Item 4. Information on the Company
A. History and Development of the Company
Our company is named after our founder Enzo Ferrari. An Alfa Romeo driver since 1924, Enzo Ferrari founded his own racing team, Scuderia Ferrari, in Modena in 1929 initially to race Alfa Romeo cars. In 1939 he set up his own company, initially called Auto Avio Costruzioni. In late 1943, Enzo Ferrari moved his headquarters from Modena to Maranello, which remains our headquarters to this day.
In 1947, we produced our first racing car, the 125 S. The 125 S’s powerful 12 cylinder engine would go on to become synonymous with the Ferrari brand. In 1948, the first road car, the Ferrari 166 Inter, was produced. Styling quickly became an integral part of the Ferrari brand.
In 1950, we began our participation in the Formula 1 World Championship, racing in the world’s second Grand Prix in Monaco, which makes Scuderia Ferrari the longest running Formula 1 team. We won our first Constructor World Title in 1952. Our success on the world’s tracks and roads extends beyond Formula 1, including victories in some of the most important car races such as the 24 Hours of Le Mans, the world’s oldest endurance automobile race, and the 24 Hours of Daytona.
The Fiat group acquired a 50 percent stake in Ferrari S.p.A. in 1969 and increased its stake to 90 percent in 1988 following the death of Enzo Ferrari, with the remaining 10 percent held by Enzo Ferrari’s son, Piero Ferrari.
Ferrari became an independent, publicly traded company following its separation from FCA (the “Separation”)(renamed Stellantis in January 2021, following the merger of Peugeot S.A. with and into FCA), which was completed on January 3, 2016 (the “Separation”) and occurred through a series of transactions including (i) an intragroup restructuring which resulted in the Company’s acquisition of the assets and business of Ferrari North Europe Limited and the transfer by FCA of its 90 percent shareholding in Ferrari S.p.A. to the Company, (ii) the transfer of Piero Ferrari’s 10 percent shareholding in Ferrari S.p.A. to the Company, (iii) the initial public offering of common shares of the Company on the New York Stock Exchange in October 2015 under the ticker symbol RACE, and (iv) the distribution, following the initial public offering, of FCA’s remaining interest in the Company to FCA’s shareholders. On January 4, 2016 the Company also completed the listing of its common shares on the Mercato Telematico Azionario the stock exchange managed by Borsa Italiana,(“MTA”, subsequently renamed Euronext Milan), under the ticker symbol RACE.
B. Business Overview
Business Summary
Ferrari is among the world’s leading luxury brands, focused on the design, engineering, production and sale of the world’s most recognizable luxury performance sports cars. Our brand symbolizes exclusivity, innovation, state-of-the-art sporting performance and Italian design and engineering heritage. Our name and history and the image enjoyed by our cars are closely associated with our Formula 1 racing team, Scuderia Ferrari, the most successful racing team in the history of Formula 1 history.1. From the inaugural year of Formula 1 in 1950 through the present, Scuderia Ferrari has won 238 Grand Prix races, 16 ConstructorConstructors’ World titles and 15 Drivers’ World titles. We are the only team which has taken part in all the editions of the Championship, racing in more than 1,000 Formula 1 Grand Prix races. We believe our history of excellence, technological innovation and defining style transcends the automotive industry, and is the foundation of the Ferrari brand and image. We design, engineer and produce our cars in Maranello, Italy, and sell them in over 60 markets worldwide through a network of 166172 authorized dealers operating 187191 points of sale as of the end of 2019.2021.
We believe our cars are the epitome of performance, luxury and styling. Our product offering comprises four main pillars: the sports range, the GT range, special series and Icona, a line of modern cars inspired by our iconic cars of the past. Our current product range (including cars presented in 2019,2021, for which shipments will commence in 2020)future years) is comprised of fivesix sports cars (SF90 Stradale,(the 812 GTS, the Ferrari F8 Tributo, the Ferrari F8 Spider, 812 Superfastthe 296 GTB, the SF90 Stradale and 812 GTS)the SF90 Spider), fourtwo GT cars (Ferrari(the Ferrari Roma and the Ferrari Portofino GTC4Lusso and GTC4Lusso T) andM), two special series cars (488 Pista(the 812 Competizione and 488 Pista Spider)the 812 Competizione A), as well as two versions of our first Icona car,model, the Ferrari Monza SP1 and the Ferrari Monza SP2.SP2, as well as the recently presented new model in the Icona range, the Ferrari Daytona SP3.
In 2021 we completed the shipments of the 812 Superfast, while the shipments of the Ferrari Monza SP1 and SP2 will be completed in the first quarter of 2022. We also produce limited edition hypercarsfuori serie and one-off cars. Our most recent hypercar, the LaFerrari Aperta, was launched in 2016 to celebrate our 70th70th Anniversary and finished its limited series run in 2018. In 2019,2021, we unveiledlaunched 4 new models, including the SF90 Stradale (our first296 GTB, a new PHEV featuring a new V6 engine, the limited series production Plug-in Hybrid Electric Vehicle (PHEV)), the F8 Tributo, the F8 Spider, theV12 812 GTSCompetizione and 812 Competizione A, and the new Icona series model, the Ferrari Roma,Daytona SP3, and we have launched 13 models in accordance with shipments of the F8 Tributo commencing in the fourth quarter of 2019 and shipments of the other cars expectedour plan to commence in 2020.launch 15 new models by 2022 as announced at our 2018 Capital Markets Day.
In 2019,2021, we shipped 10,13111,155 cars and recorded net revenues of €3,766€4,271 million, EBIT of €917€1,075 million, net profit of €699€833 million and earnings before interest, taxes, depreciation, and amortization (EBITDA) of €1,269€1,531 million. For additional information regarding EBITDA, including a reconciliation of EBITDA to net profit, as well as other non-GAAP financial measures we present, see “Item 5. Operating and Financial Review and Prospects—Non-GAAP Financial Measures”.
Whilst broadening our product portfolio to target a larger customer base, we continue to pursue a low volume production strategy in order to maintain a reputation for exclusivity and scarcity among purchasers of our cars and we carefully manage our production volumes and delivery waiting lists to promote this reputation. We divide our regional markets into (i) EMEA, (ii) Americas, (iii) Mainland China, Hong Kong and Taiwan, and (iv) Rest of APAC, representingwhich represented respectively 48.349.2 percent, 28.625.4 percent, 8.38.1 percent and 14.817.3 percent of units shipped in 2019.2021. The geographical distribution of shipments reflects deliberate allocations driven by the phase-in pace of individual models.
We focus our marketing and promotion efforts in the investments we make in our racing activities and in particular, Scuderia Ferrari’s participation in the FIA Formula 1 World Championship, which is the pinnacle of motorsport and is one of the most watched annual sports series in the world, with approximately 405.5445 million unique television viewers in 2019 in the top 20* markets2021 and an average total audience for a Grand Prix weekend of 70.3 million. (Source: Formula 1 Press Office). Although our most recent Formula 1 world title was in 2008, we continuously enhance our focus on Formula 1 activities with the goal of improving racing results and restoring our historical position as the premier racing team in Formula 1. We believe that these activities support the strength and awareness of our brand among motor enthusiasts, clients and the general public.
We license the Ferrari brand to a selected number of producers and retailers of luxury and lifestyle goods. In addition, we design, source and sell Ferrari-branded products through a network of 20 Ferrari-owned stores and 24 franchised stores (including 15 Ferrari Store Junior), as well as on our website. As one of the world’s most recognized premium luxury brands, we believe we are well positioned to selectively expand the presence of the Ferrari brandoperate in attractivecarefully selected luxury and growing lifestyle categories consistent with our image,image. We launched our first fashion collection on June 13, 2021 in Maranello, drawing inspiration from our marque’s style, innovation and performance. We also license the Ferrari brand to a limited number of producers and retailers of luxury and lifestyle sectors, including sportswear, watches, accessories, consumer electronics and theme parks which,that, we believe, enhance the brand experience of our loyal clients and Ferrari enthusiasts.
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(*) Top 20 markets are, The world of Ferrari can also be experienced in alphabetical order, Australia, Austria, Belgium, Brazil, China, Finland, France, Germany, Greece, Italy, Mexico, Netherlands, Pan Africa, Pan Latin America, Pan Middle East, Pan Russia, Poland, Russia, United Kingdomour Ferrari Museum in Maranello and United States.
in the Enzo Ferrari Museum in Modena.
Our international network of Ferrari Stores consists of 16 Ferrari owned store and 14 franchised stores (including 12 Ferrari Store Junior) where visitors can find our fashion collection as well as on our website. In 2021 we began giving a fresh new look to the stores, starting with our stores in Maranello, Milan, Rome and Los Angeles.
On June 15, 2021 we reopened and revitalized our Ristorante Cavallino, which is situated opposite to the entrance of our Maranello factory, while retaining the heritage of this historic location.
We continue in our unwavering pursuit of reaching carbon neutrality by 2030, addressing – in addition to our electrification journey – both direct and indirect emissions with a focus on energy and materials. As a further step forward in this process, in 2021 we calculated our carbon footprint considering the emissions related to all of our activities over our entire value chain. Our calculation, based on greenhouse gas protocol methodology, has been certified according to ISO 14064-1:2018 requirements by a third-party and allowed us to determine priority areas for action.
We will continue focusing our efforts on protecting and enhancing the value of our brand to preserve our strong financial profile and participate in the growth of the premium luxury market. We intend to selectively pursue controlled and profitable growth in existing and emerging markets while expanding the Ferrari brand to carefully selected lifestyle categories.
Industry Overview
Within the luxury goods market, we define our target market for luxury performance cars as two-door cars powered by engines producing more than 500 hp and selling at a retail price in excess of Euro 150,000 (including VAT). The luxury performance car market historically has followed relatively closely growth patterns in the broader luxury market. The luxury performance car market is generally affected by global macroeconomic conditions and, although we and certain other manufacturers have proven relatively resilient, general downturns can have a disproportionate impact on sales of luxury goods in light of the discretionary nature of consumer spending in this market. Furthermore, because of the emotional nature of the purchasing decision, economic confidence and factors such as expectations regarding future income streams as well as the social acceptability of luxury goods may impact sales.
Following the sharp recession of 2008-2009, the luxury performance car market has been resilient to further economic downturns and stagnation in the broader economy, also a result of the increase of new product launches. A sustained period of wealth creation in several Asian countries and, to a lesser extent, in the Americas, has led to an expanding population of potential consumers of luxury goods. Developing consumer preferences in the Asian markets, where the newly affluent are increasingly embracing western brands of luxury products, have also led to higher demand for cars in our segment, which are all produced by established European manufacturers. In turn, the changing demographic of customers and potential customers is driving an evolution towards luxury performance cars more suited to an urban, daily use.
Additionally, the growing appetite of younger affluent purchasers for luxury performance cars has led to new entrants, which in turn has resulted in higher sales overall in the market.
In 2021, the luxury performance car market experienced a V-shaped recovery, with Ferrari shipments returning to and surpassing the 2019 pre-pandemic levels while shipments of the overall luxury performance car market partially recovered but remained below the 2019 pre-pandemic levels, after the economic shock experienced in 2020 as a result of the COVID-19 pandemic. The actions taken worldwide for the containment of the pandemic, including widespread vaccination campaigns, enabled Ferrari and some of its main competitors to fully recover and maintain their production capacity. Furthermore, the renewed product offering by several competitors was another key element driving the positive performance of the market.
Unlike in other segments of the broader luxury market, however, in the luxury performance car market, a significant portion of demand is driven by new product launches. The market share of individual producers fluctuates over time reflecting the timing of product launches. New launches tend to drive sales volumes even in difficult market environments because the novelty, exclusivity and excitement of a new product is capable of creating and capturing its own demand from clients.
Growing environmental concerns are leading to the implementation of increasingly stringent emissions regulations and an increase in demand for both hybrid and electric vehicles. Cost and limited charging infrastructure are currently limiting factors in the demand for electric vehicles, but advancements in battery technology in coming years are expected to boost sales of hybrid and electric high performance luxury vehicles, although at a slower pace compared to mass market
vehicles. The ability to combine driving experience with hybrid and electric technology will be key for the commercial success of high performance luxury vehicles.
As shown in the chart below, our volumes in recent years have proven less volatile than our competitors’. We believe this is due to our strategy of maintaining low volumes compared to demand, as well as to the higher number of models in our range and our more frequent product launches compared to our competitors.
•Ferrari and Luxury Performance Car Industry data are updated to December 31, 2019.2021.
Data•The commercial criteria we used for evaluation of the Luxury Performance Car Industry include all two door GT and sports cars with power above 500hp,500 hp, and retail price above Euro 150,000 (including VAT) sold by Aston Martin, Audi, Bentley, BMW, Ferrari, Ford, Honda/Acura, Lamborghini, Maserati, McLaren, Mercedes Benz, Polestar, Porsche and Rolls-Royce.
•Ferrari data based on internal information for the 22 top countries (excluding Middle East countries) for Ferrari annual registrations and sales (which accounted for approximately 87%86% of the total Ferrari shipments in 2019)2021).
•Data for the Luxury Performance Car Industry based on units registered (in Brazil, Japan, Taiwan, United Kingdom, Germany, France, Switzerland, Italy, Poland, Spain, Sweden, Netherlands, Belgium and Austria) or sold (in USA, South Korea, Mainland China, Russia, Australia, New Zealand, Singapore and Indonesia). Source: USA: US Maker Data Club, Brazil-JATO; Austria-OSZ; Belgium-FEBIAC; France-SIV; Germany-KBA; UK-SMMT; Italy-UNRAE; Netherlands-VWE; Poland-CEPiK; Spain-TRAFICO; Sweden-BranschData; Switzerland-ASTRA; Mainland China-China Automobile Industry Association-DataClub; Russia-AEBRUS; Taiwan-Ministry of Transportation and Communications; Australia-VFACTS-S; Japan-JAIA; Indonesia-GAIKINDO; New Zealand-VFACTS; Singapore-LTA, MTA (Land Transport Authority, Motor Trader Associations); South Korea-KAIDA.
