MI Rewind: Pricing Power & Ferrari Stock w/ Arif Karim

22:55So it's a status piece that plays to that. There are leads, it's also a kind of mechanical art. So there's people that like to collect these things, you know, as showpieces or collectibles over time as investments that rise in value. Historically, we've seen, you know, certain limited models rising in value faster than, you know, the stock market has. So if you're picking the right cars to invest in, And it's a way to actually accrue more wealth over time than you would investing the same amount of money in the stock market, for example. It's funny. Their limited edition cars are only available to those who currently own Ferrari.

23:28So there's definitely this club feel. Plus, they get these other special benefits. They can go to events and such. And one statistic that was in your writings was two-thirds of new Ferrari buyers are repeat buyers. And the prices of those Ferraris are anywhere between$250 ,000 to a million plus. And these are the types of wealthy individuals who really aren't even looking at the price tag. So if that doesn't scream pricing power, I don't know what does. Yeah, yeah. That's a great point. So that's a point that I didn't make, which is that when you are a Ferrari owner, you're part of a club. And I mean, the analogy I like to make is that most people are...

24:04Not most people, but those people that want to be part of a club can pick different kinds of clubs. But I think the analogy for most listeners will be that, you know, if you have like a country club in your town, you pay to be a part of it. And as a result, you get to hang out with people in that network, basically. Ferrari, in many ways, is a club that's a global network. It's a global network of kind of the wealthiest and many successful people. And Ferrari actually goes a great length to make their customers and Ferrari owners feel special. They'll arrange events, both, you know, kind of in your country, but also bring people to special events in Italy or elsewhere in Europe, for example, or other parts of the world where they'll invite their most elite customers from all around the world that come to those events.

24:47And those events could be, you know, a track day in Barcelona at a real racetrack, a real life one racetrack. And you can bring your Ferrari or Ferrari can actually arrange transportation for your Ferrari. There are people that have these track only Ferraris that they have Ferrari store for them in Europe. And And then when these events happen, Ferrari will bring their cars for them to actually race, you know, these track meets. And of course, part of it is that, you know, you're not just going there to have fun with your Ferrari, but you're really going there to also meet other very successful people from around the world that you're building relationships with.

25:16And so that alone, you know, can be much more valuable than the value of that, you know, million dollar Ferrari that you bought, you know, to be part of the club. But as you say, it takes work to become part of the club. So, you know, those million dollar Ferrari, you know, I think, you know, 2 million, 3 million, but those high end Ferraris are very limited models. Usually it's, you know, on the order of like 500 units that are sold for that particular model. And so they're very desirable. In order to get on that list, you don't say, oh, hey, I would like to buy a LaFerrari. No, no, no, no. You get invited to buy a LaFerrari.

25:46There's no way otherwise you get to buy one, right? So Ferrari actually has this different tier of customer list, depending on how loyal a customer you are, aka how many Ferraris you own or how many you bought, how often you come and repeat buy from Ferrari. That moves you up the echelon of these tiers. And so the most exclusive, most limited models are reserved for their best customers. And these are the ones that get access to actually be able to buy a million or$1 million Ferrari. And the crazy thing is that if you get an invitation, you don't say no. because once you get delivery of this Ferrari on your driveway, once it gets to your driveway, it's immediately worth much more than what you paid for it because of that big difference in supply and demand.

26:27In fact, one of the things that Ferrari does is it actually contracts you to limits you from selling that Ferrari, resetting that Ferrari for a year and a half, two years. You don't go back and just flip it. It's an interesting relationship that Ferrari has with its customers from that perspective. So yeah, the better the customer you are, you'll get the newest models first, First, you'll get the limited models. You'll be amongst this small list of people that get a limited model. So it can be a very profitable enterprise for you as a customer as well. Again, it's just, you know, building these relationships, creating this network and creating this sort of incredible cycle.

26:59One other thing I'll add is that on a topic of pricing power, which of course is very relevant today, you know, in the days when we see high inflation rate, is that, you know, when you think about managing a limited supply model business without frustrating too many customers, you kind of need, and I think this is an incredible part of the business, you kind of need the price of a product to actually increase roughly in line with the rate at which the wealth of your customers increases. Because over time, there are more and more people that get nominally wealthier and wealthier, but you want to create this exclusivity in your product.

