any way. So dealers r often exist as a way to source used Ferraris for buyers. And the secondary market for Ferraris is enormous. There's a crazy stat out there. Over ninety percent of all Ferraris ever made, going all the way back to nineteen forty seven and the one sixty six Parchetta.

Are still on the road. That's right. Nobody scraps a Ferrari. Like an ordinary car, it depreciates down to zero because it will eventually be scrapped. Ferraris only go off the road if they're involved in a terrible crash and you know can't be restored. There have been 330,000 Ferraris ever made and almost 300,000 of them are driveables. Still on the road, still owned, still operated. It's truly incredible.

It is incredible. Now, if you're Ferrari, it would be nice to participate in this whole secondary market somehow, in sort of a tertiary way. Yeah, tell us about Ferrari Classic A. So let's say you buy a used Ferrari, or you're getting yours ready for sale.

It sure would be nice if there was a certificate from Ferrari saying that they looked it over and they looked at every part and it's genuine. Well good news, there's a program for you called Ferrari Classic A, and for just six to ten thousand dollars, you can get it looked over and get just Such a certificate.

Now it's interesting here. Ferrari is militant about what meets the bar for Ferrari Classic A certification. Yep. It has to all truly be original with official Ferrari parts and specifications. Which also means, you know, a lot of these cars have been out there for a long time. Things happen, right? It means if you want to get it certified and you wanna have it be officially blessed by Ferrari.

You're gonna have to pay Ferrari or your local dealer to restore it and return all the parts to official Ferrari parts. And you really only ever get it serviced at a Ferrari authorized service center. I mean, you're not getting your oil changes at your local oil change place. If you're a Ferrari owner, you definitely intend to sell it at some point.

Like either you're gonna trade it for another Ferrari, you're gonna sell it so you can buy another one, you can add to your collection, even if you're gonna die with it and pass it on, you still want it to be this appreciating asset or asset that holds its value. So you are gonna get it maintained with meticulous records from Ferrari and from Ferrari Service Center. So it's a nice little closed ecosystem that they have created. Yes indeed.

Okay, so why do they do all of this? And why do they launch four new models every year and rapidly discontinue models and have all these clubs and events and track days and Classic A and a robustly tracked secondary market and there's all this infrastructure. Well, a friend of the show Brian Lum from Bailey Gifford had a great insight on this. This is a great

mental model. If you're gonna create a brand that the whole world lusts after durably, you need to create a lot of infrastructure for fans to engage with, to sort of hang their Ferrari fandom on. And so you need to have ever more rare models so that every member of the Ferrari owners and future owners has a place to go. In luxury, you never want a customer to feel like they've done it all. You want a place for them to graduate to.

Maybe that second Ferrari, or going from your first used Ferrari to your first new Ferrari, or getting invited to buy an icona, or participate in a race, or buy the car that just came out with that brand new name that honors the model from thirty years ago. A lot of brands who wanna be like Ferrari don't make the investments to have that amount of infrastructure and models and programs. The illusion is

Oh well, we'll just ship very few units and we'll have simplicity. But in fact the opposite is true. You need to have all this uniqueness and mobility for every client to build a brand like this. Yes, and this ultimately creates. The Ferrari. Pyramid. Yes. There always needs to be a place for you to sort of graduate up to in your Ferrari fandom. And there's all this stuff around it too. There's like a whole

forest around the pyramid of different events that you interact with and community elements. And it is just very, very impressive and very high cost. to just operate Ferrari day to day. Whereas I think a lot of product companies, they make a product, they ship it, and then yeah, there's some servicing, but then there's maybe a lightweight t customer touch point. Operating the forest and pyramid and ecosystem that is the Ferrari universe is like a high cost everyday thing.

Yep. And pyramid is such a great analogy, right? Because if you wanna grow the pyramid, grow the business, and you wanna do so Sustainably or as sustainably as possible as it is to grow a luxury brand, you need to grow in all dimensions. You need to grow the base, you need to widen out the base. And you need to grow the height, the vertical. So you need to be adding the icona series and the special series and et cetera, et cetera, if you also want to be expanding out the base.

Everybody needs to have their place in the pyramid. That's right. And adding layers beneath. I mean you could argue the entire Tefosi, all four hundred million Ferrari sports fans are sort of the base that you sort of enter and then graduate up from. I mean here here's an example of the most Absolutely insane top of pyramid experience. The most extreme clients can buy a former F one car. Yes. Like an actual F one car that was raced in prior season.

I was wondering if you were gonna bring this up. But of course, you can't just go drive an F one car. And let's say you even store it in your garage. What how you how you gonna drive it out of your garage? So what they do is they store it for you in Marinello. Like a library wall. And they staff it with an engineering team and a set of mechanics and a whole events team. And then they build programs and say, Hey, do you wanna come race at our

private racetrack on this day. Do you want to come race your car? Well get your team ready to drive it around. And maybe if you want to race it somewhere else, we'll fly the whole team and the car there. So you just roll up and then you can drive your F1 car around that special track. I mean, the cost, the investment that I think most people don't realize to staff the full infrastructure is crazy.

It's astounding and that has always been the core of what Ferrari is and why it is unique, going all the way back to 1947 and Enzo, like we've been talking about all episode. It is the combination of three things under one root. A world class. racing team, a world-class racing car and racing car heritage construction company, and the suite of services and people needed to operate that available for hire to private clients. No other car company has that.

Yep. That's exactly right. And most traditional car companies actually can't do stuff like this. Their scale prevents them. So they can't have only limited edition cars and they can't have a super wide range that gets completely rebooted every couple of years.

So they're missing an important piece of the pyramid. It's very easy to own all of the cars from a big company because most big companies make very few cars. The thing that makes you successful at scale prevents you from being able to execute Ferrari's strategy. Okay, so there is one car we have not talked about yet before we catch up to present day.