As shown in the chart above, our volumes in recent years have proven less volatile than our competitors’. We believe this is due to our strategy of maintaining low volumes compared to demand, as well as the higher number of models in our range and our more frequent product launches compared to our competitors.
In 2019, our2021, Ferrari volumes in the largest 22 markets slightly increased compared to 2018,2020, primarily driven by contribution from our range models.renewed and enlarged product range. In 2019,2021, we had a market share of 23 percent26% in the luxury performance car market; with 25 percent30% of market share in the sports car segment and 19 percent20% of market share in the GT segment.
The chart below sets forth our market shares in 20192021 based on volumes in our largest 22 markets by geographical area.
•Ferrari and Luxury Performance Car Industry data are updated to December 31, 2019.2021.
Data
•The commercial criteria we used for evaluation of the Luxury Performance Car Industry include all two door GT and sports cars with power above 500hp,500 hp, and retail price above Euro 150,000 (including VAT) sold by Aston Martin, Audi, Bentley, BMW, Ferrari, Ford, Honda/Acura, Lamborghini, Maserati, McLaren, Mercedes Benz, Polestar, Porsche, and Rolls-Royce.
•Ferrari data based on internal information for the 22 top countries (excluding Middle East countries) for Ferrari annual registrations and sales (which accounted for approximately 87%86% of the total Ferrari shipments in 2019)2021).
•Data for the Luxury Performance Car Industry based on units registered (Brazil, Japan, Taiwan, United Kingdom, Germany, France, Switzerland, Italy, Poland, Spain, Sweden, Netherlands, Belgium and Austria) or sold (in USA, South Korea, Mainland China, Russia, Australia, New Zealand, Singapore and Indonesia). Source: USA: US Maker Data Club, Brazil-JATO; Austria-OSZ; Belgium-FEBIAC; France-SIV; Germany-KBA; UK-SMMT; Italy-UNRAE; Netherlands-VWE; Poland-CEPiK; Spain-TRAFICO; Sweden-BranschData; Switzerland-ASTRA; Mainland China-China Automobile Industry Association-DataClub; Russia-AEBRUS; Taiwan-Ministry of Transportation and Communications; Australia-VFACTS-S; Japan-JAIA; Indonesia-GAIKINDO; New Zealand-VFACTS; Singapore-LTA, MTA (Land Transport Authority, Motor Trader Associations); South Korea-KAIDA.
•Ferrari is market leader in several countries, including France, Italy, Mainland China,Switzerland, UK, USA, Australia, Japan and South Korea, among others.
While we monitor our market share as an indicator of our brand appeal, we do not regard market share in the luxury performance market as particularly relevant as compared to other segments of the automotive industry. We are not focused on market share as a performance metric. Instead, we deliberately manage our supply relative to demand, to defend and promote our brand exclusivity and premium pricing.
Competition
Competition in the luxury performance car market is concentrated in a fairly small number of producers, including both large automotive companies that own luxury brands as well as small producers exclusively focused on luxury cars, like us. The luxury performance car market includes sports cars and GT cars.
Our current sports car models are the 812 GTS, the Ferrari F8 Tributo, the Ferrari F8 Spider, the 812 Superfast,296 GTB and the 812 GTSSF90 Stradale and the SF90 Spider, our first series production Plug-in Hybrid Electric Vehicle (PHEV), the SF90 Stradale, as well as our latest special series models, the 488 Pista and 488 Pista Spider, and our models. Our principal competitors are Lamborghini, McLaren, Ford, Honda, Porsche, Mercedes, Aston Martin and Audi. Our current GT range models are the Ferrari Portofino, the GTC4Lusso, the GTC4Lusso T, and the most-recent,include the Ferrari Roma and the Ferrari Portofino M, while our principalmain competitors are Rolls-Royce, Bentley, BMW, Aston Martin and Mercedes.
In recent years, the market has shifted somewhat with an increased focus on the GT cars segment and the lower priced range of the sports car market, with larger automotive groups expanding their offering of premium cars to enter the luxury performance car market.
Competition in the luxury performance car market is driven by the strength of the brand and the appeal of the products in terms of performance, styling, novelty and innovation as well as on the manufacturers’ ability to renew its product offerings regularly in order to continue to stimulate customer demand.
Competition among similarly positioned luxury performance cars is also driven by price and total cost of ownership. Resilience of the car value after a period of ownership is an important competitive dimension among similarly positioned luxury cars, as a higher resilience decreases the total cost of ownership and promotes repeat purchases: we believe this is a strong competitive advantage of Ferrari cars.
Sports and GT Range, Special Series and Icona: Ferrari Line-Up Strategic Pillars
Our product offering comprises four main strategic pillars: the sports range, the GT range, special series and Icona. Our current product range as of the date of this report includes fivesix sports cars four(the 812 GTS, the Ferrari F8 Tributo, the Ferrari F8 Spider, the 296 GTB, the SF90 Stradale and the SF90 Spider), two GT cars (the Ferrari Roma and the Ferrari Portofino M), two special series cars (the 812 Competizione and the 812 Competizione A), and three strictly limited edition Icona models (the new Ferrari Daytona SP3, which was presented in November 2021, as well as our Icona cars, introduced in September 2018 with the Ferrari Monza SP1 and SP2.SP2). In 2021 we completed shipments of the 812 Superfast. We target end clients seeking high performance cars with distinctive design and state of the artstate-of-the-art technology. Our broad model range is designed to fulfill the strategy of “Different Ferrari for different Ferraristi, different Ferrari for different moments”, which means being able to offer a highly differentiated product line-up that can meet the varying needs of new customer segments (in terms of sportiness, comfort, on-board space, design)design, amongst others) and that can allow our existing clients to use a Ferrari in every momentvarious moments of their lives. Our diversified product offering includes different architectures (such as front-engine and mid-rear engine), engine sizes (V8(V6, V8 and V12), technologies (atmospheric, turbo-charged, hybrid, electric), body styles (such as coupes, spiders and spiders)targa), and seats (2 seaters 2+2 seaters and 42+ seaters).
We are also actively engaged in after sales activities driven, among other things, by the objective of preserving and extending the market value of the cars we sell. We believe our cars’ performance in terms of value preservation after a period of ownership significantly exceeds that of any other brand in the luxury car segment. High residual value is important to the primary market because clients, when purchasing our cars, take into account the expected resale value of the car in assessing the overall cost of ownership. Furthermore, a higher residual value potentially lowers the cost for the owner to switch to a new model thereby supporting client loyalty and promoting repeat purchases.
purchase.
The charts below set forth the percentage of our unit shipments (excluding the XX Programme, racing cars, Fuori Serie, one-off and pre-owned cars) for the years ended December 31, 2019, 20182021, 2020 and 20172019 by pillar:
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(*) Includes shipments of the LaFerrari and LaFerrari Aperta.
(**) Shipments of Icona carsmodels commenced in 2019 and contributed to less than 1 percent of our shipments for that year.
The table and charts below set forth our unit shipments(1) for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, by geographic market:
| | (Number of cars and % of total cars) | | For the years ended December 31, | (Number of cars and % of total cars) | | For the years ended December 31, |
| 2019 | | % | | 2018 | | % | | 2017 | | % | | 2021 | | % | | 2020 | | % | | 2019 | | % |
EMEA | | | | | | | | | | | | | EMEA | | | | | | | | | | | | |
Germany | | Germany | | 1,252 | | | 11.2 | % | | 995 | | | 10.9 | % | | 967 | | | 9.5 | % |
UK | | 1,120 |
| | 11.1 | % | | 981 |
| | 10.6 | % | | 843 |
| | 10.0 | % | UK | | 996 | | | 8.9 | % | | 971 | | | 10.6 | % | | 1,120 | | | 11.1 | % |
Germany | | 967 |
| | 9.5 | % | | 803 |
| | 8.7 | % | | 710 |
| | 8.5 | % | |
Italy | | 559 |
| | 5.5 | % | | 479 |
| | 5.2 | % | | 417 |
| | 5.0 | % | Italy | | 668 | | | 6.0 | % | | 574 | | | 6.3 | % | | 559 | | | 5.5 | % |
Switzerland | | 454 |
| | 4.5 | % | | 380 |
| | 4.1 | % | | 339 |
| | 4.0 | % | Switzerland | | 481 | | | 4.3 | % | | 456 | | | 5.0 | % | | 454 | | | 4.5 | % |
France | | 452 |
| | 4.5 | % | | 399 |
| | 4.3 | % | | 346 |
| | 4.1 | % | France | | 473 | | | 4.2 | % | | 463 | | | 5.1 | % | | 452 | | | 4.5 | % |
Middle East(2) | | 309 |
| | 3.1 | % | | 326 |
| | 3.5 | % | | 331 |
| | 3.9 | % | Middle East(2) | | 334 | | | 3.0 | % | | 304 | | | 3.3 | % | | 309 | | | 3.1 | % |
Other EMEA(3) | | 1,034 |
| | 10.1 | % | | 859 |
| | 9.3 | % | | 751 |
| | 9.0 | % | Other EMEA(3) | | 1,288 | | | 11.6 | % | | 1,055 | | | 11.6 | % | | 1,034 | | | 10.1 | % |
Total EMEA | | 4,895 |
| | 48.3 | % | | 4,227 |
| | 45.7 | % | | 3,737 |
| | 44.5 | % | Total EMEA | | 5,492 | | | 49.2 | % | | 4,818 | | | 52.8 | % | | 4,895 | | | 48.3 | % |
Americas(4) | | 2,900 |
| | 28.6 | % | | 3,000 |
| | 32.4 | % | | 2,811 |
| | 33.5 | % | Americas(4) | | 2,831 | | | 25.4 | % | | 2,325 | | | 25.5 | % | | 2,900 | | | 28.6 | % |
Mainland China, Hong Kong and Taiwan | | 836 |
| | 8.3 | % | | 695 |
| | 7.5 | % | | 617 |
| | 7.3 | % | Mainland China, Hong Kong and Taiwan | | 899 | | | 8.1 | % | | 456 | | | 5.0 | % | | 836 | | | 8.3 | % |
Rest of APAC(5) | | 1,500 |
| | 14.8 | % | | 1,329 |
| | 14.4 | % | | 1,233 |
| | 14.7 | % | Rest of APAC(5) | | 1,933 | | | 17.3 | % | | 1,520 | | | 16.7 | % | | 1,500 | | | 14.8 | % |
Total | | 10,131 |
| | 100.0 | % | | 9,251 |
| | 100.0 | % | | 8,398 |
| | 100.0 | % | Total | | 11,155 | | | 100.0 | % | | 9,119 | | | 100.0 | % | | 10,131 | | | 100.0 | % |
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| |
(1) | Excluding the XX Progamme, racing cars, Fuori Serie, one-off and pre-owned cars |
| |
(2) | Middle East includes the United Arab Emirates, Saudi Arabia, Bahrain, Lebanon, Qatar, Oman and Kuwait |
| |
(3) | Rest of EMEA includes Africa and the other European markets not separately identified |
| |
(4) | Americas includes the United States of America, Canada, Mexico, the Caribbean and Central and South America |
| |
(5) | Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand and Malaysia |
(1)Excluding the XX Programme, racing cars, one-off and pre-owned cars.
32(2)Middle East mainly includes the United Arab Emirates, Saudi Arabia, Bahrain, Lebanon, Qatar, Oman and Kuwait.
(3)Other EMEA includes Africa and the other European markets not separately identified.
(4)Americas includes the United States of America, Canada, Mexico, the Caribbean and Central and South America.
(5)Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand, India and Malaysia.
Sports Range
Our sports cars are characterized by compact bodies, a design guided by performance and aerodynamics, and often benefit from technologies initially developed for our Formula 1 single-seaters.single-seaters or Ferrari GT racing activities. They favor performance over comfort, seeking to provide a driver with an immediate response and superior handling, leveraging state of the artstate-of-the-art vehicle dynamics components and controls. In our sports car class, we offer fivesix models: the SF90 Stradale and SF90 Spider, our first series production carcars which featuresfeature PHEV technology that combines a V8 engine (780 hp) with three electric motors that allowallowing the car to reach 10001,000 hp; the Ferrari F8 Tributo and the Ferrari F8 Spider, are equipped with a mid-rear V8 engine (720 hp), a 4 time winner of the engine of the year award; the 812 Superfast and the 812 GTS, are equipped with a front V12 engine (800 hp). and the 296 GTB, which is the first 6-cylinder engine installed on a Ferrari road car and produces 830 hp total power output delivered by a new 120° V6 engine (663 hp) coupled with an electric motor capable of delivering a further 122 kW (167 hp) – unprecedented performance for a V6 car.
GT Range
Our GT cars, while maintaining the performance expected of a Ferrari, are characterized by more refined interiors with a higher focus on comfort and on-board life quality. In our GT class,range, we offer threetwo models equipped with our V8 engine, the Ferrari Roma (620 hp), combining sportiness and elegant design; the Ferrari Portofino (600M (620 hp) and the GTC4Lusso T (610 hp), the first Ferrari 4 seater equipped with a V8 turbo engine. We also offer one GT model equipped with our V12 engine, the GTC4Lusso (690 hp), our sport-luxury 4 seater and 4 wheel drive..
The following picturechart depicts the four dimensions of our customer value proposition for our sports and GT range models:
Special Series
From time to time, we also design, engineer and produce special series cars which can be limited in time or volume and are usually based on our range sports models but introduce novel product concepts. These cars are characterized by significant modifications designed to enhance performance and driving emotions. Our special series cars are particularly targeted to collectors and, from a commercial and product development standpoint, they facilitate the transition from existing to new range models. Our current special series cars areFollowing the completion of shipments for the Ferrari 488 Pista powered by a 720 hp V8 engine, and its retractable hard top version, theFerrari 488 Pista Spider (720in 2020, in 2021 Ferrari launched the 812 Competizione and the 812 Competizione A (830 hp). Respectively a coupe and a targa, the 812 Competizione and the 812 Competizione A represent the pinnacle of our technical expertise and performance with an extraordinary weight to power ratio of 1.79 kg/hp, which puts them at the top of our V12 car category, reaching 0-100 km/h in 2.85 seconds and 0-200 km/h in 7.7 seconds.
