A series of positive market updates has supercharged Aston Martin Lagonda’s (LSE:AML) share price in recent weeks. On Monday it surged another 10% on transformative news surrounding its electrification strategy.
The luxury carmaker said it had entered a supply agreement with US-listed Lucid Motors “to create industry-leading ultra-luxury high performance electric vehicles.” Aston expects the deal to help it launch its first battery electric vehicle (or BEV) in 2025.
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In exchange, the British carmaker will issue 28.4m shares to Lucid, giving the EV specialist a 3.7% stake in the company. The deal also requires that Aston spend a minimum of £177m on developing powertrain components.
Chief technology officer Roberto Fedeli said that the Lucid agreement “forms a significant pillar of our electrification strategy,” adding that the accord “will allow us to create a single bespoke BEV platform suitable for all future Aston Martin products, all the way from hypercars to sports cars and SUVs.”
What the deal means
Aston Martin nurtures ambitious plans when it comes to EVs. It plans to launch its first hybrid vehicle, the Valhalla supercar, next year. By 2030 it plans to offer fully electrified options across its ranges.
Signing an agreement with Lucid gives James Bond’s favourite carmaker another avenue to help it meet these targets. Mercedes-Benz is already a major supplier of EV technology to the business.
In a separate announcement today, Aston said it had changed an agreement with the German carmaker to keep its stake in the business stable at around 9%. Under the previous agreement Mercedes-Benz had scope to build a holding of up to 20%.
Cheap as chips
Today’s news provides another reason for investors to be excited about Aston’s long-term future. In May, Chinese car giant Geely gave the firm’s balance sheet a boost with a £234m cash injection in return for doubling its stake, to 17%.
So is now the time for me to finally buy some Aston Martin shares for my portfolio? The company doesn’t look expensive, after all, even if it isn’t expected to turn a profit until 2025.
Today it trades on a forward price-to-sales (P/S) ratio of 1.7 times. A reading between 1 and 2 times is generally considered as decent value.
Questions remain
The thing is, there are plenty of cheap UK shares for me to buy following recent volatility on the London stock market. And I still have serious reservations about Aston Martin.
Its tie-up with Lucid provides the company’s electrification plans with a little more substance. But even if product development goes without a hitch, the DB5 manufacturer will be launching its cars into a congested marketplace. There’s no guarantee of success as it goes toe-to-toe with other luxury and sportscar makers like Ferrari, Bentley, Porsche and Mercedes-Benz itself.
Aston Martin faces huge near-term uncertainty as well, as the global economy cools. Okay, consumers of high-price products like luxury vehicles are less financially affected during downturns. But sales could still slump as they did back in 2020.
This is especially concerning given that Aston remains loss-making and nurses huge debts. Net debt is falling but still stood above £868m as of March.
The carbuilder’s turnaround story is one I’ll keep an eye on. But for the time being I’d rather invest my cash in other British stocks.