It doesn't exist yet as of recording. True, that's true. We are six weeks away from the unveil of the Ferrari Luce. Yes. What is the Luce, David? Ferrari. electric vehicle designed in collaboration with Lovefrom. जौनी इफ और मार्क नेस्ट In San Francisco. And they unveiled this thing in a very unique way for Ferrari, clearly targeting a different demographic. They unveiled just the internal like just the buttons and dials and tactile feel of everything and the steering wheel

at the top of the Trans America Pyramid in San Francisco, they have not revealed the outside of the car yet. Nope. They wanted the tip of the spear of excitement to be look at what Sir Johnny Ive would make with his hands in a workshop. Twenty years after he designed the iPhone, what would he do today with all that learning? And what would he do if it were a Ferrari?

And it's the exact opposite of the previous universe that they lived in, which is let's show the body, let's show the shape of the car, let's appeal to the motorheads. Let's talk about the internal, the the I mean the engine. What we are talking about here is the buttons and the clickiness of the buttons. I am so fascinated to watch what the rest of this car will look like in six weeks when they unveil it. This was incredibly daring.

Because So many of the longtime Ferrari clients, the hardcore collectors, the petrol heads. the people who love the old school small displacement V twelves and worship at the altar of Enzo. This is anathema to them. Okay, so let's do a Bulbert analysis just on what the luce could be. And I want to start with, is the job to be done by an electric vehicle compatible in any way with why people buy Ferrari? So there's essentially zero interest in electric supercars.

truly, you look around the industry. When Ferrari and others started preparing for it ten years ago, everyone sort of thought that new uh internal combustion cars would be banned soon, at least in Europe. There were EU regulations saying that ICE cars would have to be phased out by 2030, 2035, you know, at some point in time. But Ferrari has put all this work into building this car. built a whole new factory, the E built. That's right. And they're going to go ahead with the launch.

Lamborghini actually canceled theirs and has switched it to a plug-in hybrid electric vehicle instead. And I think the point I keep kicking around is much like the quartz crisis in the world of watches. Speed is no longer relevant. Yep. I mean the F 80 goes 0 to 60 in 2.2 seconds. This is the supercar. This is the three to five million dollar car. The Tesla Model S plaid does it in 1.99 seconds.

So the reason that people buy Ferraris, just like watches, has shifted to be about expressing yourself and having a unique driving experience. In a sense, electric cars are incongruent with the reason that you buy a Ferrari unless Ferrari can do something really cool and unique. Yep. Yep. And that is clearly what they're trying to do. Yeah.

So the the bull cases, we haven't seen this outside yet, but I mean the internal components have been absolutely awesome. I looked over at my wife and, you know, I thought I just wanna touch every one of those tactile buttons and dials and and play with it. Ferrari could be expanding their audience here. I don't think it's a layer in the pyramid. I think it's a new pyramid. It's like a whole different

They're gonna appeal to a set of people that have would have no interest in owning a traditional Ferrari. I mean, like me, I I I have no interest in owning a traditional Ferrari, but Gosh, I was like, oh, could I ever well, would they ever take me as a client, but depending what this car looks like, I could be very interested. Yes, and I think that is the daring element of it. They're creating something that kind of by nature has to exist in a parallel universe. to their core client base.

Yeah. They have always appealed to the gearheads. I mean the engineering innovations have always a appealed to a set of people, but this is a whole different universe of engineering. Here's one that I think is really cool. It's quad motor, one on each wheel. plus additional motors on each wheel that independently do steering and suspension.

And the effect that it has, apparently, I haven't driven one, is that it takes a super heavy battery powered car and it makes it feel really lightweight and balanced. And so there's all these almost like illusions that they can do with technology. to make the car just different than every other electric car that you've driven. And for Ferrari being a company that stimulates emotion, that stimulates passion, that provides a a unique experience.

They may have figured out how to do that in an electric car. And we may look at all the other electric cars and say, yeah, they're fast, but gosh, they just don't they just don't feel the way that this car feels. And we'll have to see. Yep. Yep. All right. Well, while we wait here for the luce to come out in six weeks or so.

Give us Ferrari by the numbers, Ted. All right. So last year they delivered 13,640 cars. As we mentioned, 330,000 cars have ever been produced. Here's another way to frame that stat that is my favorite. This has been true all the way up until this year, this quote. Porsche delivers more cars each year than Ferrari has ever. So for all the hand wringing out there about increased production, etcetera, et cetera. Still is in a class of it.

Small batch. Last year, approximately 81% of new Ferraris were sold to existing clients and 48% were purchased by customers who already owned multiple Ferraris. Yeah, so you should have the picture by now. Most Ferraris sit in garages because they sit among many other Ferraris, and occasionally some are driven on racetracks. So largely, this is gonna sound hilarious, but for a company that is all about the driving experience, Ferraris mostly are not driven. Yes, yes, there's a deep irony here.

I would bet they have the lowest hours of use per car of any manufacturer in the world who produces at least, I don't know, draw a hard cutoff, five thousand cars. Yeah. Yep. Which makes for an interesting luxury good because there is zero way to subtly show off that you have a Ferrari. It's either silent because you have one in your garage and you're sitting there thinking, how can I bring up that I have a Ferrari? Or if you show up in it

It is really loud. It is I have a Ferrari. There is no quiet luxury in the universe of Ferrari. I actually think there's more nuance to that than it would appear on the surface. Okay. And this is a good time to bring up a couple points. The first is Car collector and Ferrari Collector Culture. By and large, at least with the current slash older generation, car guys than like, you know, Hermes collectors or, you know, L V fans or There's a nerdiness.

There's a real nerdiness and there's a real like community to it. Cars and coffee meetups are like a real thing and you just go to them and you connect with other people there and they accept any It's a way for adult males to make friends. Yes. Yes. Yes. Yes. So there sort of is this other way to show off your Ferraris as part of a community where you can celebrate and appreciate them together with the community.