27:35And Ferrari only sells 11 ,000 to 12 ,000. I mean, they sold about 11 ,000 cars last year. They're going to sell us from like 12 ,000 to 13 ,000 this year. So it's not many units. I mean, this is nothing compared to like, you know, most auto companies will make millions of units. Porsche makes 300 ,000 units. Ferrari makes 12, you know, 11, 12, 13. I mean, it's nothing. It's tiny. And we estimate that the number of high net worth individuals in the world who could potentially buy a Ferrari could be a customer is on the order of like, you know, it's kind of a rough guess, but it's in the ballpark, right?

28:02Something like 5 million people can afford to buy a Ferrari, right? We have liquidity, the net worth, you know, outside of their main home, to be able to spend anywhere from 250 ,000 to a million bucks on a car. So A, you kind of want it so that you don't have, I don't know, 100 ,000 people wanting to buy 500 cars. That's a really frustrating experience for all those people. You want to manage it. And the way you manage it is by basically pricing the car high enough that there's a certain number that can afford it and want it, but it's not an overwhelming number that'll get frustrated. And that certain number also have an incentive to work their way to try to get up into that top tier list.

28:35There's a really interesting pricing model built into the company. And I'll just end it with just saying that what it really translates to is that Ferrari has to raise prices to stay exclusive. And the thing is, customers want a Ferrari to be exclusive, right? Because that supports the value of their cars they're buying from Ferrari. And so customers are kind of happy for Ferrari to raise prices. Where do you ever see that? Yeah, it's funny. Ferrari most definitely benefited from this sort of asset boom over the last 10, 20 years. Obviously, wealthy people own assets. They own stocks and real estate that have massively appreciated in value over the years.

29:13And I just looked it up. You mentioned these numbers, but Ferrari, they sold over just north of 11 ,000 cars in 2021. And in comparison to Ford, they sold 1.7 million vehicles. So they're obviously in a very different business than And just Ford, for example, I'm curious, do they have any actual competitors in the business that they are in where this community business, this exclusivity and scarcity around their business? So Ferrari is very unique. I think of them as having built this business model. I don't know if that's actually true, but I haven't come across anybody else that sort of has all these different aspects to it.

29:51Now, having said that, I mean, when I first started looking at Ferrari, I'm a car nut. I read car magazines. Growing up, I was always reading car magazines. I mean, we all know these brands like Ferrari, Lamborghini, Aston Martin, Porsche, right? And when they went public in 2015, they were spun out of Fiat, which was the majority owner of Ferrari. And, you know, initially, sort of the this is really interesting, like just from a from a research perspective, investor perspective, I mean, normally, a brand name of Ferrari, everybody knows for you think this be a hot IPO, it's probably gonna be grossly mispriced, be so expensive.

30:23And that's kind of a prejudice I had, I guess I would say, until I came across a report from an analyst. And I was just looking at it out of curiosity. And I noticed certain aspects of the business. So one was just that in that great recession in 2008, 2009, I would have thought Fry would have lost, I don't know, 10 % or 20 % of the business or something like that. Some big number. They only sold like 4 % less units, roughly, or 9%. It was like between like 4 % and 9%. One was the revenue, one was the units, right? I can't remember now which one was it. I might be flipping it, but it was either revenue was down 4 % or 9 % when the rest of the car companies were down 20, 30, a big number.

31:04Ferrari was very sticky. So that was really surprising to me. Then when I started digging into it is when I understood the power they had with their customers, this relationship that they had. And I'm not sure if anybody else has that sort of a relationship because when you look at historically the cars that have grown in value. Like if you look at like the most valuable cars, you know, in history, and I'm sorry, my number is a little rusty, but I want to say something like, you know, three of the top five most expensive cars sold at auction are Ferraris. I think it's like seven out of 10, you know, and it goes on, like you can go up to like, you know, the top 100.

31:39It's like Ferrari has a predominant presence, you know, in those lists. And that says something about the legacy, the brand, the value that people associate with Ferrari, right? So I don't think there's another brand that's quite like that. I mean, you'll see every now and then there'll be some special model from a brand that comes up as a one-off that's highly coveted, but they don't have the consistency that Ferrari has in having so many models that end up being so desirable amongst collectors. You know, in many ways, it's really funny. I went to Ferrari, Ferrari hosted an investor day at a customer event back in 2018.