Icona
In September 2018, we introduced a new pillar of our product portfolio: the Icona, a unique concept that takes inspiration from the iconic cars of our history and reinterprets them in a modern fashion, pairing timeless design with state-of-the-art materials and technology. The first examples of this strictly limited-edition product line-up are the Ferrari Monza SP1 and SP2, which are inspired by the classic collectible barchetta cars, the 750Monza750 Monza and 860Monza.860 Monza. In 2021 the Ferrari Daytona SP3 was unveiled. This limited-edition targa takes inspiration from legendary Ferrari sports prototypes of the 1960s and sports a naturally aspirated V12 engine, mid-rear-mounted in typical racing car style. Undisputedly the most iconic of all of Ferrari’s engines, this power unit delivers 840 hp – along with 697 Nm of torque and maximum revs of 9500 rpm – making it the most powerful naturally aspirated road engine ever built by Ferrari.
Limited Edition HypercarsFuori Serie and One-Offs
In line with our tradition of hypercars starting with the 288GTOGTO (288 GTO) in 1984 up to the Enzo in 2002 and the LaFerrari Aperta, our latest hypercar launched in 2016, we also produce limited edition hypercars. These are the highest expression of Ferrari road car performance at the time and are often the forerunners of technological innovations for future range models, with innovative features and futuristic design. Furthermore, in connection with certain events or celebrations, we also launch very limited edition cars (our fuori serie). These models can be offered globally, or may be limited to specific local markets. Based on an exotic product concept not available on the standard Ferrari model range, these cars feature completely unique design and specifications compared to our other models.
Finally, inIn order to meet the varying needs of our most loyal and discerning clients, we also produce a very limited number of one-off models. While based on the chassis and equipped with engines of one of the current range models for homologation and registration purposes, these cars reflect the exact exterior and interior design specifications requested by the clients, and are produced as a single, unique car. Some of the most iconic models emerged from our One-Off program include the SP12 EC (inspired by the 512 BB and created in 2011), the F12 TRS (a radical two-seat roadster created on the platform of the F12berlinetta in 2014), the Ferrari SP38 (a superlative mid-rear V8 turbo taking inspiration from the legendary Ferrari F40), the 458MM Speciale (the last mid rear model with a V8 naturalnaturally aspirated engine in 2016) and, the Ferrari P80/C, a real track car taking inspiration from past Ferrari Sport Prototipo models.models, and the Ferrari Omologata, based on the 812 Superfast V12 platform. The most recent model, produced in 2021, is the BR20, a very elegant V12 based on the GTC4 Lusso.
Personalization Offer
All of our models feature highly customizable interior and exterior options, which are included in our personalization catalogue.catalog. Some of these options include performance contents like carbon fibre parts, carbon fibre wheels, titanium exhaust systems, alternative brake caliper colors, parking cameras, MagneRideMagnaRide dual mode suspension, panoramic roof option, various door panel configurations, steering wheel inserts and state of the artstate-of-the-art custom high fidelity sound systems. CommencingStarting with the SF90 Stradale and the SF90 Stradale,Spider, we have also introduced the “Assetto Fiorano” configuration, which provides numerous exclusive features for those who seek radical performance and design.
This more extreme configuration is also available for the 296 GTB.
With our “Special Equipment” program, we offer clients additional customization choices for their cars. Our specialists are able to guide clients in creating a very customized car through a wide catalog of special items such as different types of rare leathers, custom stitching, special paints, special carbon fiber, and personalized luggage sets designed to match the car’s interior.
The “Tailor Made” program provides an additional level of personalization in accordance with the expectations of our clients. A dedicated Ferrari designer assists clients in selecting and applying virtually any specific design element chosen
by the client. Our clients benefit from a large selection of finishes and accessories in an array of different materials (ranging from cashmere to denim), treatments and hues. To assist our clients’ choice we also offer three collections inspired by Ferrari’s own tradition: Scuderia (taking its lead from our sporting history), Classica (bringing a modern twist to the styling cues of our signature GT models) and Inedita (showcasing more experimental and innovation-led personalization).
The “One-off” program is the maximum level of personalization and exclusivity. See “—Limited Edition HypercarsFuori Serie and One-Offs” above for more details.
Design
Design is a fundamental and distinctive aspect of our products and our brand. Our designers, modelers and engineers work together to create car bodies that incorporate the most innovative aerodynamic solutions in the sleek and powerful lines typical of our cars. The interiors of our cars seek to balance functionality, aesthetics and comfort. Cockpits are designed to maximize the driving experience, tending towards more sporty or more comfortable depending on the model. The interiors of our vehicles boast elegant and sophisticated trims and details that enhance the ergonomic layout of all main controls, many of which are clustered on the steering wheel. A guiding principle of our design is that each new model represents a clear departure from prior models and introduces new and distinctive aesthetic elements, delivering constant innovation within the furrow of tradition.
For the design of our cars we have relied historically on Italian coachbuilders such as Carrozzeria Touring, Vignale, Scaglietti and Pininfarina. These partnerships helped Ferrari in defining its design language at the forefront of design advance. Throughout the years this area of excellence has been recognized repeatedly by a long series of awards being bestowed upon Ferrari road cars.
In 2010 we established the Ferrari Design Centre, our in-house design department, with the objective of improving control over the entire design process and ensuring long-term continuity of the Ferrari style. The mission of the Ferrari Design Centre is to define and evolve the stylistic direction of the marque, imprinting all new products with a modern stamp, according to a futuristic, uncompromised vision. The name and logo “Ferrari Design” denotes all concepts and works fromof the Ferrari Design Centre (see “—Intellectual Property”). Ferrari Design handles all aspects of automotive styling for the Ferrari road cars product range, encompassing the styling of all bodywork, external components and interior trim, applied to series production models for the GT and sports car range special editions, limited editions,edition hypercars, Iconas, one-off models, concept cars and some track-only models. Ferrari Design also includes a Color & Trim unit which manages the choice of materials and finishes for both exterior and interior trim and, in addition, is responsible for the Tailor Made program in conjunction with the Product Marketing department. Ferrari Design is also involved in the styling and conceptual definition of Ferrari branded products produced by our licensees (see “—Brand Activities”). In 2019, we created the Advanced Design team, a laboratory that aims at defining the brand'sbrand’s design vision, developing new concepts and formal languages through so far unexplored methods and tools, and trying to achieve simplification and formal purity while staying true to the Ferrari DNA which has characterized its history.
Ferrari Design is organized as an integrated automotive design studio, employing a total workforce of approximately 110120 people (full-time workers as well as external contractors) including designers, 3D surfacing operators, physical modelers and graphic artists. It operates a modeling studio fully equipped with 5-axis milling machines with the capacity to develop various full-scale models (interior and exterior) in parallel.
In September 2018 we opened a new building for the Ferrari Design Centre, which is our first facility fully dedicated to the Ferrari Design. The new building hosts two Ateliers and the Tailor Made department to engage clients with Ferrari’s rich personalization services. The Ferrari Design Centre entirelyhas designed our most recent cars, including the Ferrari Roma, the SF90 Stradale, the F8 Tributo and F8 Spider, the 812 GTS and the Ferrari Monza SP1 and SP2.our entire current line up.
During its 1012 year history, the Ferrari Design Centre has received many prestigious design awards for severalthe cars it has designed, among whichincluding the following in the last 2 years:
•Ferrari Monza SP2:SF90 Spider: iF Design Award; Red Dot Design Award (2021);
•Ferrari Omologata: Red Dot Design Award (2021);
•Ferrari Roma: iF Design Award (2021);
•Ferrari Portofino M: AUTONIS - Best New Design 2021-Auto Motor und Sport - (2021);
•Ferrari Roma: The Most Beautiful Supercar of the Year -— Festival Automobile International, Paris (2019)(2020);
488 Pista: iF Red Dot Design Award (2019)(2020);
SP38: iF Car Design Award - (2020);
•Ferrari (2019);
Portofino: iF Design Award (2019); UIGA - Auto Europa Sportiva (2019);
Ferrari Monza SP1:SF90 Stradale: iF Gold Design Award (2019)(2020); Red Dot Best of The Best (2019)(2020); 2019 Good
•Ferrari F8 Tributo: iF Design Award;
488 Pista:Award (2020); Red Dot Design Award (2019)(2020);
SP38: Red Dot Design Award (2019);
SF90 Stradale: 2019 Good Design Award;
SP38: Design Award for Concept Cars & Prototypes - Concorso d’Eleganza Villa d’Este (2018)
•Ferrari Portofino: Red Dot Best of the Best Award (2018)
812 Superfast: Red Dot Design Award (2018)
FXX K EVO: Red Dot Design Award (2018)
J50: iF Gold Design Award (2018)
LaFerrari Aperta:One Off P80/C: iF Design Award (2018)(2020);
•Ferrari Monza SP1: XXVI PREMIO COMPASSO D’ORO (2020).
On September 27, 2021 we announced a long-term, multi-year collaboration with the creative collective LoveFrom. The first expression of this new partnership will bring together Ferrari’s legendary performance and excellence with LoveFrom’s unrivalled experience and creativity that has defined extraordinary world changing products.
Product Development
Product development and technological innovation
Our development efforts take into account the three defining dimensions of Ferrari cars; performance; versatility and comfort; and driving emotions.
Performance reflects features such as weight, horsepower, torque, grip, aerodynamic efficiency, acceleration, and maximum speed, which all contribute to determine the lap time on track. We strive to ensure that every Ferrari is the best performing car in its segment.
Versatility derives from spaciousness, accessibility and mode of traction, including rear‑wheel‑drive or all‑wheel‑drive and, in future, electric-powered driving. Comfort results from the ease of the riding experience and on boardonboard interface. Regulation will affect development in this area -area; for example, a prescribed electric range may be required in future to access city centers.
Driving emotions is a key differentiator of Ferrari cars. There are three elements to driving emotions: sound, perceived acceleration and responsiveness of the car. Sound is an important part of the experience and very involving for the driver. Perceived acceleration is the driver’s subjective impression of the instantaneous car acceleration beyond the actual 0-100 or 0-200 km/h performance measured in the car technical specifications. Responsiveness requires that every driver command lead(steering, gear shifting and braking) leads to a directan immediate, linear and controllable reaction of the car.
These three dimensions variably interact in our sports and GT cars. As we work on the future product range, we strive to improve on each of those dimensions, focusing for sports cars on performance and driving emotions, and for GT cars on versatility and comfort on board and fun to drive - driving emotions.
Innovation principles
We believe there are five key guidelines to innovation at Ferrari: focus on the three key defining dimensions described above; leveraging on Formula 1 know-how; first mover positioning in core areas such as powertrain and aerodynamics; customization of technologies available on the market (such as the turbo technology); and pursuit of synergies (arising from common architectures within our range). In addition to these internally driven factors, regulation is key in determining the direction of innovation.
Combustion and hybrid engines
We believe internal combustion engines will remain important in Ferrari’s powertrain mix and therefore we continue to invest significantly in new combustion engine technologies and the development or use of bio-fuels. In 2018 we won the “Engine of the Year” award for the newest edition of our V8 turbocharged engine mounted on the 488 Pista.
Going forward, Ferrari will have three engine families: we
V12 - We will maintain and develop the V12 naturally‑naturally aspirated engine family, long the pinnacle of Ferrari engines; we will implement the next
V8 - We have implemented further technological step upsenhancements for the V8 family; and we will develop
V6 - We developed and launched this year a completely new V6 family based on a specific and innovative architecture.
The industry effort to combine greater power outputs with lower emissions and consumption often leads to a higher turbo lag. Through a technological breakthrough, Ferrari has engineered a turbo engine with turbo engine performance but with the response of a naturally‑naturally aspirated engine. For example, compared to Ferrari’s previous line of V8 turbo engines, the specific power output of the Ferrari F8 Tributo and the Ferrari 488 Pista was increased to 184 horsepower per litre without meaningful turbo lag.
InWe have undertaken an important program to develop hybrid and electric technology. One of the future,more relevant topics of this generation, we expect the concept of the car in an era of climate change to be an opportunity for us. We intend to use hybrid and electric technology, as well as Formula 1 technology, to increase specific power output without turbo lag.
WeInnovation runs within Ferrari, so the challenge of building a Ferrari for a low-emissions future is one that we are deploying considerable resources for the development of hybrid and electric powertrains, which will be mounted on an increasingly larger proportion of our car models; this is intended to improve performance and driving experience while also satisfying customer preferences and regulatory requirements regarding emissions.already embracing. With the SF90 Stradale we developed the first series production carmodel in our range with Plug-in-Hybrid Electric Vehicle (PHEV) technology.PHEV
technology, which is also featured in the SF90 Spider. In 2021 we launched our third production model with PHEV technology, the 296 GTB, a pure rear wheel drive sports car that reaches the pinnacle of driving emotions thanks to its V6 engine and significantly reduced weight, giving it a class-leading overall weight-to-power ratio. The increased offering of hybrid powertrains will allow us to meet both specific regulatory requirements and also satisfy customers’ desires for significantly improved emissions, while enhancing the performance and driving experience that render Ferrari cars unique.
Architecture
In addition to engines, the other principal technical area we are focusing on is the architecture. Our architecture covers all principal technical specifications of future Ferrari models. We expect that innovation requirements will arise principally from: the evolution of engine families; the level of hybridization and electrification; modes of traction; the number of seats up to a real four-seater; and the body style, which will vary much more significantly than in the past in light of the introduction of the Purosangue.
We expect that our core architectures will be the rear‑mid‑engine architecture and the front‑mid‑engine architecture, each comprising several variants.