And it's very like opening and welcoming this this culture. If you're interested, even if you don't own any of these cars or have the means to, like it's okay. You're still welcome in this community. It is different. Like the watch world when someone says, like, Oh, what watch are you wearing? There's a little bit more ick to it. Yeah. Like I ask people all the time'cause after the Rolex episode, I'm just infinitely fascinated by what's on your wrist and I like hearing the stories and

But if you're not careful, it can sound like how expensive is your watch? And I it car culture doesn't feel like that in the way that watch culture does or luxury handbags. It's paradoxical in that these are the most expensive luxury objects out there, like way, way, way more expensive than A watch. And way rare. And yet it's somehow sort of less exclusive, at least in the community aspect of it. So that's sort of one point.

The other point is that yes Ferraris are loud, and yes, Ferraris are designed to convey passion and an experience of being maximally alive and, you know, battling against death if you so choose. But they're not flashy or at least traditionally they weren't flashy in the same way as say a Lamborghini. If you wanna be a crypto bro, you buy a Lamborghini. Yeah, well Lamborghinis are the most garish side of Ferrari minus the racing heritage. Yes.

That's a good way to put it. Yeah, it's not like certainly plenty of furries. can be garish, but there is like both a legitimate history and culture that you're buying into. Right. And many of the models are actually quite restrained, at least in styling. Okay, relatively, yes. The last point on this is Ferrari has taken price up a lot in recent years. And so if you were, you know, let's say you're a 70-year-old dude and you have a couple of old Ferraris.

that you collect and you like bringing to shows, they weren't that expensive until recently. I mean, they were always more expensive than other luxury cars. They were definitely ultra luxury cars. But if you just look at how much the price has gone up in recent years, and it stimulated the second market too. So I was talking to someone who bought a car in the mid nineties just from the sort of bottom of the range.

And he was lamenting the fact that he sold it three years ago, four years ago, and it's doubled in price since then. That sort of phenomena has happened all over the Ferrari universe, which adds to the mild ick of seeing one that I don't think you used to experience as much. Yeah, it's a great one.

Okay, so back to the numbers. They did eight point two billion dollars in revenue in twenty twenty five. In terms of profits, they did three point two billion in EBITDA and So they've got a thirty eight point eight percent EBITDA margin. Yeah. It's not a car company. That is the answer here. So how are they so profitable? This is the exact comparison I was going to. Well, let's look at their cost to make each car versus how much they can sell each car for.

And we'll start by looking at other car companies to kind of get a sense of what their gross margins are. Ford. Seven percent. That is seven percent gross margin. Not EBITDA, not net income, not cash flow margin. That is their gross margin when they create one unit of a company. A new F one hundred fifty, you know, et cetera, et cetera. Yeah. They make seven percent before having to pay their overhead and their R and D and their GNA and Yeah. GM, ten percent.

BMW, 14%. Wow. Volkswagen, 14%. Mercedes-Benz, 16-22%. Porsche. Frickin' Porsche, fifteen to twenty five percent. Toyota, that same kind of range, eighteen to twenty one percent. Toyota is exceptionally well run. Isn't that amazing that Toyota generates on the order of three times as much gross margin per car that rolls off the line compared to Ford. Yeah. That is incredible. Ferrari is 50% gross margins. That is a luxury brand. And as you were pointing out earlier, that's average.

The supercars and the icona cars are way above fifty percent gross margins. I get the sense the range is like thirty ish percent, maybe thirty five percent, and then the supercars are in the eighty to ninety percent gross margin range. Yeah. So it is worth pointing out here, this average 50% mo gross margin. You might say, oh, it's a luxury brand, which is the assertion I'm making. They do have to make a bunch of complex, expensive, giant hunks of metal.

and safety and engineer the absolute crap out of them and truly innovate. So when you look at companies that d don't have to do that, LVMH is 66% and AirMez is 71%. So I mean th there exists a category when you don't have to do all of that hard engineering work where, you know, it's uh it's a good business just selling handbags. Yep. And this is where the technology element of Ferrari comes in that doesn't apply to yep. Many of the other luxury companies.

Yep. But still, Ferrari is able to sell their cars for twice what it costs them to make, whereas if BMW spent a hundred bucks to make a car, they only get to sell it for a hundred and fifteen. So perhaps more interesting though than all of this than the gross profit percent is the gross profit absolute dollars. The profit per car average exceeded one hundred and seventy thousand dollars.

That is more than the entire retail price of your average luxury sedan. And even Porsche would need to sell six cars to equal the profit dollars that come from a single average Ferrari. Wow. That is truly astonishing. There's so many different ways to slice this. It's fun. I mean, what other company or products can you think of that has a per unit Gross margin contribution of$170,000. Well, this gets into how we open the episode that in terms of how people spend money in life, it's

housing, food, and transportation. And if you are selling them something in the transportation category, like the one of their largest possible spends and you're selling them the most expensive version of it, you've sort of spiked. Like you you kind of have to

It's like real estate is the only other thing you could really meaningfully start to compare this to. Yep. All right. A little segment breakdown time. They've got three segments that they report. There's cars and spare parts. That's eighty four percent of their revenue. 11.5% though is sponsorship, commercial, and brand. Formula One team.

Yeah, I was gonna say the the commercial and brand, this is sort of where their their lifestyle stuff is, the the fashion. But really the interesting bit here is sponsorship. Formula One for them is a profit generating center that is also the single best marketing dollars they could ever spend. Thank you, Liberty Media, and their stewardship of Formula One. Like overnight in the last ten years.

Formula One went from just a marketing spend for Ferrari to the best marketing activity they do and a real meaningful profit center. Yep. I mean the HP deal alone, the title sponsor of the team, is rumored to be a hundred million dollars a year. And the latest Forbes valuations of F one teams, I think Ferrari, they have the value of the team at six and a half billion, is that right?