32:14And so they went probably in 2015. And I suspect they sort of felt like people didn't really understand Ferrari. And, you know, initially it was me too, until I dug into it. Like I think 2016 is when I dug into it. And I really came away impressed with kind of the business model. Started to understand, you know, the scarcity model, exclusivity, the relation with the customers, two thirds of repeat buyers. What? Why? And then you come to realize that people that own like 20 Ferraris, right? They're collectors. But part of the reason they're collectors is also because they have to keep purchasing to be invited to buy the next, you know, high and limited models.

32:44They'll buy like the entry-level$250 ,000 model, right? But with some perks, I mean, we need$350 ,000 because we're going to personalize it, right? To make it special to them. But this is the thing, like people really get this emotional, like thrill or emotional high, you know, from purchasing Ferraris and driving their Ferraris, right? And it's very unique in that way. But having said that, I mean, I'm sure people that get their Porsche 911 are also thrilled. And those that get Lamborghinis are also thrilled. But it's just that over time, the consistency of the brand and the legacy has been such that it also makes for, you know, certain models will make for good investments.

33:13And it's just the persistence is a key part of this, as well as that network, like I talked about. So in 2016, I started to understand kind of the specialness of the business and how the business worked. And although optically it looked expensive compared to like, you know, if you looked at like the auto industry, really it wasn't the auto industry you were really comparing to, you were comparing it to the luxury industry. So kind of the, I like to think of the analogy being Hermes, you know, the handbag company, the high end European handbag company. I remember, you know, reading that, oh, their Birkin bag has kind of this exclusivity thing to it as well.

33:43It's just like Ferrari does where you don't stroll into like an Hermes store and go, oh, I would have bought an$80 ,000 Birkin bag. No, like you have to like work your way up, you know, and I don't know the details of it, but there too, you know, it's like, it's very exclusive. You have to earn your way to be able to purchase a Birkin bag. And so when we realized that this was more of a luxury business than it was a sort of a utilitarian, you know, car business. And we knew it wasn't that it was definitely a luxury businesses, not many people buy$250 ,000 a car, a million dollar car to commute to work, right?

34:11But there was a lot of confusion in the market about how to value this thing. And so that was more the right analogy. And a part of that, like our evaluation technique revolves around being able to sort of understand how forecastable and durable and predictable future earnings are for a company. And then, you know, kind of the normal financial model, you know, you discount that back to today, and then you have some sort of price. And there's some assumptions there, of course, there's sensitivity analysis and stuff. But if there's not the duration in the product, the service, or the brand, it's really hard to know what it'll look like in 10 years.

34:42And the thing is, in most stocks, the value they embed for a company, the majority of the value comes from the future, like beyond 10 years. And so the persistence of that, the durability of sales, the durability of the brand, the durability of the relevance to customers, those are all really, really important qualitative pieces to build a confident 10-year-plus model kind of thing, right? And even if you're not explicitly modeling, but to have confidence that, you know, in year 10, 15, 20, that this will still be the kind of business that I think it is today, you know, kind of thing. And in general, you want to buy something that you think will have that persistence, if not improved.

35:18It's a very hard thing to do. Very, very few companies fall into that category of having that visibility. So with Ferrari, what's really interesting is they put up this event where they unveiled their Monza SP1, SP2 limited production models. And this was the first in this sort of umbrella, what they call the Econa line, which is sort of a design first type of line of collectibles. And these are really like cars that are taking some of their most famous designs, most desired designs from the past, and basically creating a modern version, you know, off of some of the key aspects of those designs.

35:51And so they had this customer event and they wanted investors to come and meet customers and talk to customers. And it was really incredible because, you know, I remember they had the whole big premiere for the car and then a reception. And in the reception, you know, they had two of those cars out, you know, for you to look at, you know, to sit in. And I remember being behind this older gentleman and he was, you know, taller and bigger than I was. And I was just talking to him and I was saying, oh, what a beautiful car. What do you think? And he was like, oh, I love this. This is a great car.