Rear-mid-engine architecture
The rear‑mid‑engine architecture is optimal for sports cars thanks to its compact dimensions, low gravity center and favorable mass repartitions. It is designed to integrate multiple power units with a higher specific power output than the Ferrari 488 Pista. In this architecture, combustion engines can be combined with an electric motor to realize hybridization, including a battery to enable electric range. This architecture also allows to install an E-Axle on the front to increase overall power and to have an all-wheel drive powertrain. The first application of this architecture is the SF90 Stradale. In combination, we have developed a new and highly innovative 8-shift double‑clutch transmission gearbox. Hybridization will impact the weight of engines and therefore we will deploy new lightweight technologies to compensate this impact. Package efficiency will also be key to achieve a compact car that reduces weight and inertia. In order to apply the architecture to different powertrains, the wheelbase may vary. The firstsecond example of this new architecture is the SF90 Stradale.
296 GTB, where the V6 engine allowed for a reduction in the wheel base of 500 mm with a positive impact on driving emotions and without any trade off of comfort on board.
Front-mid-engine architecture
The front‑mid‑engine architecture, also a transaxle powertrain concept, is even more flexible than the rear-mid-engine architecture.optimal for our GT cars in terms of dimensions. This architecture is able to accommodate an all‑wheel‑drive powertrain, will allow for hybridization, and will have a flexible wheelbase suited to a variety of engines as well as seat configurations including two‑seaters and four‑seaters. It will be accessible, spacious and comfortable. Key to this architecture will be the new active suspension systems we are developing, with a high range between comfort and sportiness.
New-generation human-machine interface
Particularly driven by growth in the GT segment, Ferrari has developed the next generation of human‑machine interface (HMI) technologies. Using state‑of‑the‑art technologies we will be guided by the Formula 1 derived concept of “eyes on the street, hands on the steering wheel”, for a focused, safe and enjoyable drive. The new HMI includes several new technologies, including a new head‑up display, a new innovative cluster, a new steering wheel that features new commands and a new infotainment system, as well as tools aimed at positively enhancing the passengers’ experience. The first cars using all or part of these technologies are the SF90 Stradale and the Ferrari Roma.
Autonomous driving
and connectivity
While we do not intend to develop self-driving cars, we will adopt certain features of autonomous driving technology in response to regulatory developments and customer preferences, especially in the GT segment. For example, in 2018 we launched initial functionalities for Advanced Driving Assistant Systems (ADAS) such as predictive breakingbraking and automatic cruise control on current models, and further innovations will be introduced in future models.
Ferrari is carefully monitoring the evolution of autonomous driving technologies, including sensors, andnew chips, artificial intelligence and connectivity, and we will select and customize those innovations compatible with the Ferrari experience.experience and the highest security standards. These technologies combined with the hybridization and the incoming cybersecurity requirements will also have an important impact on the electronic architecture of our cars.cars and we are presently developing our future electrical and electronic architecture to take into account these requirements.
Production and Procurement
Production Process
Our production facilities are located in Maranello and in Modena, Italy (see “Item 4.D. Property, Plant, and Equipment”). Our production processes include supply chain management, production and distribution logistics of cars in our range models and special series, as well as assembly of prototypes and avanseries.
Notwithstanding the low volumes of cars produced, our production process requires a great variety of inputs - over 40,000 product identifier codes sourced from approximately 750800 total suppliers - entailing complex supply chain management to ensure continuity of production. Our stock of supplies is warehoused in Ubersetto, near Maranello, and its management is outsourced to a third party logistics company.
Most of the manufacturing process takes place in Maranello, including aluminum alloy casting in our foundry, engine construction, mechanical machining, painting, car assembly, and bench testing; at our second plant in Modena (Carrozzeria Scaglietti) we manufacture the aluminum bodyworks of our cars’ aluminum bodyworks.cars. All parts and components not produced in house at Ferrari are sourced from our panel of suppliers (see “—Procurement”).
Between 2002 and 2012 the plants housing our production processes were entirely renovated or rebuilt and in recent years we have continued to make significant investments in our manufacturing facilities. Equipment may require substantial investment with the introduction of new models or to maintain state of the artstate-of-the-art technology, particularly in the case of shell tools for the foundry, tools for machining, feature tools for body welding and special mounting equipment for the assembly. Starting from 2021, we have been acquiring additional resources and production equipment, mainly in relation to Battery Electric Vehicles (“BEVs”), to successfully manage the new technological advancements and related challenges resulting from the transition to electrification.
As at December 31, 2019,2021, our production processes employed over 1,7201,723 engineers, technicians and other personnel (approximately 1,300 workers, including approximately 240 temporary production(191 white collar employees and approximately 180 white collar1,532 workers, of which 449 were temporary production employees). We have a flexible production organization, which allows us to adjust production capacity to accommodate our expected production requirements. This is primarily due to the low volume of cars we produce per year and to our highly skilled and flexible employee base that can be deployed across various production areas. In addition, we can adjust our make-or-buy strategies to address fluctuations in the level of demand on our internal production resources. Our facilities can
accommodate a meaningful increase in production compared to current output with the increase of weekend shifts to address special peaks in demand. Production could beIn 2021 we increased even furtherproduction with the introduction of a second shift on car assembly lines in addition to the
single shift currently operated on the V8 Assemblyassembly line. We constantly work to increase the utilization rate and reduce the internal scrap rate and we closely monitor an index of our production efficiency. In the past few years we have reduced our cycle time by approximately three percent per year. We are also committed to improvecontinually improving the reliability of our cars, reduce theirreducing defects, and optimize their finishing.
Unlike most low volume car producers, we operate our own foundry and machining department producing several of the main components of our engines, such as engine blocks, cylinderscylinder heads and crankshafts. We believe this accelerates product development and results in components that meet our specifications more closely.
Engine Production
Our engines are produced according to a vertical structure, from the casting of aluminum in our foundry up to the final assembly and testing of the engine. Several of the main components of our engines, such as blocks and cylinderscylinder heads are produced at our foundry in Maranello. For this purpose, we use a special aluminum alloy that includes seven percent silicon and a trace of iron, which improves mechanical integrity, andas well as our own shell and sand casting molds. Once all components are ready, engines are assembled on different lines for our V8 engines, V12 engines, our V8 and forV6 engines, and the V6 engines we manufacture for Maserati. The assembly process is a combination of automatic and manual operations. At the start of the assembly process, each engine is identified with a barcode and operations are recorded electronically. Every engine goes to the test benches to ensure it delivers the expected performance; 10 - 2010-20 percent of engines are also hot tested and measured for power and torque. In 20192021 we produced an average of approximately 117114 engines per day, including approximately 118 V12 45engines and 49 V8 engines (including 5 V8 turbo and 3 V8 aspirated for Maserati) and 61, as well as 57 V6 engines for Maserati (see “—Manufacturing of Engines for Maserati”).
Body Assembly
In parallel with the assembly of our engines, we prepare our body-shells at our body shop Carrozzeria Scaglietti in Modena. The main components of body-shells are not manufactured internally but are sourced from manufacturers for chassis, bodies and carbon fiber parts. At Carrozzeria Scaglietti we have two different production lines dedicated to the assembly of our V8 and V12 aluminiumaluminum bodies. We carefully check the alignment of the various parts -– most importantly the engine cover and the wings -– with electronic templates and gauges. Our highly trained specialists also perform surface controls on the aluminum panels and eliminate any imperfections by either filing or panel beating. In our Scaglietti plant we also have a dedicated line for the assembly of a special carbon fiber body for the Ferrari Monza SP1 and SP2.SP2, and for the latest Icona model launched in November 2021, the Ferrari Daytona SP3.
Painting
Our paint shop was inaugurated in 2004. When transferred to our paint shop, the bodies are mounted on a loading bay, immersed in the cataphoresis tanks and subsequently transferred to a fixing gas fired oven at 140 degrees.140°C. Primers are then applied and fixed at 190 degrees190°C until the completely grey body-shell is ready for painting. All body-shells are cleaned with automatic pressure blowers (to avoid the electrostatic effect) and carefully brushed with emu feathers (because of their natural electrostatic properties) to clean off any dirt particles or impurities before painting. The painting process is automated for the larger surfaces, while it is done by hand for some other localized areas and in the summer ofareas. In 2019, we replaced the robot which performs the application of the base coat. The whole car is painted at the same time to ensure color harmony. The bodies are finally polished with lacquer to fix the paint and give the bodies their final finish. In 2018 we substituted our clear coat with a new generation 2K (bi-component) transparent coat that allows us to decrease the temperature of the oven from 140°C to 90°C; this is a very innovative and unique process that allows us to simultaneously paint aluminum and carbon fiber parts.
Assembly Line and Final Checks
The final assembly of our cars takes place in Maranello in a building constructed in 2008.Maranello. We have three different lines placed at ground level and the first floor of the building. For each model, the initial assembly operations take place simultaneously on different lines and sections to maximize efficiency so while the body is assembled on the main line, the powertrain, as well as the cockpit and the doors, are prepared on a specificseparate sub-line. In 2018, the line on the first floor moved from one shift to two shifts. On the first floor there is also the assembly line offor the Ferrari Monza SP1 and SP2.
SP2; starting from April 2021, the line on the ground floor also moved from one to two shifts.
Personalization and Road Tests
During the assembly process of assembly of our cars we manage the fitting of all bespoke interiors, components and special equipment options that our clients choose as part of our personalization program (see “—Sports and GT, Special Series and Icona: Ferrari Line up Strategic Pillars—Personalization Offer”). After the assembly phase, every car completes a 40-kilometer road test-drive.
Finishing and Cleaning
After the road test all cars go to the finishing department. There, we thoroughly clean interior and exterior, checkperform a comprehensive review of the whole car, and polish and finish the bodies to give them their final appearance.
Manufacturing of Engines for Maserati
We have been producing engines for Maserati since 2003. The V8 engines that we historically produced and continue to produce for Maserati are variants of Ferrari families of engines and are mounted on Maserati’s highest performing models, such as the Quattroporte and Levante (turbo engines), and the GranTurismo and the GranCabrio (aspirated engines). All of the V8 engines that we sell to Maserati are manufactured and assembled according to the same production processes we adopt for the V8s equipped on our cars (see “—Production Process”). In 2019, we sold approximately 1,000 V8 turbo engines and approximately 800 V8 aspirated engines to Maserati. These were the last V8 aspirated engines to be sold to Maserati, as they have stopped the production of the GranTurismo and GranCabrio.
In 2011 we began producing a family of engines exclusively for Maserati, in much larger production volumes to be installed on the Quattroporte and Ghibli (mainly the F160 3.0-liter V6 Turbo engines), and in 2016 we started the production of F161 engines to be installed on the Levante, Maserati’s SUV. We have a multi-year arrangementThe term of our supply agreement with Maserati to providefor the production of V6 and V8 engines up to 2020.is until 2023. Under the framework agreement, Maserati is required to compensate us for certain costs we may incur such as penalties from our suppliers if there is a shortfall in the annual volume of engines actually purchased by Maserati in that year. In 2019,2021, we sold approximately 14,000 V61,250 V8 turbo engines to Maserati and approximately 13,650 V6 engines in foursix different versions, ranging from 330 hp to 450 hp.
In order to meet the V6 volumesvolume and specifications requirements, in 2012 we built a dedicated assembly facility atin Maranello with a much higher level of industrialization compared to production of our V12 engines. Due to the larger volumes and product specifications, our make-or-buy strategy for the production of F160 V6 and F161 V6 engines also differs from the strategy applicable to the production of Ferrari engines. The vast majority of the engine components are sourced externally from our panel of suppliers (see “—Procurement”“—Procurement”) and then assembled in Maranello on our highly automated2020 we started sourcing all casting and machining of the cylinder heads externally, while the V6 assembly line.line and testing continued to be managed by us in Maranello.
Procurement
We source a variety of components, raw materials, supplies, utilities, logistics and other services from numerous suppliers. We recognize the contribution of our suppliers to our success in pursuing excellence in terms of luxury and performance, therefore we carefully select suppliers that are able to meet our high standards.
For the sourcing of certain key components with highly technological specifications, we have developed strongly synergic relationships with some of our suppliers, which we consider “key strategic innovation partners”. We currently rely on severalselected key strategic innovation partners, including for the supply of transmissions and brakes. We have also developed strong relationships with other industrial partners for bodyworks and chassis manufacturing and for powertrain and transmissions, among other things. Pursuant to our make-or-buy strategy, we generally retain production in-house whenever we have an interest in preserving or developing technological know-how or when we believe that outsourcing would impair the efficiency and flexibility of our production process. Therefore, we continue to invest in the skills and processes required for low-volume production of components that we believe improve product quality.
For the year ended December 31, 2019,2021, the purchases from our ten largest suppliers by value accounted for approximately 20 percent of total procurement costs, and no supplier accounted for more than 10 percent of our total procurement costs.
Sales and After-Sales
Our commercial team, which includes approximately 400360 employees at December 31, 2019,2021, is organized in four geographic areas covering our principal regional end markets: (i) EMEA, which is also responsible for South Africa and India, (ii) Americas, (iii) Mainland China, Hong Kong and Taiwan, and (iv) Rest of APAC (which includes the rest of Asia and Oceania).APAC.
Dealer network
We sell our cars exclusively through a network of authorized dealers (with the exception of one-offs and track cars which we sell directly to end clients). In our larger markets we act as importer either through wholly owned subsidiaries or, in China, through a subsidiary partly owned by a local partner, and we sell the cars to dealers for resale to end clients. In smaller markets we generally sell the cars to a single importer/dealer. We regularly assess the composition of our dealer network in order to maintain the highest level of quality. At December 31, 2019,2021, our network comprised 166172 dealers operating 187191 points of sale.
We do not presently own dealerships and, while our strategy does not contemplate owning dealerships, we retain flexibility to adapt to evolving market requirements over time.
We believe that our careful and strict selection of the dealers that sell our cars is a key factor for promoting the integrity and success of our brand. Our selection criteria are based on the candidates’ reputation, financial stability and proven track records. We are also intent on selecting dealers who are able to provide a purchase and after-sales experience aimed at exceeding our clients’ high expectations. Furthermore, our dealers are committed to promotepromoting and marketmarketing our cars in a manner intended to preserve the Ferrari brand integrity and to ensure the highest level of client satisfaction.