Sounds right. Yeah. Sounds right. Yeah, they don't produce the most profit, but they are the most valuable team because they're Ferrari and everyone pays a little extra premium for Ferrari and everything. So, you know, of the current market cap, that's what, probably close to ten percent of the current market cap is just the value of the team. Oh, that's crazy. You're right. Yep. And again, you can't really extricate one from the other. No, these are one thing.

is Formula One. Formula One is Ferrari. It's now a meaningful value and profit driver. Yep. Then lastly, four and a half percent of their revenue is financial services and some other random stuff, including selling engines to other Formula One teams. Right. So this is the money that the Cadillac team is paying to Ferrari to put an engine in their car. Yep. All right, multiples. For anyone who is not an investor, this is when you look at the current business.

How many years of the current business would you have to pay them to buy the whole company from them? And there's a bunch of different ways to slice it. We're gonna look at the price to earnings ratio or PE. Ferrari trades at about thirty five times their earnings. And until the luxury slump, where LVMH and Mermes and all these other companies got hit too in the last couple of years, it was trading around fifty X.

for their last few years. Now for reference, most automakers trade at eight to ten X and Hermes trades at thirty-five to sixty X, again, big swing the last few years, and LVMH sort of around twenty five X. So essentially the market agrees with management that this is a luxury company, not a car company. And one of the very, very best luxury companies, not just a luxury company, but an apex luxury company, like valued on a multiple on par with the two very best luxury brands in the entire world.

Yes. The implication here with a very high price to earnings multiple is that investors believe that the profit streams are a lot more durable and certain compared to traditional automakers. uh effectively there's a high degree of certainty that all these profits will continue. Th the only other option when you're looking at why is a PE ratio so high is If you expect it's gonna grow.

Right. But that is super duper not what is happening here. I mean, that's like when you would have a high PE multiple for a startup that's growing 300% year over year. Revenue growth is actually experiencing a massive slowdown at Ferrari. If there's a bear case at all for Ferrari investors, which you know, we've quite painted quite the bull case this whole episode. It's that

Ferrari has reached the edge of their extreme pricing power and their ability to sort of keep ratcheting that up at the number of units that they're selling. Management said in their October twenty twenty five Investor Day, That the era of double-digit revenue growth is over. And over the next five years, they expect revenue to grow just 5% each year.

Yep. Which actually for the long term is probably healthy for the company and the brand. Like they've expanded the pyramid so much in recent years that a period of slower growth Probably is the right thing to do in terms of luxury strategy management here. But yeah, the stock really took a hit after that investor day last week. It's funny, it took a hit and people still think Ferraris

current revenue streams are so durable that they're willing to pay the next thirty five years worth of profits to buy the business today. Yep. And that is after getting crushed. I mean, the market cap went from ninety billion to fifty five billion.

And investors probably got a little bit excited about that eleven percent and seventeen percent growth rates. And now that they're hearing five percent, that's sort of why you're s seeing this contraction, but a contraction to thirty five X price to earnings. Yep. Well, one more thing before we get to analysis and powers and quintessence. Yeah. You mentioned it earlier, but uh what's going on for Ferrari in China?

So what's going on in the auto industry in China is probably the the place to start. China's car market is being completely upended by inexpensive, high quality electric cars. Yes. Domestically, from BYD, Xiaomi, and others. This is having a huge impact on brands that expanded into China in the last decade, like we talked a lot about on our Porsche episode. But China is only 7% of Ferrari's sales, down from 10% at its peak.

Now, Porsche, on the other hand, China was 33% of their deliveries a few years ago, which has collapsed all the way to 15% and continues to fall. So the question then is is Ferrari any less desirable today in China than it was five years ago? And does it feel a different enough job to be done than the domestic supercars for them to sort of weather that storm? Hmm. Interesting. I don't know enough to say. But I would suspect it's probably about as healthy as you can.

Yeah. I think my answers on this are there are domestic supercars in China. They're still not Ferrari level in terms of desirability, certainly not brand heritage. Yeah. They don't have the math. Unless there's a sentiment change where people in China only want to buy domestic supercars. I mean, that's sort of a risk to them. But I think the thing that you're buying, the signal you're trying to send when you buy a Ferrari is

not really at risk. The job to be done by an EV, I kind of keep coming back to this, is completely different than the job to be done by owning a Ferrari. Yep. That's it. I'm I'm glad we brought this up again here because I think this also is an important point of perspective to add to the luche. And why I really think it is kind of bold and daring and important that they're doing it, it's easy for us sitting here in the US

to have a perspective of like, uh, why are they continuing this E V thing? Clearly they should just stay with combustion edges. I'm not, it's the only one I wanna buy. Well, yes, a good a good point. Okay. Easy for US based uh collectors to and petrol heads to, you know, maybe be upset about this and not understand it. If you look, you know, certainly in China, but also in Europe where Chinese E Vs are, you know, invading.

Everywhere. In America, EVs are in a bit of a slump, but in much of the rest of the world, Chinese EVs are dominating. Yep. And like clearly showing what the future should be. So is Ferrari gonna say, yeah, we're just gonna abdicate all of that? and let the next supercar brands be built around EVs and probably be built in China? Or are they gonna step up and take their own swing? Yeah. It's a swing. All right, shall we move into analysis?

Yes, and let's start with our traditional segment, seven powers. Yes. Borrowed from Hamilton Helmer's great book and framework. Of what power does a company have? What are the things that give it a durable, sustainable comparative profit advantage over its nearest competitors. And the seven powers are scale economies, network economies, counter positioning, switching costs, branding, quartered resource, and process power. Yeah. What you got for Ferrari?