36:17And I was like, oh, so you're a customer, obviously. You've been invited. So what do you think? Do you think you're going to, you know, put in a bid? You know, are you going to try to buy one of these cars? And he goes, oh, I've already done it. I've signed on the bottom line already. And the thing was, he didn't actually know what the price was. Like they hadn't disclosed pricing. Like it might've been a range, but at the end of the day, it turned out this car was sold at roughly$2 million, you know, a piece. But whether it was one and a half million dollars,$2 million,$3 million kind of didn't matter a whole lot.

36:44I don't think, you know, to this type of customer. Cause at the end of the day, like I said, it's a limited product. You get it. Once it lands on your driveway, you work more. And honestly, like, okay. So that's kind of like the rational financial sense. skis to it. But this guy, you know, just, I mean, I didn't delve too deeply to kind of his personals, but he obviously carried himself as, you know, he's some kind of executive. He's probably, you know, running a company with like, you know, many, many employees. He's the kind of guy that could, you know, pretty much buy whatever he wants, but he wants to buy his Ferrari.

37:08And the thing is in his tone, in his eyes, he was like a kid at Disneyland, right? Like what else is going to bring that kind of a feeling to someone like that? He's got like, you know, big responsibilities, you know, he could buy whatever he wants. But at the end of the day, this thing like brought so much like giddiness and excitement to him. Like that's really the magic of Ferrari, right? Yeah, it's funny. I did notice that they have these product releases where they showcase all their new products, their limited editions and such. And all these true fans come in, they have these huge events where all these people from everywhere all around the world are coming in for these events.

37:42And it really reminded me a lot of Apple and Tesla, where they just develop this community of true fans. Yeah. And they just take it to a whole new level on their own. Yeah, no, exactly. You know, it's funny. we used to own Apple. And one of the things that we always thought was fascinating was that, I don't think it happens anymore, but this is back in the first 10 years, the iPhones, people would line up out the door. They would line up at stores around the world. They would camp for a night or two. It's like, oh my gosh, what is this product? And they would line up just so they could be at the door and be like, here, Apple, take my$1 ,000.

38:16What an incredible business model to have. And that's exactly it. Ferrari is the same thing, only at a different scale, right? We're talking about hundreds of thousands of dollars or millions as opposed to $1 ,000. And that's the thing. It's like when you think about the demographics of those that buy Ferraris and how enthusiastic they are about it, it's like this universally human feeling, right? We all want the excitement, the passion that makes life fun.

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41:57That's theinvestorspodcast.com slash tip-finance. All right, back to the show. In one of your articles, you described Ferrari as an idiosyncratic business, which is a term I hadn't read too much about before. Could you describe what this term means and how it applies to Ferrari specifically? Yeah, sure, sure. So the word idiosyncratic means it's something that is different than the rest, roughly speaking. So we'll think of, like we were saying, cars, right? We think of cars as transportation. And of course, many people like their cars, they get excited about their cars and stuff. But at the end of the day, for most people, the car is a transportation piece and it'll depreciate over time.

42:38And at some point, you'll have to replace it, right? But when you think of a Ferrari, it's idiosyncratic in the sense that it's not really a car that you're buying, right? You're buying anything but a car. If you're buying the experience, you're buying the emotion, you're buying into the network, you're buying the status, whatever your motivation is, or, you know, like art is a collectible, right? So you're not buying the car for actually transportation. That's one way to think about it, right? It's idiosyncratic. Apple is also an idiosyncratic business in the sense that, you know, they sell a device that you actually use.

43:06And prior to the iPhone, the model in the US at least was you'd get like your dumb phone for free or like for 50 bucks, right? And it was sort of like when they first introduced the iPhone, I think they priced it at, I want to say like$499 or$699 or something like that. And it was exclusively sold through AT &T here in the US. And they had these distribution partnerships around the world. It was like one main telco carrier sold the iPhone and became like a differentiation for that carrier. And so that was an interesting model to go by. So again, it's kind of a little bit of an exclusivity thing, right?

43:37If I wanted an iPhone, I had to go to AT &T. I couldn't use it on Verizon or anywhere else. But at the same time, you know, we were coming from a model where people were used to like free phones or a$50 phone or$100 phone, not a$500 phone. And not just that, but you also have to pay an extra$40 a month for a data plan, right? On top of your voice service plan. So it was like, wow, this is really expensive, right? The common perception was like, this was going to be a very niche product, just like the Mac. Very niche. Like not many people use this thing. Oh, there goes Apple again with their kind of their funky model, right?