While dealers may hold multiple franchises, we enjoy a high degree of prominence and level of representation at each point of sale, where most of the client interface and retail experience is exclusive to Ferrari. Our network and business development team works with all dealers to ensure our operating standards are met. Our rigorous design, layout and corporate identity guidelines guarantee uniformity of the Ferrari image and client interface.
In 2021 and through the date of this report, our dealer network has successfully adapted to the new and unforeseen challenges resulting from the COVID-19 pandemic. We have supported our dealers network since the start of the pandemic, including through our “Back on Track” program, which has allowed our dealers to welcome our clients in their showrooms safely. In addition, the majority of our dealer network’s worldwide facilities have been upgraded with the latest Ferrari Corporate Identity, to provide clients with a superior experience while delivering a unique luxury environment and digital touchpoints to complement the physical environment.
Through our in-house Ferrari Academy we provide training to dealers for sales, after-sales and technical activities. This ensures that our dealer network delivers a consistent level of market leading standards across diverse cultural environments. We trainDuring 2020 and monitor dealers intensively. 2021 our training strategy was quickly adapted by introducing and boosting virtual-training solutions to cope with travel restrictions, while continuing to foster expertise in the network at the highest level.
We collect and observe data relating to theirdealer profitability and financial health in order to prevent or mitigate any adverse experience for clients arising from a dealer ceasing to do business or experiencing financial difficulties. Our regional representatives visit dealerships regularly to monitor and measure performance and compliance with our operating standards. We have the right to terminate dealer relationships in a variety of circumstances, including failure to meet performance or financial standards, or failure to comply with our guidelines. Dealer turnover is relatively low, reflecting the strength of the franchise and our selection processes, but is sufficient to guarantee an orderly renewal over time and to stimulate the network’s health and performance.
We provide a suggested retail price or a maximum retail price for all of our cars, but each dealer is free to negotiate different prices with clients and to provide financing. Although many of our clients in certain markets purchase our cars from dealers without financing, we provideoffer direct or indirect finance and leasing services to retail clients and to dealers. (See “—Financial Services”).
The total number of our dealers as well as their geographical distribution tends to closely reflect the development or expected development of sales volumes to end clients in our various markets over time. The chart below sets forth the geographic distribution of our 187191 points of sale at December 31, 2019:2021:
Our sales are diversified across our dealer network, with the largest dealer representing approximately 2.52.6 percent of sales,our shipments, and our 15 largest dealers representing 22.5approximately 24 percent of sales.our shipments in 2021.
As part of our supply and demand management, we determine allocations based on various metrics including expected developments in the relevant market, the number of cars sold historically by the various dealers, current order book of dealers and the average waiting time of the end client in the relevant market. Our order reporting system allows us to collect and monitor information regarding end client orders and is able to assist us in production planning, allocation and dealer management.
Parts
We supply parts for current and older models of Ferrari to our authorized dealer network. In addition to substitution of spare parts during the life of the car, sales are driven by clients’ demand for parts to customize their cars and maximize performance, particularly after a change in ownership, andas well as parts required to compete in the FerrariChallenge and other client races. We also supply parts to Ferrari models currently out of production, with stocks dating back to 1995. The stock of parts for even older models is currently owned and managed by a third party which in some cases also manufactures out-of-stock parts based on our design.designs. The sale of parts is a profitable component of our product mix and it is expected to benefit from the increase in the number of Ferrari cars in circulation.
After-sales
Dealers provide after-sales services to clients, either at facilities adjacent to showrooms, or in stand-alone service points across 230237 facilities worldwide.worldwide at December 31, 2021. After-sales activities are very important for our business to ensure the client’s continued enjoyment of the car and the experience. Therefore, we enforce a strict quality control on our dealers’ services activities and we provide continued training and support to the dealers’ service personnel. This includes our team of “flying doctors,” Ferrari engineers who regularly travel to service centers to address difficult technical issues for our clients.
We sell cars together with a scheduled program of recommended maintenance services in order to ensure that these cars are maintained to the highest standards to meet our strict requirements for performance and safety.
Our 7 Year Maintenance Program (free of charge for customers since 2011 on any new cars) is offered to further strengthen customer retention in the official network and has been coupled with the possibility to extend the statutory warranty term of our standard warranty terms through the Power warranty coverage program up to the 15th year of life of the car. For certain strictly limited series cars (for example, the LaFerrari and the LaFerrari Aperta) we introduced a Full Warranty Coverage Extension that can be applied after the 36-month commercial contractual warranty.
After the 7th year of life, a car (if in perfect maintenance condition) can be included in the Main Power warranty coverage program (Maintenance and Power) through to the car’s 15th year of life. Between the 10th year of life and the Classiche eligibility (20 year old car) Ferrari provides its customers, in addition to standard maintenance items, also certain specific maintenance kits (Ferrari Premium) to preserve car performance and safety systems. When a car follows the full maintenance program up to the 20th year of life, it automatically obtains the Ferrari Classiche certification.
While we do not have any direct involvement in pre-owned car sales, we seek to support a healthy secondary market in order to promote the value of our brand, benefit our clients and facilitate sales of new cars. Our dealers provide an inspection service for clients seeking to sell their car which involves detailed checks on the car and a certification on which the client can rely, covering, among other things, the authenticity of the car, the conformity to original technical specifications, and the state of repair. Furthermore, we offer owners of classic Ferrari cars maintenance and restoration services through the 73 “Officina Ferrari Classiche” workshops, part of our service network.
In addition, owners of our classic cars can seek assistance in car and engine restorations at our Ferrari Classiche department in Maranello.
Financial Services
We offer retail client financing for the purchase of our cars as well as dealer financing through the operations of Ferrari Financial Services (“FFS”).
We offer retail client financing:
•directly in the United States through our fully owned subsidiary Ferrari Financial Services Inc. (“FFS Inc”);
•through our associate Ferrari Financial Services GmbH in certain markets in EMEA (primarily the UK, Germany and Switzerland); and
•through various partnerships in other European countries and other major international markets, such as Japan and Mainland China.
FFS Inc also has remaining dealer financing services in the United States.
Through FFS, we offer a range of flexible, bespoke financial and ancillary services to clients (both current and new) interested in purchasing a wide range of cars, from our current product range to older pre-owned and classic models. FFS also provides special financing arrangements to a selected group of our most valuable and loyal customers.
Starting in 2016, FFS Inc has pursued a strategy of autonomous financing for our financial services activities in the United States, further reducing dependency on intercompany funding and increasing the portion of self-liquidating debt with various securitization transactions.
At December 31, 2021, the consolidated financial services portfolio was €1,144 million and originated in the United States.
Client Relations
Our clients are the backbone of our business together with our brand and our technology. We do not promote our brand or our cars through general advertising. Our main brand marketing and promotional activities have two principal targets.
Firstly, we target the general public. Our most significant effort in this respect is centered on our racing activities and the resonance of Scuderia Ferrari (see “—“—Formula 1 Activities”Activities”). We also engage in other brand-promotional activities, including our participation in motor showsvarious public events. In light of the COVID-19 pandemic, in 2021 our brand-promotional activities were carried out mainly through digital platforms such as eSports, and other public events.our official social media channels.
Secondly, we target existing and prospective clients, seeking to promote clients’ knowledge of our products, and their enjoyment of our cars both on road and on track, and to foster long-term relationships with our clients, which is key to our success. In 2019, more than 702021, approximately 59 percent of our new cars were sold to Ferrari owners.
By purchasing our cars, clients become part of a select community sharing a primary association with the Ferrari image and we foster this sense of fellowship with a number of initiatives. We strive to maximize the experience of our clients throughout their period of interaction with Ferrari -– from first contact, through purchasing decision process, to waiting-time management and ownership.
During the fourth quarter of 2019, we launched theThe MyFerrari App an app createdis available exclusively for Ferrari clients to enhance our clients’their connection to the Ferrari world through the direct distribution of tailored content.content, including the digital editions of our 2021 model launches. This new channel enables clients to directly access features and services, expandingstrengthening their relationship with both the brand and their preferred official Ferrari dealer.
Client events
We organize a number ofWith client eventsgatherings still impacted by restrictions in Maranello as well as other locations.
Our factory in Maranello is2021, we continued to hold the corepresentation of our client engagement strategy and a symbolic hub attracting clients and prospects worldwide. Upon invitation, clients and prospects can visit the factory, witness some of its workings and experience several Ferrari core values such as heritage, exclusivity and customization. At the factory, clients also have the opportunity to configure their cars through our personalization and bespoke program (see “—Sports and GT Range, Special Series and Icona: Ferrari Line-Up Strategic Pillars—Personalization Offer”).latest product offerings using digital formats where appropriate.
Every new model launch is carefully staged and selected clients and prospects have preferential access to the new car. The new model presentation begins with the release of images providing a preliminary view of its design. Clients are then invited to a preview or world premiere. A public model presentation generally follows at motor shows where clients are provided access to the Ferrari stand. Further country and regional events follow before delivery of the first cars to dealers.
In May 2019, clients from all over2021, we livestreamed on our social channels the world were invited to the world premiere of our first series production Plug-in Hybrid Electric Vehicle (PHEV) - the SF90 Stradale - with a presentation and gala dinner hosted at the Fiorano race circuit.
In September 2019, Ferrari launched “Universo Ferrari” exhibition, the first ever immersive exhibition dedicated to the world of Ferrari, set in a dedicated location overlooking the Fiorano Circuit. This new event format hosted the premieres of two new Spider models - the 812 GTS and F8 Spider, and had over 14,000 attendees including clients, prospective clients, and fans.
In November 2019, clients were invited to the Stadio dei Marmi in Rome for the world premiere of the new limited series 812 Competizione and 812 Competizione A from our newly finished Attività Sportive GT facility which overlooks our Fiorano race track. Viewers were able to hear the wonderful sounds of the naturally aspirated V12 engine while the 812 Competizione completed hot laps around the circuit.
In June 2021, the 296 GTB, an evolution of Ferrari’s mid-rear-engined two-seater sports berlinetta concept, was unveiled digitally across our social channels in an extended reality format around the “Fun to Drive” concept of the model.
Additionally, in November 2021 the Ferrari Roma,Daytona SP3, the third car to join the strictly limited-edition Icona series, was presented to selected clients at an eventexclusive and private gathering at Casa Ferrari in Florence. The Ferrari Daytona SP3 made its public and livestream debut at the Finali Mondiali held at the Mugello circuit, where it led a parade flanked by the legendary sports prototypes of the 1960s that it was inspired from.
Following the digital launches of our new product offerings, clients were engaged locally by their preferred Ferrari dealers for conducting car configurations, static previews of the model, and eventually dynamic test drives when the dealer demonstrations became available.
Clients can continue to benefit from a set of direct services which enables them to participate in remote Atelier and Tailor Made sessions directly with our team of designers in Maranello. In addition, clients can send their creations in the “La Nuova Dolce Vita” spiritconfigurator tool of the new luxury model.
MyFerrari app directly to their official dealers.
Driving events
Driving events serve the dual objective of allowing clients to enjoy the best emotions of driving a Ferrari, and to foster client loyalty and repeat purchases by creating enhanced opportunities to experience new Ferrari cars. The Ferrari community is a passionate group supported by a wide array of experiences tailored to the dreams of modern car owners, classic car connoisseurs, and racetrack enthusiasts.
We see nurturing our clients’ passion for driving as a key asset for our future commercial success, particularly in markets where racing traditions are less pronounced. We offer to our prospective and existing clients interested in new Ferrari models our Esperienza Ferrari program, which consists of driving sessions with a team of highly qualified and skilled Ferrari instructors and technicians. In addition we also offer to our clients on-track driving courses (Corso Pilota), catering to
different levels of skill and experience and teaching essential driving skills for high performance cars. In our newerselected markets, such as China, we also offer complimentary driving courses on-track to any new car buyer.
In addition to on-track racing, we organize various on-the-road driving events, both under proprietary formats (Ferrari Cavalcade, including the Cavalcade Classiche and the International Edition) and with our own branded presence within established driving events. For example, in the Ferrari Tribute to Mille Miglia and the Ferrari Tribute to Targa Florio modern Ferrari cars take part in their own dedicated competition before the start of the main racing events.racing.
To mark the tenth anniversary of our most exclusive driving event for clients, in 2021 the Ferrari Cavalcade was held in Taormina, Sicily, gathering for the first time both our best modern and classic Ferrari models owned by clients from around the world. A final gala was held in the spectacular Teatro Antico di Taormina, a perfect climax to the driving experience through the charms and warm hospitality of Southern Italy.
All driving events managed directly by Ferrari, such as the Ferrari Cavalcade, and those managed by third-party event organizers, such as the Ferrari Tribute to Mille Miglia and the Ferrari Tribute to Targa Florio, proceeded in accordance with local government health and safety regulations.
Another exclusive driving experience was initiatedadded in October 2019,2021 is the Corso Pilota Classiche course led by experts of the Ferrari Classiche Academy, team, and aimed at classic car enthusiasts and clients interested in learning more about Ferrari’sthe Ferrari Classiche certification program and the storied archives at our Officine Classiche restoration department. The initiative also offers the opportunity to experience on-track driving of thesethose celebrated models on our own Fiorano race circuit.
Attività Sportive GT
Attività Sportive GT Racingis our department overseeing the activities of Competizioni GT and Corse Clienti which organizes and supports client activities on track. Ferrari is once again World Endurance Champion, both in the Constructors’ and Drivers’ categories, four years after its prior win, completing one of the most successful seasons in Ferrari’s history.
In addition2021, the Competizioni GT department enjoyed a year of extraordinary achievements on track. Ferrari AF Corse’s 488 GTEs won the Constructors’ title in the FIA World Endurance Championship. Ferrari drivers Alessandro Pier Guidi and James Calado won the world championship for a second time after winning in 2017, becoming the first World Endurance Championship drivers to several track day activities, organized by local sales departmentsachieve this result. Ferrari and dealersAF Corse achieved two titles in the LMGTE AM category as well, and won the 24 Hours of Le Mans in PRO and Am classes. In the GT3 car championships, the 488 GT3 Evo 2020 continued its winning streak. Pier Guidi-Ledogar-Nielsen’s victory in the GT World Challenge Europe Endurance Cup was undoubtedly the most important result of the season, and the crew drove a Ferrari to allow clientsglory in the 24 Hours of Spa-Francorchamps for the first time since 2004. The 2021 488 GTE and 488 GT3 statistics were updated with 44 victories in 93 races (48%) and 423 wins in 761 races (55%), respectively. Since its racing debut, the various configurations of the 488 GT3 have achieved 106 titles.