All right. Well Should we just start with brand? Well it's funny. I okay, I'm glad you started there because I think it's actually an interesting discussion. Go for it. How much would you pay for a Ferrari that was badged as a Ford? Uh well there's probably a pretty good data point on this, which is the Ford G T. Yes. And I don't know what they sold it for MSRP, but I suspect it was less than a Ferrari.

Yeah. I mean this is so hard because Aroma is not that much more expensive as the highest end Corvette that you could buy. Right. An F eighty is five million dollars and there are not cars from normal car companies that anywhere near approach that. So the the question is uh kind of who is their direct competitor? Their direct competitor It's probably Lamborghini. Yeah. If you really want to go as apples to apples as possible.

Yeah. Yep. So Lamborghini, as we mentioned, makes about eleven thousand cars a year compared to Ferrari's fourteen thousand. Lamborghini has meaningfully increased volume. If you look back at the Ferrari IPO year, back then the average selling price was about even. It was about three hundred thousand dollars.

whether you're buying a Lamborghini or a Ferrari. Today Ferrari's average selling price, as we mentioned, is 500,000, whereas Lamborghini is about 340,000. So Ferrari has really flexed their sort of pricing power over Lamborghini, especially as Lamborghini has made more and more and more to kind of catch up to their volume. Sixty percent of Lamborghinis are Uruses.

Yes, there's that too. But the point that is useful for our powers exercise here is how much more would you pay for a Ferrari than a Lamborghini? Well it's right there in the data. Right. It's about a third more. Yep. I was gonna take the counterpoint. On the one hand, yeah, brand is of course the strongest power that Ferrari has, as with any luxury company. On the other hand I think it's not quite

powerful in terms of driving profit margins for a Ferrari as it is for say a L VMH or an Hermes. Yeah. Because a Ferrari product, a Ferrari car is really differentiated. Still has to be a Ferrari. Yes. Ferrari can't just damp the prancing horse on a car. and call it a Ferrari. A Ferrari has to elicit emotion from you. Yes. And it has to be cutting edge and it has to be incredibly powerful. So it's sort of like there's more cost that has to go into it.

Yes, there's a phrase they use called racing thrills. And engineered over decades to provide a very specific racing thrill when you drive it, which is n not something that you can throw another badge on. So I think if you were asking management, they would insist this is a Fruitless discussion because there is no way to re badge something and call it a Ferrari that's not it it's intellectually impossible. It's tautological. A Ferrari is a Ferrari. Yes. Yes. But in reality.

When they raise prices, people are willing to pray those higher prices because there is a shared myth that we all have a belief in what the brand represents and means to us and the emotions that it gives us by owning and driving it that are are quantifiable and worth something. Yep. How does this compare to how you felt about watches at the end of the Rolex episode? Um Watches don't provide racing emotions. Hmm.

So what matters because all the performance is effectively identical at the high end, what matters is who you are saying that you are to the world when you look down at your wrist. Yes. And when someone else sees your wrist. The watch says something about you, but it doesn't provide an experience for you. That's correct. And there's this like interesting perfect comparison here.

Porsche is Rolex. Mm-hmm. I mean, they make an absolute crap ton of them. Rolex is a million a year and Porsche, I don't have the numbers in front of me, but it's three hundred and Three hundred and twenty thousand or so. So a year. Exactly. And is an incredible brand. Yes. Just like Rolex is an incredible brand. And I see them driving around my neighborhood all the time and I think they're amazing.

polished pieces of engineering and I respect them for the engineering and the same way that I'm wearing a Rolex Explorer on my wrist, I could easily see buying a Porsche. It it feels reasonably me. Could I see going out and buying a Patek Philippe? Not really. The same way that I say not really about Ferrari. If you're gonna make the analogy, the crude one, that Portia is Rolex, I think you can make the analogy that Ferrari is Patek Philippe. Yeah.

much smaller production. It's an order of magnitude more expensive. The big difference here being that Ferrari is much sort of flashier than Patek is as a brand. And they also have the Tefosi, which adds this whole different element to it. So to directly answer your question, I think Branding shows up more in luxury watches than it does in luxury cars for the almost like the lack of experienceable intrinsic product.

characteristics that it's just hard to experience the product in a watch, but it's easy to experience the product differences in a car. Yeah. Totally agree. So you rely more on brand in in watches. Yep. Okay, let's step through some of these others'cause I think some of them are quite interesting. Keeping with the Potek Ferrari comparison.

I do think Ferrari has this really interesting sweet spot of scale economies that I don't think we've ever seen before, where like They can do things Pagani can't, but they can also do things that Toyota can't. Exactly, exactly. They have power because of their scale economies and because they're like Goldilocks. They're like just right. They're big enough but not too big. And they're small enough but not too small.

smaller. Yes. If they were any bigger, they would be sort of handcuffed by their overhead. And if they were any smaller, then they couldn't do some of the innovations that they do and and design all the programs they designed and all that sort of thing. Exactly. There's absolutely a scale economy to the community. I mean, the the fact that they have all these racing programs and car meetups and factory tours, y you need to be a certain scale to to support all of those operations.

Yep. I I totally agree with and that's part of super being the minimum. I thought you were gonna go to network economy. Ferrari absolutely has network economy. For sure. A hundred percent. With the Tefosi and the community and the nature of the community and being so open and uh as you perfectly put it, it's a way for older men to make friends. Right. Whether you're a member of the Tefosi or a Ferrarista, a big part of what you are doing is making friends.

Yes, it's a network economy is by having a like robust, rich community around your product. Or almost this free defensibility,'cause there's just so much more predisposition to want to buy something with a Ferrari logo on it because of the network economy you were just describing, David. Yeah. I mean it's astonishing calling back to our F one episode. Ferrari is the most popular F one team in the world by a large margin. And hasn't really won much since Michael Schumacher.

Yeah, and sells the most expensive cars that the vast, vast, vast majority of their fans will never be able to buy. Absolutely exclusionary. But a lot of fans of the Mercedes racing team, one way or another, can find a way to buy a Mercedes. Almost none of the fans of Ferrari can find a way to buy a Ferrari. All right. You just pulled forward my quintessence, so I'm just gonna do it now. Great.