44:06But it turned out that it was such a useful device that it actually became very desirable for many, many people. And over time, they brought the price of that down, not because the iPhone got cheaper, but because carriers subsidized it with more money. The carriers actually paid for a lot of this, which ultimately ended up with the consumers, right? Because we paid for data plans, things like that that were more expensive than whatever our voice payment plan was. But over time, Android phones caught up in terms of technology, like the raw capabilities, utilitarian capabilities of the iPhone. And it was always like, okay, well, the iPhone is going to have to get cheaper at some point because why would you pay$1 ,000 for this iPhone when you could buy this Android phone for$250, right?

44:42The point was iPhone users didn't switch for the most part. They stuck to this$1 ,000 phone that had the same technology as the$250 phone. And the difference was emotional. It's like emotional. It's the user interface. Apple is the cool brand. Apple became in some place like China, Apple became the luxury brand. You showed off that you actually were well off by owning an Apple phone. as opposed to any generic smartphone. So that's another idiosyncrasy business that when you looked at the PC business, it always became lowest common denominator. Prices always fell. Prices, it was very competitive.

45:12And the analogy was being made that in the smartphone business, the same thing would happen. This is basically a PC in your pocket. And yet Apple defied that by all these different emotional things that are brought in into the experience that other manufacturers were not able to do. And so that again makes it idiosyncratic. It's very different than the rest of the competitors. Very interesting idea. Shifting back to Ferrari, I mentioned earlier that its valuation seems to be on the higher end at a surface level, but it also seems like this is a business that is likely to be around and bring in more revenue over the years to come.

45:45Because they've built this moat and the fact that they've been around for more than 75 years, they have a pretty good track record. I'm curious, what do you think of their valuation given it's trading at a multiple much higher than the overall market? Yeah, sure. So just high level, when Ferrari went public, they were selling on the order of 7 ,000 to 8 ,000 cars a year, and they hadn't grown their units very much in prior years. Since they've gone public, they have had a little bit of a change in the way they've approached the market. And I think it's been the right thing. And there were a lot of questions as to whether it was smart to do this or not because of the exclusivity part of business.

46:23So specific idea about exclusivity is limiting the number of units that are out there, right? Which then props up their price, supports their price. But it doesn't necessarily mean that you can't grow the number of units. Now, if you grow too much, then you lose exclusivity. Then you don't have that coveted unmet desire, right? Which supports pricing. So you see the pricing come down and that starts to unwind the traditional way that the business model works, which is that you buy a Ferrari, you buy the next one, you can sell your previous one for, it has a depreciation like 50 % kind of thing.

46:52If it's like a 250 ,000 entry model, maybe it'll be down 10 or 20%, but not like 50, right? Like most cars would be. And then I'll kind of be stable actually for a long time. And if you have a limited model, I'll actually appreciate. And so that results in kind of some repeat business they get from existing Ferrari owners who understand this dynamic and are willing to buy the next Ferrari. In exchange, Ferrari gets a great visibility. So the question was, could they actually increase the number of units in total that they sell without diluting the exclusivity aspect of the business? And the answer so far turns out to be yes, because now they're shipping 11 ,000 units and they're still seeing good pricing power and good pricing stability in the used market.

47:29And so the other aspect of it is pricing power. So over time, when they come out with a refreshed model or a new model, so sometimes it's a brand new model, sometimes a refreshed existing model, they'll usually raise pricing on the car. So just as an example, the average selling price on a Ferrari back in 2015, around the time they went public. I'll just give that number real quick because it's really illustrative of that pricing power. So it's not that they necessarily take the same unit and increase its price dramatically. It's more like every X number of years, usually they refresh every three years and they come out like a revamped product.

48:06But their average selling price in 2015 was$271 ,000 per unit. And they were selling looks like 7 ,664 units that they sold. Last year, their average selling price was$320 ,000 and they had over 11 ,000 units they sold. So they grew both pricing and the number of units. And of course that resulted in double digit top line growth in overtime. I think that model continues to work for a number of years. It's unclear how far, in many ways, the dynamic models, Ferrari's watching how many customers are asking for a certain model. How many are they selling? What are the wait lists like? Currently, it's not unusual to see 18-month wait lists right now, which is on the high end of what's desirable.