While providing direct and indirect support to enjoy their cars on ad-hoc rented tracks,the various racing teams, the Competizioni GT engineers kept planning for the future. On February 24, 2021 Ferrari announced the launch of the Le Mans Hypercar (LMH) programme under which Ferrari will enter the new top category of the FIA WEC World Championship starting from 2023, in partnership with AF Corse. Ferrari has also announced a central department responsibletechnical partnership agreement with ORECA for professionally organizing racesthe assembly and racing courses, Corse Clienti. The Corse Clienti activities take place on someafter-sales services of the world’s most famous race tracks,new GT3, which will begin track testing in early 2022. The technical partnership confirms Ferrari’s long-term commitment to the main GT car championships.
Among the non-competitive activities, the Club Competizioni GT continued successfully and include both competitive races, such asthe event’s participation increased by 24 percent compared to 2020, benefiting from the debut of the 488 GT Modificata, a limited series car dedicated to sports clients, 24 of which took part in the Finali Mondiali.
Participants in the Corse Clienti racing season in Europe, North America and United Kingdom also increased in comparison with 2020, although the Asia Pacific series had to contend with continued travel restrictions and quarantines in the relevant geographies. For the first time in the history of the one-make series, a woman – Michelle Gatting – was crowned champion of the European series. During the Finali Mondiali, 17-year-old Finn Luka Nurmi won the Ferrari Challenge Championships (Europe, UK, North America World Championship, setting another record after becoming the youngest winner in the history of the series at just 16 earlier in the year. The Ferrari Challenge Europe received the ISO 20121 certification, the international standard for sustainable event management, making the Prancing Horse’s one-make series the first European single-make series for thermal cars to
receive this certification. F1 Clienti and the Asia-Pacific series), XX Programme, the non-competitive activities of Corse ClientiF1 Clienti and non-competitive events, such as with theXX Programme, and F1Clienti the non-competitive activities dedicated to clients who own respectively, non-homologated GT laboratory cars and F1 single-seaters previously used by the Scuderia Ferrariof Corse Clienti, experienced an increase in the Formula 1 Championship. Ferrari Challengenumber of event attendees in 2021 compared to 2020 and XX Programme/featured two new initiatives: F1 Clienti events are run together in the so-called Ferrari Racing Days, which are open to the publicMasterclass and intended for a wider audience, and in 2019 were held in Laguna Seca, Shanghai and Nurburgring.XX Programme’s Exclusive Experience.
These track activities reach their climax at the Finali Mondiali, an annual gathering of all Ferrari client racing programs under Corse Clienti, which last year took place from October 24 to 27 at the Mugello Circuit to celebrate the winners of the Challenge Series. The new Ferrari 488 Challenge EVO and 488 GT3 EVO were unveiled to our sporting customers from all over the world, while over the weekend 43,000 spectators in the stands were treated to the traditional Ferrari Show, with the 488 GTE celebrating 70 years of Ferrari victories at Le Mans, and the F60 celebrating the 90th anniversary of Scuderia Ferrari.
During the 2019 season, the Competizioni GT department supported both the Ferrari 488 GTE and the Ferrari GT3 cars that competed in the most important international championships. The 488 GTE, with a team composed of Alessandro Pier Guidi, James Calado and Daniel Serra, won the Le Mans 24 Hours competition in the WEC, and the same team also won the Petit Le Mans competition, the last round of the IMSA series. The 488 GT3, gave clear proof of its exceptional competitiveness and reliability, allowing Ferrari to grow its impressive record of victories, with 285 since its debut and 67 titles across various international series. In 2019 the new program, Club Competizioni GT, was successfully launched. The initiative is aimed at bringing back to the track the most beautiful Ferrari GT racing cars of the last 30 years and is dedicated to clients who love on-track racing and wish to unleash their cars’ maximum potential, without short, time-constrained testing sessions and outside of competitive race settings.
Ferrari Classiche
The Ferrari Classiche department aims to providesupports Ferrari customers with a point of reference forin managing their historic Ferrari vehicles with the objective of keeping as many of these classic cars on the road as possible. Services include the certification of the authenticity of classic Ferrari cars and vehicles of particular historical relevance, the management of Ferrari restoration and repair activities, as well as the management of Ferrari spare parts, including when these are no longer available on the market. The department also provides advice on repair operations carried out on Ferrari Classiche cars within its network.
Ferrari Classiche aims to create a platform of information and technical expertise to preserve and enhance over time the awareness and value of Ferrari’s heritage and brand. We view the surviving Ferrari vehicles of historical value as the tangible legacy and incarnation of our brand. The Ferrari Classiche department also supports and encourages the direct participation of clients in strategic historical events.
The Ferrari Classiche department in Maranello consists of an office of specialists and a workshop in which historic cars are restored and repaired. In addition, in order to provide an enhanced service to owners away from the proximity of the main workshop in Maranello, starting in 2017 Ferrari Classiche authorized a new service network with 73 “Officina Ferrari Classiche” workshops to date, primarily for vehicle repairs and the certifications’ inspections or revalidation, and the network is expected to expand in future periods.
The originality of the car with respect to the initial specifications is checked via a technical inspection, performed either at the Ferrari Classiche facility in Maranello or at an authorized Officina Ferrari Classiche, and benefits from a comprehensive archive containing drawings of each of the individual chassis and details of historical components. Based on the evidence gathered during this inspection, the car is then presented to an expert committee, chaired by the founder’s son, Piero Ferrari, for the certification.
At the Maranello workshop, Ferrari Classiche carries out full restorations using either original components and spare parts or replicas manufactured in accordance with the original specifications. Our service offers our clients the opportunity to restore any classic Ferrari to its original pristine conditions.
The Ferrari Classiche department also provides basic technical and instructional support to the Ferrari Classiche Academy, a new driving school project that launched in 2019 for vintage Ferrari cars, including the Ferrari 308 and 550 Maranello.
Formula 1 Activities
Participation in the FIA Formula 1 World Championship with Scuderia Ferrari is thea core element of our marketing effort and promotional activities, as well as an important source of technological innovation for the engineering, development and production of our sports, GT, and special series and Icona cars. The FIA Formula 1 World Championship is the pinnacle of motorsports with 445 million unique viewers and a total cumulative global TV cumulativetelevision audience of 1.9221.55 billion in 2019, the highest number since 2012, which represents an increase of 9% compared to 2018. In terms of unique television viewers, during 2019 the sport remained stable in the top 20 markets* at approximately 405.5 million (+0.3 percent) 2021. (Source: Formula 1 Press Office).Office)
In 2019 the number of users acrossOnce again in 2021, Formula 1’s social media platforms again grew significantly, with the total number of followers on Facebook, Twitter, Instagramup 40 percent to 49.1 million, and YouTube reaching 24.9m (+32.9video views increased by 50 percent compared to 2018). Again in 2019,7 billion. In 2021, Formula 1’s social media channels were once again the fastest growing of all major sports leaguesleague in the world.world across the four major social platforms and registered the fastest growth in engagement compared to other major sports. (Source: Formula 1 Press Office)
Formula 1 cars rely on advanced technology, powerful hybrid engines and cutting edge aerodynamics. While Europe is the sport’s traditional base, longstanding non-European venues such as Australia, Brazil, Canada, Japan, Mexico and the United States have recently been joined in the last two decades by racing venues in China, Bahrain, United Arab Emirates, Singapore, Qatar, Saudi Arabia, Russia and Azerbaijan. A new venue in Vietnam has been launched in 2020, while the Dutch Grand Prix has returned after several decades. This provides participants in the Formula 1 World Championship exceptional visibility on the world stage.
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(*) Top 20 markets are, in alphabetical order, Australia, Austria, Belgium, Brazil, China, Finland, France, Germany, Greece, Italy, Mexico, Netherlands, Pan Africa, Pan Latin America, Pan Middle East, Pan Russia, Poland, Russia, United Kingdom and United States.
Scuderia Ferrari has been racing in the Formula 1 World Championship since the series was launched in 1950, and won its first Grand Prix in 1951. We are the only team that has competed in each season since launch and the oldest and most successful in the history of Formula 1, with 238 Grand Prix wins. Throughout our racing history, we have won 15 Drivers’ Championships and 16 Constructors’ Championships, more than any other team. Many of the best known drivers in the sport’s history have raced in Scuderia Ferrari’s distinctive red cars including Alberto Ascari, Juan-Manuel Fangio, Mike Hawthorn, Phil Hill, John Surtees, Niki Lauda, Jody Scheckter, Gilles Villeneuve, Michael Schumacher and Kimi Raikkonen. Our drivers’ line-up in 20192021 comprised four-time World Champion Sebastian Vettel, who joined Ferrari at the beginning of 2015, and Charles Leclerc, the first graduate of the Ferrari Driver Academy training scheme to race for our Formula 1 race team.team, and Carlos Sainz, a young but already experienced talented Spanish driver.
For
In 2021 the new FIA financial regulations entered into force, imposing a cap (which will gradually decrease over the next two years) on certain expenses and investments related to operations and the chassis of the cars which may be incurred by any single Formula 1 team. Moreover, development activities were also limited by the new regulation and only one development per component was allowed in the power unit area.
Though the 2021 season remained affected by the COVID-19 pandemic, thanks to the efforts of FIA, Formula 1 and the teams, it was possible to organize 22 Grands Prix, a record number in the history of the sport.
In terms of results, the season ended with third place for the Scuderia Ferrari 2019 was very much a year of reorganization, with many team members taking on new roles, including Mattia Binotto, who stepped up to the role of Team Principal, and one half of the driver line-up was renewed. During the past season, Scuderia Ferrari achieved three wins, nine pole positions, 19 podiums and 504 points. Its drivers led for a total of 406 laps, approximately a third of the total number of race laps over the entire season, and the team finished second in the Constructors’ Championship.
ParticipationChampionship, with 323.5 points, five podiums, two pole positions, and with fifth and seventh place finishes in the Drivers’ Championship, for Carlos Sainz and Charles Leclerc respectively.
Scuderia Ferrari’s continuing participation in the FIA Formula 1 World Championship over the five year period from 2021 to 2025 is regulatedgoverned by bilateral Team Agreements entered into betweentwo agreements – widely known as New Concorde Agreement - signed on August 18, 2020. The first of such agreements governs the regulatory and governance aspects of the sport, and the second governs the commercial aspects. The New Concorde Agreement recognizes the historical role of Ferrari, the only team that has participated in all Formula 1 World Championship Limited (FOWC), Formula 1's commercial rights holder, and each competing Formula 1 racing team (including Scuderia Ferrari) and by regulations issued by the Federation Internationale de l’Automobile (FIA), the motorsport’s governing body.
The Team Agreements cover the 2013-2020 racing seasons and govern the terms by which the racing teams take their share of commercial profits. The FIA sets both the sporting and technical regulations for the competitions.editions since its inception. In returnexchange for their participation in Formula 1 races, the participating teams receive a share of a prize fund based on the profits earned from Formula 1 related1-related commercial activities managed by FOWC,Formula 1, including in particular, promoters’ fees, television broadcasting royalties, partnership agreements and other sources. Shares in the prize fund are paid to the teams, largely based on the relative ranking of each team in the championship. We use our share of these payments to defray partoffset a portion of the costs associated with Scuderia Ferrari, including the costs of designing and producing the race cars each year and the costs associated with managing a racing team, including the salaries of the drivers, who are typically among the most highly paid athletes in the world. New regulations were introduced in 2019, relating to aerodynamics, drivers’ weight, fuel allowance and the requirement for drivers to wear biometric gloves for additional safety. The discussions to establish the sport's regulations which will apply from 2021 onwards continued during 2019. The new rules were approved by the World Council on October 31, 2019, with the understanding that they will be subject to further discussions between F1, the FIA and the teams over the coming months, which may lead to further changes between now and 2021. Please see “Item 3.D.Risk Factors—Our revenues from Formula 1 activities may decline and our related expenses may grow”.
Improvements in technology and, from time to time, changes in regulationregulations typically require the design and production of a new racing car every year. Therefore, in addition to our long-term research and development efforts, we begin designing our cars each year in the Spring,spring, in anticipation of the start of the racing season the following March. While the chassis and the power unit we build each year are designed to be used throughout the racing season, the majority of other components fitted on our cars are adjusted from race to race depending on the characteristics of the circuits.
To maximize the performance, efficiency and safety of our Formula 1 cars, while complying with the strict technical rules and restrictions set out by the FIA, our research and development team plays a key role in the development of our road cars and their engines. We often transfer technologies initially developed for racing to our road cars. Examples include steering wheel paddles for gear-shifting, the use and development of composite materials, which makesmake cars lighter and faster, and technology related to hybrid propulsion.
Our road cars (especially our sports car models) have benefited from the know-how acquired in the wind tunnel by our racing car development teams, enjoying greater stability as they reach high speeds on and off the track. Our research and development team focusedfocus on combining minimal lap times with maximum efficiency, leading to advances in kinetic energy recovery system,systems, or ERS, technology. Current advanced ERS featurefeatures two electric motor/generator units in every car, which allow the car to recover, store and deploy energy generated both by the vehicle during braking and by the exhaust gases through a turbocharger.
