Ferrari – a case study in managing scarcity

Ferrari is a company that sits at an unusual intersection: it makes cars, but it operates more like a luxury house. So, while most car manufacturers look to grow production and market share, Ferrari has built its success on doing the opposite: selling fewer cars, maintaining scarcity and then turning that scarcity into value.

To illustrate the point, in 2024, Ferrari produced just under 14,000 vehicles, a fraction of what a mainstream carmaker produces in a week. Yet Ferrari reported €6.7 billion in revenue and more than €1.5 billion in profit, with an operating margin of close to 30% that is rare in the car industry. Those results underline Ferrari’s business model: limit supply, preserve brand strength and price accordingly.

A luxury company (that happens to make cars)

For its part, Ferrari’s management has long argued that the company should be viewed as a luxury goods business, rather than a carmaker. It’s an important distinction that allows Ferrari to enjoy the margins that it does. The typical Ferrari sells for around €417,000 before options, with personalisation (such as bespoke paint or custom interiors) adding an average of nearly 20% to that figure.

To some extent, Ferrari’s appeal is built on craftsmanship and performance. But it’s also about heritage and exclusivity. Ferrari has a long association with motorsport and has competed in every Formula 1 season since the championship began in 1950, which has contributed to its brand prestige.

Meanwhile, Ferrari’s policy of producing “one car fewer than the market demands” has created an order book that can stretch for years (more on this further below). The strategy keeps residual values high and supports its pricing power, but it also reinforces the perception of Ferrari ownership as a privilege.

Financial performance and competitive position

In 2024, Ferrari achieved double-digit revenue growth, record profitability and strong cash flow generation. Around 86% of revenue comes from car sales and related personalisation, with the rest from sponsorships, racing activities, and brand extensions such as merchandising and theme parks.

Margins of nearly 30% are exceptional for any manufacturer and roughly double those of Porsche, its closest listed peer. By contrast, Aston Martin, another brand with a rich history, continues to struggle to reach consistent profitability. Ferrari’s returns on capital are well above its cost of capital, while free cash flow comfortably covers investment spending and shareholder distributions.

To maintain its position, Ferrari invests heavily in research and development, spending roughly 13% of revenue — a level that compares to leading technology firms. This investment is channelled towards new models and the move towards hybrid and electric technology while keeping production centred in Italy. Despite being capital-intensive, Ferrari’s steady demand and strong margins make it financially resilient.

“One car fewer than the market demands”

The policy of producing “one car fewer than the market demands” manifests in the way Ferrari manages its brand and supply chain. Production is deliberately capped, dealerships are limited in number and the customer experience is tightly controlled. The company avoids discounting, carefully manages allocations for limited-edition models and cultivates a long-term relationship with buyers, many of whom are repeat clients.

This structure helps Ferrari maintain its exclusivity and pricing power. Unlike luxury fashion or watch brands that can expand production quickly, Ferrari’s physical product imposes natural limits. This scarcity, combined with the emotional connection many customers feel toward the brand, underpins the company’s strong resale values and customer loyalty.

Risks: do Ferrari drivers dream of electric cars?

Perhaps the biggest strategic question for Ferrari now is how it adapts to the shift toward electric vehicles (EVs). Regulatory change in Europe means that by 2035, new petrol and diesel cars can no longer be sold. For a company known for its V12 engines and the distinctive sound of its vehicles, electrification isn’t just a technical matter, it’s a test of its identity.

Ferrari plans to launch its first fully electric model in the coming year. Management has scaled back early targets to ensure that the product will meet market expectations before expanding production. The first model is expected to be limited in number and sold at a premium price, consistent with Ferrari’s existing approach to exclusivity.

The risk is that an electric Ferrari – without the distinctive Ferrari roar – may not deliver the same emotional experience that customers expect. While many carmakers see EVs as a route to growth, Ferrari needs to balance innovation with heritage. The company’s cautious pace suggests that it is prioritising its brand integrity, even if that means slower adoption of EVs.

Not entirely immune to the economic cycle

As with other luxury goods firms, Ferrari’s exposure to ultra-high-net-worth customers affords it some protection from normal economic cycles, but it’s not completely immune. Global recessions or financial market shocks could still affect discretionary spending at the top end of the market. Regulatory changes, particularly those affecting emissions or luxury taxes, are also potential headwinds, especially in markets like China where levies can add significantly to the price of imported cars.

Competition, while limited, is ever present. Lamborghini, McLaren and Porsche all serve similar customer segments, and new entrants in the electric supercar space could eventually challenge Ferrari’s dominance in performance metrics. However, replicating Ferrari’s brand equity and heritage would be difficult, and that remains its most durable advantage.

Valuation: Pricing in near-flawless execution

In line with Ferrari management’s view, investors have long treated Ferrari’s shares as a luxury sector play rather than an automotive one. The stock trades at about 35 to 37 times forward earnings — multiples similar to those of high-end consumer brands such as Hermès — reflecting expectations of consistent growth and strong pricing power.

Ferrari’s medium-term plan calls for steady revenue expansion, supported by new model launches and selective increases in production. The company expects to maintain high margins despite the increased investment in electric technology and production facilities. If it can meet these goals, earnings growth in the high single-digit to low double-digit range appears achievable.

The main valuation risk lies in these expectations: Ferrari’s premium rating assumes that it can achieve near-flawless execution. Any short-term disappointment, such as a delayed model, slower profit growth or delays in the EV rollout, could lead to price volatility. Longer term, the question will be whether Ferrari can transition its brand and pricing power into the electric era without diluting its core appeal.

Conclusion – approach with discipline

For investors, Ferrari offers exposure to both the resilience of the luxury sector and the innovation of high-performance engineering. It’s not a cyclical carmaker in the traditional sense, nor is it a fast-growing technology company. Instead, it represents a disciplined, high-margin business that has turned scarcity into a sustainable source of value.

The company’s track record of controlling supply, maintaining demand, and protecting its brand, has delivered results that few manufacturers can match. Investors should approach it with the same discipline Ferrari applies to its production: selective, patient and aware that perfection may already be priced in.

Note to readers:

This article was written with the assistance of artificial intelligence, based on research by the author. The article was checked and edited by the author and our editorial team.

At the time of writing Investec Investment Management and Investec Wealth & Investment International held positions in Ferrari S.p.A. in their portfolios.