48:47They want to keep it at a year. When it gets much beyond a year, then they worry about potentially customers going to Aston Martin or Lamborghini or somewhere else. I don't want to wait two years for a car. I want this car now, so if I can't get in a reasonable amount of time, I'm just going to go somewhere else. But I would really like a Ferrari if I can get it. And so when you think about valuation, like I said, there's elements to it that play into it. For a given amount of capital invested in the company that can create more profit dollars off that capital is worth more than one that creates less profit dollars.

49:13So in other words, return on capital. The higher the return on capital, the more valuable the business. So that'll impact the multiple. Secondly, a company that can grow faster is going to be more valuable than a company that grows less fast and in a durable way. So in the stock market, we often see companies that grow 50%, 25%, 15, 5, kind of thing. But a company that can grow 10%, 12 % a year, 8%, 10 % a year, you know, for 20 years, let's say, it's going to be worth a lot more than the company that basically does 100%, 50%, 25%, 15, 10, 5, because they don't have the duration of growth in there.

49:46So from our perspective, Ferrari is, you know, very profitable, very high return on capital business. We think it has a number of years of double digit or near double digit growth. And it's really based on this assumption that they can probably grow their units by mid-single digits to high-single digits. So call it 5 % to 7%, 8 % a year for a number of years. And that they can grow pricing by mid-single digit percent. So roughly half the growth of, call it 10 % a year from units and half the growth from pricing. On that unit growth, one smart thing Ferrari's done. This is amazing. It's like, when you think about a company, we think about investing, we think of stocks, right?

50:22Stock price goes up, price goes down. you know, we get happy when it goes up, we're sad when it goes down, that sort of thing. But when you are a long-term investor, the thing you really want to do is really understand the business. And that's where it gets really, really interesting. Because when you study enough businesses and follow them over time, you really start to see how a business is like an organism. It's always adapting. It has to adapt. And part of adaptation, just like you and me, is, you know, trying some new things, learning from mistakes, something works right, then you do more of that, right?

50:51And so it's this perpetual sort of evolution towards optimizing for, in this case, revenue and profits. But that's a derivative of optimizing for creating things that your customers will love, that adds value to their life, right? Ultimately, all businesses are that. It's about creating things that customers will love by being able to recruit and retain employees that are wonderful, that are essential piece of providing that value to customers and then having enough value created for the customers, be happy at consumer surplus for the money they're paying, have enough to like pay your employees well and provide them the benefits and treat them well, and then have enough leftover after that for shareholders to also benefit in the form of profits, right?

51:33So the wonderful thing about a company like Ferrari is that you can see, we've seen, you know, how management over time has whole different levers experimented. So in terms of like challenge of how you stay exclusive while also growing the number of units you sell. But one of the things they did is they actually created more types of models. So I don't remember the specific numbers, but I'll just throw it out there. Let's say they had 10 models in 2015. I don't think it was that many, but they've created some sort of new category. So one is the SF90 Stradale, which was introduced, I think, last year, which was their first production hybrid.

52:08I would think one really good opportunity for them would be to expand into the EVs as a new revenue generator as well, which they look to be releasing over the coming years too. Exactly. Yeah. Yeah. So we're seeing Ferrari evolve into EV front. It's something that's necessary because of regulatory reasons over the next decade where countries around the world are mandating either lower emissions or just all-out EV-only sales. They're actually banning fossil fuel sales. And so that, of course, is a push for Ferrari to head towards that route when And traditionally, they've had cars that had V12s and V8 engines that consumed a lot of gasoline.

52:44But one of the things that Ferrari has done opportunistically, again, going back to this kind of creativity and adaptation by companies, is they've actually started to release models that hybridize the Ferrari, an electric powertrain that complements the fossil fuel today to actually not just improve the fuel consumption, the CO2 emissions, but also improve the performance of the car. And in the process, you know, at the end of the day, if you're improving performance of the car, you're adding more value to the customer. So in the process, being able to charge more. So a good example is the SF90 Stradale, which was introduced, I think it was last year.