The high brandgreat visibility, we achieve throughboth on traditional media and on digital platforms, that Scuderia Ferrari obtains thanks to its participation in the FIA Formula 1 World Championship has historically enabled uscontinues to benefit fromattract significant sponsorship. Philip Morris International has been Scuderia Ferrari’s partner for over forty years and currently remains our Title Partner. Starting from October 2018, the “Mission Winnow” logo has appeared on the cars’ livery and drivers’ overalls. Mission Winnow is a Philip Morris International global campaign aimed at driving change by constantly searching for better ways of doing things. Shell has also been a long term Sponsor and Technical Partner of Scuderia Ferrari (supporting the team continuously since 1996).sponsorships. The other partners of the Team are divided into three different categories
(Sponsor, Official Supplier and Supplier) and include Ray-Ban, Kaspersky lab, UPS, Lenovo, Weichai, Mahle, Hublot, AMD, OMR and Alfa Romeo among others. Visibilityvisibility and placement of a sponsor’s logo reflectspartner logos on the car and team uniforms reflect their respective level of sponsorship fees. Historically, our sponsors have sought advertising opportunities on the chassis of our cars, on clothes worn by our team members and drivers, and in the right to associate their brand to Ferrari in their marketing activities and communications.sponsorship.
We use the platform provided by Formula 1 for a number of associated marketing initiatives, such as the hosting of clients and other key partners in Ferrari Formula 1 Club Hospitality to watch and experience the Grand Prix races with Scuderia Ferrari, and our Formula 1 drivers’ participation in various promotional activities for our road cars. We often sell older Formula 1 cars to customers for use in amateur racing or collection.
More generally, Formula 1 racing allows us to promote and market our brand and technology to a global audience without resorting to traditional advertising activities, therefore preserving the aura of exclusivity around our brand and limiting the marketing costs that we, as a company operating in the luxury industry, would otherwise incur.
In December 2021, the World Motor Sport Council validated the framework for the 2026 Power Unit Regulations, which includes technical, operational and financial guidelines. The framework identifies key objectives related to, among other things, the environmental impact, cost reduction measures and competitiveness of the FIA Formula 1 World Championship. A detailed document of the 2026 Power Unit Regulations is expected to be developed and submitted to the World Motor Sport Council during the course of 2022.
Mugello Circuit
We acquired the international Mugello circuitLocated in Scarperia near Florence, in 1988. We have renovatedjust outside Firenze, for more than 100 years the Mugello Circuit has carved its buildings, 5.2 km race track and other testing and racing facilities, making Mugello what we believe to bemark as one of the world’s finest circuitsleading motorsport venues globally. Internationally renowned as the host venue for the Italian MotoGP Grand Prix since 1976 (and consecutively since 1994), the Formula 1 Grand Prix of Tuscany Ferrari 1000 in 2020, and numerous international motorsports competitions, the 5,245 metres circuit mimicking the natural slopes of the Tuscan hills is also famed for its type,ultimate driving experience and modern facilities.
Originally a 66 km road circuit, the first motorsport event held at Mugello starting from 1914 were regularity. Enzo Ferrari won in 1921 on an Alfa Romeo class 4.500. The current facilities were designed in the early 70’s and later re-modelled in 1988 when Ferrari bought the circuit. Year after year the track has seen consistent improvements in terms of safety with FIA Grade 1 and FIM Grade A certifications, the highest levellevels of homologation for a racetrack.
We promote the Mugello circuit to event organizers who regularly rent
In 2021 the circuit to host leading car and motorbike races, including the MotoGP World Championship since 1992. In 2019, the circuit hosted 16 race weekends and 250 days of track activities. Almost 121,000 spectators attendedactivities and 14 race weekends.
The circuit was awarded the 2019prize for the Best Grand Prix circuit for a MotoGP World Championship (71,000event five times (1995, 1996, 1997, 2000, 2011), and is also a leader in terms of its sustainability practices. It was the first circuit in the world to obtain FIA’s prestigious “Achievement of Excellence” in 2015 and to be certified according to the sustainable event management system ISO 20121. In July 2021, an analysis carried out by Enovation Consulting and Right Hub on 96 circuits worldwide, 23 of which host or have hosted a Formula 1 GP, featured the Sunday), oneMugello Circuit on top of the largest audiences ever recorded in the 29 years of the Mugello circuit’s history.Sustainable Circuits Index.
In 2011, the Mugello circuit won its fifth “Best Grand Prix” award, the highest honor given in the motor sport world to MotoGP organizers. The Mugello circuit is the only track race to have received this award five times.
Brand Activities
Ferrari is one of the world’s leading luxury brands. We engage in brand development and protection activities through licensing contracts with selected partners, retail activities through a chain of franchised or directly managed stores, licensed theme parks and the development of a line of apparel and accessories sold exclusively in our monobrand stores and on our website www.store.ferrari.com.
Ferrari owns and manages two museums, one in Maranello and one in Modena, which attracted more than 600,000 visitors in 2019.
Licensing, Entertainment and Theme Parks
We enter into license agreements with a number of licensees2021 all certifications were renewed, including for the design, developmentinternational standards for sustainable and production of Ferrari branded products.
We carefully select our licensees through a rigorous process and we contractually seek to ensure that our brand and intellectual property are protected and that the products which will eventually bear our brand are of adequate quality, appearance and market positioning. Ferrari branded products include consumer electronics, sportswear, toys, video games, watches and other accessories,event management as well as theme parks.the system of safety and health management on work places.
In 2019, we commenced our participation in eSports (i.e., electronic sports) with the launch of an entertainment platform and the selection of a team which took part in two of the main world championships: F1 Pro Series 2019 and SRO E-Sport GT Series, which our team won.
A significant portion of our revenues from licensing activities consists of royalties we receive in connection with Ferrari World, our theme park in Abu Dhabi. Ferrari World opened on Yas Island, on the North East side of Abu Dhabi’s mainland, in 2010. Ferrari World’s iconic sleek red roof is directly inspired by the classic double curve side profile of the Ferrari GT body, spanning 200,000 square meters and carrying the largest Ferrari logo ever created. Ferrari World Abu Dhabi offers an all-around Ferrari experience to children and adults alike.
Our second theme park, Ferrari Land Portaventura, opened in April 2017 near Barcelona, and includes Red Force, the tallest and fastest roller-coaster in Europe. In the long-term we aim to open one theme park in each of the main geographic areas where we operate, including North America and Asia.
Retail
Through our network of stores (franchised or directly managed), we offer a wide range of Scuderia Ferrari branded products, including a line of apparel and accessories exclusively sold in our stores and on our website. All products sold in our stores and on our website are either directly sourced from our selected network of suppliers or manufactured by our licensees.
As at December 31, 2019, there were a total of 44 retail Ferrari stores, including those in Maranello, Milan, Rome, Macau, Miami, Los Angeles, Johannesburg, Dubai and Abu Dhabi, of which 24 are franchised stores (including 15 Ferrari Store Junior) and 20 stores owned and operated by us.
We require all franchisees to operate our monobrand stores according to our standards. Stores are designed, decorated, furnished and stocked according to our directions and specifications.
We use multiple criteria to select our franchisees, including know-how, financial condition, sales network and market access. Generally, we require that applicants meet certain minimum working capital requirements and have the requisite business facilities and resources. We typically enter into a standard franchising agreement with our franchisees. Pursuant to this agreement, the franchisee is authorized to sell our products at a suggested retail price. In exchange, we provide them with our products, the benefit of our marketing platform and association with our corporate identity.
Brand Diversification Strategy
As one of the world’s leading luxury brands, Ferrari operates in carefully selected luxury and lifestyle categories. We also engage in brand development and protection activities through licensing contracts with selected partners, retail activities through a chain of franchised or directly managed stores, licensed theme parks and the development of a line of apparel and accessories sold in our monobrand stores, on our website www.store.ferrari.com and in selected multi-brand stores, both physical and online.
In November 2019, management presented the principles of its brand diversification strategy, recognizing Ferrari as a unique brand with a dual identity: exclusive in relation to the luxury pricing and aspirational character of our cars, but also inclusive in relation to our F1 fan communities .community. To ensure long termlong-term profitable growth, Ferrari intends to focus its offering on product categories that enhance the vibrancy and vitality of the brand through the following pillars:
•“Brand Extension” pillar, a refined collection of products that will embody Ferrari’s DNA;
•“Entertainment” pillar, to reach out to a wider and younger customer base while leveraging Ferrari’s unique racing roots; and
•“Car Adjacencies” pillar, a collection of exclusive luxury products and services to complement the Ferrari experience.
In 2021, due to government restrictions on travel and certain business activities imposed as a result of the COVID-19 pandemic, the number of visitors in our museums, our franchised and directly managed stores, and our licensed theme parks (further described below) was significantly lower than pre-pandemic levels despite an increase compared to 2020.
Financial Services
We offer retail client financing for the purchase of our cars and dealer financing through the operations of Ferrari Financial Services (“FFS”). We offer retail client financing:
directly in the United States through our fully owned subsidiary Ferrari Financial Services Inc. (“FFS Inc”);
through our associate Ferrari Financial Services GmbH in certain markets in EMEA (primarily the UK, Germany and Switzerland); and
through various partnerships in other European countries and other major international markets, such as Japan and Australia.
We also offer direct dealer financing in the United States through FFS Inc.Retail
Through FFS,our network of stores (franchised or directly managed), we offer a range of flexible, bespoke financial and ancillary services to clients (both current and new) interested in purchasing a wide range of cars, fromFerrari branded products, including our current product range of sports, GT and special series cars, to older pre-owned and classic models. FFS also provides special financing arrangements to a selected group of our most valuable and loyal customers.
Starting in 2016, FFS Inc has pursued a strategy of autonomous financing for our financial services activities in the United States, further reducing dependency on intercompany funding and increasing the portion of self-liquidating debt with various securitization transactions.fashion collection.
At December 31, 2019,2021, there were a total of 30 retail Ferrari stores, including those in Maranello, Milan, Rome, Miami, Los Angeles and Abu Dhabi, of which 16 stores directly owned and operated by us and 14 franchised stores (including 12 Ferrari Store Junior).
We require all franchisees to operate our monobrand stores according to our standards. Stores are designed, decorated, furnished and stocked according to our directions and specifications.
We use multiple criteria to select our franchisees, including know-how, financial condition, sales network and market access. Generally, we require that applicants meet certain minimum working capital requirements and have the consolidated financial services portfolio was €966 millionrequisite business facilities and originated inresources. We typically enter into a standard franchising agreement with our franchisees. Pursuant to this agreement, the United States.franchisee is authorized to sell our products at a suggested retail price. In exchange, we provide them with our products, the benefit of our marketing platform and association with our corporate identity.
Museums, Licensing, Entertainment and Theme Parks
Ferrari owns and manages two museums, one in Maranello and one in Modena.
We enter into license agreements with a number of licensees for the design, development and production of Ferrari branded products. We carefully select our licensees through a rigorous process and we contractually seek to ensure that our brand and intellectual property are protected and that the products which will eventually bear our brand are of adequate quality, appearance and market positioning. Ferrari branded products include consumer electronics, sportswear, toys, video games, watches and other accessories, as well as theme parks.
In 2021, we consolidated our participation in eSports with the second edition of the Ferrari eSports series with more than 34,000 participants.
A significant portion of our revenues from licensing activities consists of royalties we receive in connection with Ferrari World, our theme park in Abu Dhabi. Ferrari World opened on Yas Island, on the North East side of Abu Dhabi’s mainland, in 2010. Ferrari World’s iconic sleek red roof is directly inspired by the classic double curve side profile of the Ferrari GT body, spanning 200,000 square meters and carrying the largest Ferrari logo ever created. Ferrari World Abu Dhabi offers an all-around Ferrari experience to children and adults alike.
Our second theme park, Ferrari Land Portaventura, opened in April 2017 near Barcelona, and includes Red Force, the tallest and fastest roller-coaster in Europe. In the long-term we aim to open one theme park in each of the main geographic areas where we operate, including North America and Asia.
Intellectual Property
We own a number of registered designs and utility patents. We expect the number to grow as we continue to pursue technological innovations and to develop our design and brand activities.
We file patent applications in Europe, and around the world (including in the United States) to protect technology and improvements considered important to our business. No single patent is material to our business as a whole.
We also own a number of registered trademarks, designs and patents, including approximately 493510 trademarks (word or figurative), registered in several countries and across a number classes. In particular, we ensure that the maximum level of protection is given to the following iconic trademarks, for which we own approximately 4,0004,020 applications/registrations in approximately 140 countries, in most of the main classes for goods and services:
•“Ferrari” (word)
•“Ferrari” logotype:
•the “Prancing Horse” (figurative):
•the trademark (figurative):
•the racing shield (figurative):
•Scuderia Ferrari (word and figurative):
The names of our sports, GT, special series and Icona car models and Formula 1 single-seater models are also registered as trademarks (and logotypes) and we also register their domain names and the cars’ design.
The protection of intellectual property is also increasingly important in connection with our design and brand activities. Therefore, we adopt and follow internal processes and procedures to ensure both that all necessary protection is given to our intellectual property rights and that no third party rights are infringed by us. In addition, we are particularly active in seeking to limit any counterfeiting activities regarding our Ferrari branded products around the world. To reach this goal we closely monitor trademark applications and domain names worldwide, actively interact with national and local authorities and customs and avail ourselves of a network of experienced outside counsels.
Regulatory Matters
We manufacture and sell our cars around the world and our operations are therefore subject to a variety of laws and regulations relating to environmental, health and safety and other matters. These laws regulate our cars, including their emissions, fuel consumption and safety, as well as our manufacturing facilities and operations, setting strict requirements on emissions, treatment and disposal of waste, water and hazardous materials and prohibitions on environmental contamination. Our vehicles, together with the engines that power them, must comply with extensive regional, national and local laws and regulations, and industry self-regulations (including those that regulate vehicle safety). However, we currently benefit from certain regulatory exemptions, because we qualify as an SVM or similar designation in certain jurisdictions where we sell cars. As outlined below, these exemptions provide a range of benefits, from less stringent emissions caps and compliance date extensions, to exemptions from zero emission vehicle production requirements.
We are in substantial compliance with the relevant regulatory requirements affecting our facilities and products around the world. We constantly monitor such requirements and adjust our operations as necessary to remain in compliance.