Ferrari is both inclusive and exclusive. It has the exclusivity of a luxury brand, but the inclusivity of a sports team. Yeah. That's it. I mean, it's this amazing marriage. that this is gonna sound so self serving, but I was just sitting there nodding, reading their financials, because this is exactly acquired strategy. We are unbelievably exclusive about the companies that we are willing to

do these editorial deep dives on. We're unbelievably exclusive about our sponsors. And yet we're as inclusive as possible for the community. It it should be the best deal on the internet. We want to make tickets cheap whenever we have big live events. You and I have always talked about it as uh Costco in the front and Hermes in the back. But really we're just Mari figured this out first. Yes. It's so smart. All right. Well we're gonna have to change how we talk about acquire.

If you can marry a luxury brand with a sports team, it is a business cheat code. Yes, I love it. That's such a Greek quintessence. All right. Back to powers. Uh it feels anticlimactic to come back to powers. Well let's let's let's run through it quickly. All right, so we did scale economies, network economies, branding, counter positioning.

Did this even ever exist in the first place?'Cause this almost never exists when you're an incumbent, but trying to think if they didn't if they use counterpositioning in the takeoff phase. Yeah, I don't really think so. I think they were just doing something different as we talked about by having the team, the constructor, and the services all in one house.

Oh, they're counterpositioned against the houses of brands today. They can do stuff that Lamborghini can't do because of the platform sharing. Ja. Uh switching costs. There's there's no switching costs. In fact, I think most people who own Ferraris own other cars and want to keep adding other cars. Yep. Cornered resource, absolutely. They have Enzo and the history and the myth and the legend of Ferrari and that is not going anywhere, obviously.

And actually for a while their F one team w had a advantage because they have their own racetrack that no one else has. I mean they have their own wind tunnel and everything, but like they also own a A racetrack. Yes. Yes. Yes. Do they have process power? Process power. I don't think they have any obvious or specific process power. Sure, there's institutional knowledge in the factories and they have their very unique way of building cars that is different than any other auto manufacturer, but

I don't think that's quite process power. I think their power lies mostly in the other categories. Yeah. Yeah, I agree. So the question kind of becomes, what is the primary reason why imitators have failed to execute? Ferrari's strategy as well as Ferrari. And the most obvious is McLaren. They're trying to r basically do the same thing. There's Lamborghini that we've talked about. There's Aston Martin. It's a much smaller production, but there's Bugatti. I mean, why are there no other Ferraris?

I think I would posit that there are no other Ferraris Because of the continuity, even through all the crazy ups and downs, and the wild story and the journey that we told on this episode. Ferrari has always been Ferrari. The core myth has always remained intact, and the products as up and down as they have been over the years.

more or less have always delivered on what it is that you are buying when you buy a Ferrari. And that has been unbroken all the way back to nineteen forty seven. I mean, for God's sakes, they're the only F1 team that has been continuously operating for all of F one. Yeah. That's mine. I think that is largely correct. It is interesting for all the people who complain, oh, you know, that model was crappy or this strategy was crapp. It's actually a pretty narrow window.

where more or less they were still being Ferrari, even if you have a particular gripe. Yeah. And certainly if you compare it to the ups and downs of any other car company, it's quite continuous. And my answer is different for each one of these. I mean, for example, Lamborghini, how how do you build a company like this without racing heritage to tie it to? If you're gonna build a luxury brand, you need time and you need heritage where you tie it to an important

emotional thing that people lust for connection over. And in cars it's racing. I'm so I'm sorry. It's just the it's the the it's the obvious thing to tie the emotion of your brand to. Aston Martin has fallen down because they've been terrible at running a business. Yeah, McLaren, various changes in ownership and leadership and strategy. So different for different reasons, but no one has over what is it, eighty years been able to run the Ferrari playbook.

All right. Quintessence. You already gave yours, which I love. The marriage of a luxury brand and a sports team. What could be more quintessentially acquired? Right. In the marriage of a luxury brand in a sports team. I think for me as I was thinking about quintessence, I I I sort of took the question that you and I posed to each other at the start of our research journey here on Ferrari, which is what are you buying when you buy a Ferrari?

And for me it's two things that you're buying. You're buying one passion. There's no undeniable purely quintessentially Italian and Enzo and Ferrari passion that goes into every one of these cars, from the range to the Icona series, certainly to the supercars and I think probably even the Pura Sanguay, even the FUVs. Certainly. Certainly.

It's funny, David, you know this, but I talked with the CEO, Benedetto Vigne, yesterday, and uh he told me we don't sell a car, we sell a dream. And I think that That's an old Luca line. But yes, yes. It's true. It's true. You know, and can compare that to uh other cars and it's just you know, most cars there's there's zero passion in them. Uh so one, I think it's passion. And two, I really do think there's something to

the ability to feel maximally alive in a Ferrari. And that comes right back to Enzo and his story. And all the great tragedy and death that was part of it. Like buying a Ferrari, you are buying a weapon that you can use to, you know, fight against death and scream into the void, should you so choose. And the one thing I will add to that, back on our Rolex episode, we threw out the idea of a uh functional alibi, a reason you could claim that you need such a watch.

for Ferrari, they have lots of incredible alibis. Most people do not experience the thing that you just described, feeling maximally alive and going right up to the edge. But that is one of several plausible alibis for why you can convince yourself mm that you are buying this thing. For for me it was it's the incredible engineering.

I think for some people it's the racing heritage. I also think their cool manufacturing and their craftsmanship. These are all tremendous assets that the brand has that are extremely plausible alibis that you can tell yourself why you are buying this. Yep. That's a great point. Even if what you're really, really doing is social signal. Yeah. Or you have too much money and you truly don't know what to do with it and this seems fun. I mean that that's a good thing. That's right.