53:18It was priced at, you know, roughly 500 ,000 euro, which is a price point they didn't actually have for like a non-limited production model, right? So they've got those very elite limited models, and those are like about 800 ,000 and higher. And then they had kind of production models, which are the ones that aren't limited. I mean, they're still limited, but not exclusive models, let's say, right? And those are kind of that$250 ,000,$350 ,000,$400 ,000 range. The Stradale actually came in a tier above that, below the limit in$500 ,000. Effectively, after you put in all the options that you want, it'll be kind of a$650 ,000 car or so, right?

53:50So that's a new price point that they brought this car into that leverages the higher performance. It's like 1 ,000 horsepower, right, between the electric power plant and a V8 that it has. But you basically are creating this new price point for this new car that incorporates what the hybrid powertrain, which Ferrari had to do anyway, but they found a way to make it value additive for the customer, therefore themselves and us, right, in the process. And so that's one of the things that's really interesting. They have a, people are talking about it as an SUV Ferrari, a Ferrari in sister, right?

54:22Not making SUVs or some kind of a more utilitarian car. That's going to be a four-door car, probably. It's called a Puro Sangue. They talked about this, you know, being in development back in 2018, and it's supposed to be released late this year. But that car too, it's a totally different address of market you're looking at. You used to have a Porsche 911, the sports car, the two-way sports car. And then Porsche came out with a Cayenne SUV. And at the time, the purists were like, oh my God, this is terrible. Porsche is, you know, selling out. This is going to be terrible. But then there were other people who were like, oh, well, I love my 911.

54:55I have this Ford Explorer that I really don't like driving because it doesn't handle very well and it's not fast. I'm going to get the Porsche Cayenne and try that out, right? And it turns out that that's been a great product. It's been such a huge success, so successful. Porsche now sells more SUVs than they sell sports cars, which is incredible. But Porsche might argue and say, you're actually wrong. We're still selling sports cars. They just look like an SUV. And that's what many people would say. When you drive a Cayenne or a McCann, it handles like a sports car. It has the utilitarian function of what you need an SUV to have.

55:27And so Ferrari is coming out with a more utilitarian vehicle, very late to the game. But that's okay, because it's exclusive, there's still going to be demand for it, right. And recently, we've seen other very more luxury exclusive kind of companies like Bentley and Lamborghini come out with, you know, SUVs that are priced in the$200 ,000 plus range. I mean, they've been very, very successful. It's hard to see Ferrari's utilitarian vehicle, I won't call an SUV, come out and not be a success to, in particular, the China market, where wealthy individuals actually get driven rather than drive. And so to the extent that you are a Ferrari enthusiast, you like F1, you want to own a Ferrari, but probably have one, two or more, you know, Ferraris in your garage that you drive every now and then when you want to.

56:10Maybe, you know, when you're driving to work or going for a long drive, you know, to your holiday home and you're being driven, you might want to get a Ferrari that can get you driven as well. So things like that. So they've added new models to their range over time. The majority of them are going to become electrified. The majority of units sold are going to be either hybrids and eventually EV as well. But Ferrari has a roadmap towards getting to EV. And I think that guided to 2025 when they were going to show us their first EV, basically. Very cool. Definitely a compelling long-term investment from my perspective.

56:44RF, thank you so much for coming onto the show. This is a really fun conversation and I'm excited to look a little bit deeper on this company. Before we close out the episode and I let you go, where can the audience go to connect with you and Ensemble Capital? Sure. Yeah. So we have a website, EnsembleCapital.com, where all of our contact info is there. I'm also on LinkedIn. Just look up my name, R.F. Kareem. I'll be there. We also have the IntrinsicInvesting.com website where we publish our research and thoughts over time. We post on there regularly talking about our thoughts and we'll do profiles of our companies too sometimes on there.

57:20And then finally on Twitter, we're at Intrinsic INV. That's our Twitter handle. And we regularly post stuff there and interact with anyone that wants to interact with us on Twitter. But yeah, so happy to be here on your show, Clay. I enjoy this conversation and look forward to having it again. Yeah, we'll have to have you back. I'd love to have you back on. Thank you so much, Arif. All right. Great. Thanks, Clay. All right. I hope you enjoyed today's episode. Please go ahead and follow us on your favorite podcast app so you can get these episodes delivered automatically. If you've been enjoying the podcast, we would really appreciate it if you left us a rating or review on the podcast app you're on.

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