Well, That is a great place. I've got a couple uh bits of trivia for you, David. I don't know if you know'em. Alright, I've got a couple of things. Is one of yours the Lamborghini story? Yes. All right. We gotta tell the actual Lamborghini story here. Did you know so the way that this story is out in the world, there is an issue of Thoroughbred and Classic Cars from January of nineteen ninety-one, and it is a quote from Ferruccio Lamborghini that is in this print-only magazine.

So this is the origin of of the myth of the founding of Lamborghini is in this magazine. I did not find that. That's incredible. You give your side of the story and then I'll give a quote. Okay. So the legend out there about the founding of Lamborghini is that Ferruccio Lamborghini was a wealthy Italian tractor magnet, a manufacturer who was dissatisfied with the clutch in his Ferrari that he owned, and he went to Enzo to complain about it and

And here's the quote. Right. The problem with the clutch was never cured, so I decided to talk to Enzo Ferrari. I had to wait for him for a very long time. Ferrari, your cars are rubbish, I complained. Il Commenditore was furious. Lamborghini, you may be able to drive a tractor, but you will never be able to handle a Ferrari properly. This was the point where I finally decided to make a perfect car.

Now, the reality is that was some uh an intentional attempt at myth building on the part of Fruccio. That never happened. The real story is that one of his tractor mechanics was repairing one of Fruccio's Ferraris. and found that some of the parts that were used in the Ferraris were quite similar to the parts that they used in the tractors and said to Fruccio, like, Hey We could try making cars too. I bet we can be at least as good as uh this enzo.

I don't know. Everyone involved in these stories is long dead. Could be some a column A and some a column B. That's true. That is the legend of the founding of Lambert. Yes. I love it. All right. My second bit of trivia is not a confirmed fact, but it's something that I've been kind of thinking through. I had seen numbers floating around out there of the number of clients that Ferrari knows the nature.

They say in their public reporting that they have 90,000 active owners and another 90,000 who currently own Ferraris but haven't bought in the last five years. I don't think these are estimates. If there's only 180,000 rows that they need in a CRM, Yeah, it's completely reasonable that they know every owner of every firm. I think they have a giant spreadsheet with names mapped to serial numbers and who owns every single car. Yeah, that's crazy to think about, but completely reasonable.

Because think about it. What are the ways in which they would not have your information? If you bought it new, they've got your information. If you bought it used from a dealer, they've got your information. If you bought it in a private sale at auction, pretty sure they can get your information. But if not You probably want to get one of those six to ten thousand dollar certificates here pretty soon. Right. The classic A, yep, exactly. Which is gonna involve contacting the factory. Get it here.

Information. You know, track days, there's like all these community programs. I I think they know every single owner who owns every single car. I bet they do. I bet you're right. Isn't that awesome? We'll have to ask them next time we chat with them. That's right. All right. My uh second and last one. I am so sure I'm going to get you with this one. The 1949 Limot.

That Luigi Kennedy won started a first major victory for Ferrari, example of the business model, you know, private client car, winning Lamont, et cetera, et cetera. There was another Privately owned Ferrari 166 that was entered by another Ferrari client in that very same race, the 1949 Lamol. Do you know who that other client was? European or American? Is it a member of the Hermes family? Good guess, but no. you're not gonna get it I don't know. Pierre-Louis Dreyfus Oh, Julio Luigi Ryfus.

Yes, yes, of the famous Dreyfus family and Julia Louis Dreyfus' grandfather, Elaine from Seinfeld, her grandfather, was one of the first Ferrari clients and raced in Le Mon. Oh my God. Yeah, but that is awesome. So awesome. Side note, I think that is so crazy that she's like of the Louis Dreyfus family and went on to be an incredibly successful self-made actress. coming from a m multi billion dollar European generational wealth bank. I mean, it's just a Yep.

It's just a crazy smash together of two worlds. Totally. Alright, carve outs.

All right. Carve outs. Let's do it. Go watch the movie Ford vs. Ferrari. It's enormously fun. I have a few random shout outs Maison 8. Sweaters? I'm wearing one right now. I have a whole closet full and they have been the most pleasant. I can wear them to bed or to dinner. I'm wearing them to recording. They feel like the most flexible item that I own and they're unbelievably comfortable. So I uh I can't recommend maison wheat sweaters enough. I'm in the market for some new sweaters.

Yeah, they're great. Uh Craig Hill Scissors. W Okay wow, this is a deep cut scissor. Sometimes I get tricked by Instagram, as my wife says, where I'm scrolling through and then I find like the perfect ad hitting me at the perfect moment for some product I didn't even know I needed. Th this pair of scissors The ad is great because it says, How come your scissors are like some flimsy sheet metal and when you cut something that's hard, sometimes the scissors

split sideways and don't you hate that when it doesn't actually cut and the little screw is actually not positioned in the place to give you maximum leverage? We've just gotten so cheap in how we make scissors. Don't you miss the scissors from your grandma's house when you were growing up from the fifties that were like h h metal and like really solid? Well,

We have brought those back, but with the highest manufacturing quality, the best metals, this amazing grip. And I'll tell you, oh, and this the the way it slides when you when you squeeze them together to cut something is so unbelievably crisp, satisfying, smooth, and I bought them thinking like we'll see

And uh they're expensive scissors. I mean it's like fifty dollar scissors or something, and they show up and it is everything I could have hoped for. It is the Ferrari scissors. I'm throwing away all my other scissors. I'm only using Craig Hill scissors forever. It's a fantastic product. And uh after I bought it, I actually found out the the founders are uh acquired listeners. So thank you. Thanks so much. for uh making a delightful product.

Amazing. Amazing. Wow. Okay. I I don't think I could top that. That's that's great. That's an all-time carve out right there. All right. Mine uh Amazon grocery search. has completely transformed groceries in my family. It launched in San Francisco a couple months ago. Oh, like at the end of your shopping journey, you just randomly start clicking and adding things to your cart? Yeah.

People have been trying to crack online grocery forever, including Amazon, you know, in a variety of different ways. And I've tried to do that. We we get Amazon fresh every week. Yeah, you know, Amazon Fresh or Instacart or there's good eggs here in San Francisco. And like they all have their pros and cons. But you know, at the end of the day, like I mostly still went to the grocery store. Amazon has cracked it with Amazon Grocery. You just

Click and add stuff on whenever you're ordering Amazon. I mean, there's a parent of two small children. I'm ordering from Amazon multiple times a week. And I'm just clicking and adding on stuff for my daughter's lunches, whatever we need. Milk, you just add it on. There's no extra fees. There's no nothing. It just comes within a couple hours with your Amazon order.

It's amazing. It is I I go to the grocery so much less now over the last couple of months, now that I can just click and add stuff. It's life changing. Awesome. Right. I have I have a funny story about this. It just provides you like a little grid of pictures, right? It's like a little interstitial inserted before you finally get to the checkout page. And you start tapping on the things that you want to to show up at your doorstep.

I tapped the picture of a banana five times'cause I was like, oh, I need like five bananas and I got five bushels of bananas. Good thing you have a toddler who, if he's like any other toddlers, you know, I assume he eats a lot of bananas. Okay. Yeah. Yeah. My second carve out is one that you mentioned a couple episodes ago. Travel Pro had reached out and sent you a bunch of you know great travel pro luggage.

I bought the luggage first, long before they sent it, and they sent it because I got a lot more luggage because we used it as a carve out. Right. Well they also asked if I wanted some and I s I said sure and they Hey, we wanna, you know, also send you this backpack. And like, okay, I don't know, I mean, I love travel backpacks but I don't know that I need another one.

I love this backpack, the Travel Pro Altitude Backpack. I've been using it a ton. I did a solo trip with my two girls while Jenny was away on a work trip for a weekend at Legoland and I packed For all of us in my backpack. It was incredible. I love this thing. The Travel Pro Altitude Backpack. I consider myself a connoisseur of travel backpacks. I've been through many in my life. And I've never found one so perfect as this. So thank you, Travel Pro.

There you have it. Well, a huge list of thank yous that we want to give to all the great folks who helped with this episode. First to our partners this season, JP Morgan Payments, trusted, reliable payments infrastructure for your business, no matter the scale.

To Vercell, the developer tools and cloud infrastructure to build and scale fast, secure applications on the web, Vercell.com slash acquired, to ServiceNow, the platform that puts AI to work for people, serviceNow.com slash acquired, to StatSIC.

bringing experimentation, feature flags, and product analytics into one unified system for product teams, statsig.com slash acquired. You can click the link in the show notes to learn more. And as always, the sources, books, and everything that we did for research are linked in the show notes. Yes. I owe just a huge, huge thank you to Luca Del Monte, who authored the definitive Biography. of Anto Ferrari and was super generous, spent many hours on Zoom with me.

talking through the nuances of all this history. We are incredibly appreciative of his help. Second most importantly to the other Luca, Luca de Montezemolo, truly a living legend who embodies Ferrari as much as anybody alive today, thank you for taking time with us to the also legendary Domenico de Sole, the former Oh, it's the

CEO of Gucci and business partner of Tom Fords who spent another good chunk of time with me helping me really understand the difference between French and Italian lecture. to Stephen Wilmot, who covers European autos at the Wall Street Journal, and wrote a great piece breaking down how the wait lists work at Ferrari.

double link to in the show notes, to our friend Doug DeMiro and to Chip Connor, who is one of the foremost Ferrari collectors in the world and gave us great perspective on the Ferrari collector community. For me, to Arvind Navarutnum at Worldly Partners for his great, great write-up on Ferrari linked in the show notes. Worldly Partners, for those who don't know, is a highly concentrated long-term investment firm focused on multi-decade compounding businesses.

Very in line with Acquired's ethos. You can learn more at worldlypartners dot com and he's got the Ferrari right up there. to my good friend Matt Schaub, Ferrari enthusiast and former Ferrari owner. to Brian Lum at Bailey Gifford, really, really thoughtful investor who helped me think through all of Ferrari and really woke me up to the idea of the pyramid of infrastructure. So thank you, Brian.

to Neil Consen, one of the OG folks at Microsoft uh here in Seattle, who then would have a second career actually working for Ferrari, moving to Marinello, experiencing it from the inside, working on the F1 side of the house. uh on their technology, which was really fun to get his perspective on how the the company evolved over the decades. to Mike Miller, good friend of the show, former editor at Wall Street Journal, who really helped us research and construct this episode.

and to Benedetto Vigna, the CEO of Ferrari today. Thanks to Benedetto for taking some last minute uh time yesterday to run through some final questions I had before recording. To Eddie Q, who is actually a Ferrari board member and uh good friend of the show, thank you for helping us contextualize. In addition to all of his work at uh you know Apple. The fruit company. Yes. And lastly to Delupa for their models, much, much easier than digging through SEC filings. So thanks to Delupa.

If you liked this episode, go check out our episodes on Porsche, Rolex, Aramez, and LVMH. You can join the email list at acquired.fm slash email. That's where we will send our big takeaways from each episode, past episode corrections, exclusive behind the scenes photos we found in the research, and it's where you can vote on future episode topics.

Plus we will give a little hint each time about what the next episode will be. David, I thought your little uh Ferris Bueller nod last time was quite clever, so nice work with that. A lot of people got it. I thought that man, this is gonna be really obscure, but uh Acquired.fm slash email. And after you finish this episode, come talk about it with the other smart members of the acquired community at acquired.fm slash email. With that, listeners, we'll see you all. We'll see you next time.