Approval and market surveillance
In May 2018 the European Parliament and European Council issued Regulation 2018/858, establishing the new framework for the approval and market surveillance of motor vehicles (repealing Directive 2007/46/EC). While the previous regulatory framework of Directive 2007/46/EC was focused on technical standards, the new regulation has a broader scope by including market surveillance requirements in order to ensure the enforcement of applicable standards. The key objectives of Regulation 2018/858 are: enhancing the independence of technical services (i.e. the approved testing laboratories) as well as improving the quality of the testing of vehicles and setting stricter requirements for technical services; introducing market surveillance in order to verify the conformity of vehicles on the market to the applicable standards, and requiring corrective measures in case of non-compliance or where a vehicle poses a safety risk or a risk to the environment; strengthening the type
approval system with more stringent oversight by the EU. The Commission has the power to suspend, restrict or withdraw the designation of technical services, to order recalls, and to impose financial penalties.
Greenhouse gas/CO2/fuel economy legislation
Current European legislation limitslimited fleet average greenhouse gas emissions for new passenger cars to 130 grams of CO2 per kilometer.kilometer for the period 2015-2019. Due to our SVM status under EU regulations we benefitbenefited from a derogation from the 130 grams per kilometer emissions requirement available to small volume and niche manufacturers.manufacturers during that period. Pursuant to that derogation, we were instead required to meet yearly CO2 emissions targets, beginning in 2012, reaching a target level of 290 grams per kilometer in 2016 for our fleet of EU-registered vehicles that year. Despite global shipments exceeding 10,000 vehicles in 2019, Ferrari continuescontinued to qualify as an SVM under EU regulations, because its total number of registered vehicles in the EU per year is less than 10,000 vehicles.
In 2014, the European Union set new 2020 emissions targets, calling for 95 percent of a manufacturer’s full fleet of new passenger cars registered in the EU in 2020 to average 95 grams of CO2 per kilometer, rising to 100 percent of the fleet in 2021. The 2014 regulation extends the small volume and niche manufacturers derogation. Pursuant to the derogation approved by the European Commission following our petition, we arewere required to meet certain CO2 emissions target levels in the 2017-2021 period, reaching a target of 277 grams per kilometer in 2021 for our fleet of EU-registered cars that year.
In 2019, the European Union set new 2025 and 2030 emissions targets, calling for respectively a 15%15 percent and 37.5%37.5 percent reduction of the target applicable in 2021. An incentive mechanism for zero and low emission vehicles was also introduced. This new regulation (EU 2019/631) continues to state that it is not appropriate to use the same method to determine the emissions reduction targets for large volume manufacturers as for small volume manufacturers that are considered as independent. Therefore, Ferrari and other SVMs have the possibility to continue to apply for alternative emissions reduction and are required to submit the application at the latest by October 31 October of the first year in which the related derogation shall apply.
The regulation EU 2019/631 sets out new EU rules on monitoring and reporting of average emissions: the Commission will have to ensure the real-world representativeness of the CO2 emission values based on data from the fuel consumption meters installed in new cars and will be obliged to publish the performance of each manufacturer. For this purpose, the Commission issued in March 2021 the Implementing Regulation EU 2021/392 requiring manufacturers to collect and report the real-world on-board fuel consumption monitoring (OBFCM) data and the vehicle identification numbers of new cars registered starting from January 1, 2021, unless the vehicle owner expressly refuses to make that data available. The European Commission will then publish real-world data on an annual basis, aggregated at the level of manufacturer for comparison of the same set of vehicles between data recorded in the certificates of conformity and the real-world data. In addition, regulation EU 2019/631 requires the European Commission will have to evaluate the possibility of a common methodology for the assessment and the consistent data reporting of full life-cycle emissions from cars. The regulation provides also specificincludes provisions on in-service conformity testing and on detecting strategies which may artificially improve the CO2 performance. Because of these requirements, the European Commission is currently working on a Delegated Regulation defining the procedures for verifying the CO2 emissions of vehicles in-service. Detailed technical provisions (e.g. test procedures, statistical evaluations, tolerances, pass/fail criteria, etc.) for the in-service verification procedures will be further defined by an Implementing Regulation.
The European Green Deal, adopted by the European Commission in December 2019, has at its core combating climate change and reaching the objectives of the Paris Agreement and other environmental goals (including addressing air pollution). One of its central elements is the 2050 climate neutrality objective. The European Commission enshrined the 2050 climate neutrality objective into EU law entered into force in July 2021. In order to set the EU on a sustainable path to achieve climate neutrality by 2050, the European Commission has also presented a net EU-wide, economy-wide plan to reduce greenhouse gas emissions by at least 55 percent by 2030, compared to 1990 levels.
Building on the existing legislation and the EU’s 2030 climate ambitions, the European Commission also published the “Fit for 55” Package on July, 14, 2021, which includes a proposed amendment to the regulation EU 2019/631. In particular, the European Commission’s proposal would remove by 2030 the provision granting a derogation from the specific emissions targets to manufacturers responsible for between 1,000 and 10,000 new passenger cars in a calendar year. Moreover, the proposal would increase the 2030 CO2 emissions target from a 37.5% to a 55% reduction compared to 2021 and introduce a 2035 target whereby CO2 emissions from new cars and vans would have to be 100% lower compared to 2021.
Similarly to the EU, Switzerland introduced CO2 emission regulations for new cars in July 2012. Despite the existence of some specificities within the Swiss regulation, derogations aligned with EU regulation have been granted to SVMs up to and including 2021. Switzerland has historically adopted the targets approved by the European Commission. On November 24, 2021, the Swiss Federal Council amended the CO2 emission regulations for cars and vans. This regulation was repealed starting from January 1, 2022 and the vehicles of niche and small volume manufacturers will have to meet the same CO2 emission targets as the large volume manufacturers. This change in legislation is expected to result in additional costs for Ferrari, either through penalties or the purchase of emissions credits from other manufacturers. Ferrari does not expect such additional costs to be material.
In the United States, both Corporate Average Fuel Economy (“CAFE”) standards and greenhouse gas emissions (“GHG”) standards are imposed on manufacturers of passenger cars. Because the control of fuel economy is closely correlated with the control of GHG emissions, the United States Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”) have sought to harmonize fuel economy regulations with the regulation of GHG vehicle emissions (primarily CO2). These agencies have set the federal standards for passenger cars and light trucks to meet an estimated combined average fuel economy (CAFE) level that is equivalent to 35.5 miles per U.S. gallon for 2016 model year vehicles (250 grams CO2 per mile). In August 2012, these agencies extended this program to cars and light trucks for model years 2017 through 2025, targeting an estimated combined average emissions level of 163 grams per mile in 2025, which is equivalent to 54.5 miles per gallon.
In August 2018 On September 27, 2019 the EPA and the NHTSA and the EPA issued a common proposal, the “Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for model years 2021-2026 Passenger Cars and Light Trucks” (SAFE Vehicles Rule). The SAFE Vehicles Rule, if finalized, would amend certain existing CAFE and tailpipe carbon dioxide emissions standards for passenger cars and light trucks and establish new standards, all covering model years 2021 through 2026. More specifically, NHTSA is proposing new CAFE standards for model years 2022 through 2026 and amending its 2021 model year CAFE standards because they are no longer deemed to be maximum feasible standards, and EPA is proposing to amend its carbon dioxide emissions standards for model years 2021 through 2025 because they are no longer deemed appropriate and reasonable in addition to establishing new
standards for model year 2026. The authorities’ stated preferred alternative is to retain the model year 2020 standards (specifically, the footprint target curves for passenger cars and light trucks) for both programs through model year 2026, but comment has been sought on a range of alternatives. The SAFE Vehicles Rule has not been adopted in final form as of the date of this filing.
On September 27, 2019 EPA and NHTSA issued the “Safer Affordable Fuel-Efficient Vehicles Rule Part One: One National Program” 84 Fed. Reg. 51310.(SAFE I Rule). These rules would exert federal preemption authority under the CAFE statute over California’s ability to regulate greenhouse gases and would revoke the current EPA waiver under the Clean Air Act which had authorized California to regulate GHG from motor vehicles. The state of California along with other states and certain NGOs filed challenges to these rules in both US District Court for the District of Columbia and the United States Court of Appeals D.C. Circuit. The litigation is pendingIn May 2021, the NHTSA issued a notice of proposed rulemaking proposing to fully repeal the SAFE I Rule.
On March, 31, 2020 the EPA and the impact on FerrariNHTSA issued the final SAFE Vehicles Rule (Part Two) setting CAFE and carbon dioxide emissions standards for model years 2021-2026 passenger cars and light trucks. Under the SAFE Vehicles Rule (Part Two), the overall stringency of the federal standards is significantly reduced from the levels previously set as the final rule will increase stringency of CAFE and CO2 emissions standards by 1.5 percent each year through model year 2026, as compared with the challenges cannot be determined untilstandards issued in 2012, which would have required annual increases of approximately 5 percent. In August 2021, the conclusionEPA published a notice of proposed rulemaking proposing to strengthen federal GHG emissions standards for passenger cars and light trucks by setting stringent requirements for reductions from for model years 2021-2026. Consistently with the litigation.EPA’s approach, in September 2021 the NHTSA published a notice of proposed rulemaking proposing revised fuel economy standards for passenger cars and light trucks for model years 2024-2026.
Under current regulation, for model years 2017-2025,2017-2026, the EPA allows a SVM, defined as an operationally independent manufacturer with less than 5,000 yearly unit sales in the United States, to petition for a less stringent standard. The EPA has granted us SVM status. We have therefore petitioned the EPA for alternative standards for the model years 2017-2021 and 2022-2025, which are aligned to our technical and economic capabilities. On July 31, 2019 the EPA published a Notice in the U.S. Federal Register (Federal Register /Vol. 84, No. 147) that in part proposed that Ferrari be permitted an alternative standard substantially in line with the alternative standard that Ferrari proposed to the EPA for model years 2017-2021. The EPA approved Ferrari proposed standards for model years 2017-2020, whereas it requiresrequired a small reduction offor the model year 2021 standard. On June 25, 2020, the EPA Administrator signed the final determination for alternative GHG standards for SVMs for model years 2017 through 2021.
In September 2016, we petitioned the NHTSA for recognition as an independent manufacturer of less than 10,000 vehicles produced globally, and we proposed alternative CAFE standards, for model years 2017, 2018 and 2019. Then, in December, 2017, we amended the petition by proposing alternative CAFE standards for model years 2016, 2017 and 2018 instead, covering also the 2016 model year. NHTSA have not yet responded to our petition. If our petitions are rejected, we will not be able to benefit from the more favorable CAFE standards levels which we have petitioned for and this may require us to purchase additional CAFE credits in order to comply with applicable CAFE standards. Starting fromIn 2019, we are no longer considered to be an SVM by NHTSA, because our global production exceeded 10,000 vehicles, and therefore we are requirednot considered a SVM by the NHTSA for model year 2019. We previously purchased the CAFE credits needed to apply Large Vehicle Manufacturer (“LVM”)fulfill this deficit. On July 15, 2020, we submitted to the NHTSA a petition for an exemption from the CAFE standards for the model year 2020. We proceeded with this submission because, although Ferrari originally intended to produce more than 10,000 vehicles in 2020, actual production was lower than 10,000 vehicles as a result of the COVID-19 pandemic and consequently,the related shutdown of our production facilities. Therefore since we met the NHTSA definition of a SVM, we have requested an alternative fleet average GHG standards for model year 2020 standard. The NHTSA has confirmed that it will not send a
shortfall letter to purchase furtherFerrari requiring payment of CAFE credits.civil penalties or the application of CAFE credits with regards to model year 2020 until the NHTSA has ruled on Ferrari’s petitions for an alternative standard. We purchased the CAFE credits needed to fulfill our model year 2021 deficit and we are planning to continue with this approach for subsequent model years.
The state of California has been granted special authority under the Clean Air Act to set its own vehicle emission standards. In February 2010, the California Air Resources Board (“CARB”) enacted regulations under which manufacturers of vehicles for model years 2012-2016 which are in compliance with the EPA greenhouse gas emissions regulations are also deemed to be in compliance with California’s greenhouse gas emission regulations (the so-called “deemed to comply” provision). In November 2012, the CARB extended these rules to include model years 2017-2025. In 2017 CARB performed a technical assessment regarding greenhouse gas standards for model years 2022 through 2025, in parallel with the EPA and the NHTSA, and confirmed in March 2017 that the standards defined in 2012 may be still considered appropriate. The SAFE Vehicles Rule mentioned above proposes to withdraw the waiver granted to California under the Clean Air Act to establish more stringent standards for vehicle emissions that are applicable to model years 2021 through 2025. In response to the proposed California waiver withdrawal, onOn December 12, 2018 the CARB amended its existing regulations to clarify that the “deemed to comply” provision shallwould not be available for model years 2021-2025 if the EPA standards for those years arewere altered via an amendment of federal regulations. On September 19, 2019, the NHTSA and the EPA established the “One National Program” for fuel economy regulation, taking the first step towards finalizing the agencies’ August 2018 proposal by announcing the EPA’s decision to withdraw California’s waiver of preemption under the Clean Air Act, and by affirming the NHTSA’s authority to set nationally applicable regulatory standards under the preemption provisions of the Energy Policy and Conservation Act (EPCA). The two agencies indicated that they anticipate issuing a final rule on standards in the near future. Ferrari currently avails itself of the “deemed-to-comply” provision to comply with CARB greenhouse gas emissions regulations. Therefore, depending on future developments, it may be necessary to also petition the CARB for SVM alternative standards and to increase the number of tests to be performed in order to follow the CARB specific procedures.
While Europe and the United States lead the implementation of these fuel consumption/CO2 emissions programs, other jurisdictions typically follow on with adoption of similar regulations within a few years thereafter. In China, for example, Stage IV targetstargeted a national average fuel consumption of 5.0L/100km by 2020. In September 2017, the Chinese government issued the Administrative Measures on CAFC (Corporate Average Fuel Consumption) and NEV (New Energy Vehicle) Credits. This regulation establishes mandatory CAFC requirements, while providing additional flexibility for SVMs (defined as a manufacturer with less than 2,000 units imported in China per year)year that achieve a certain minimum CAFC yearly improvement rate.rate). Manufactures that exceed the CAFC regulatory ceiling are required to purchase NEV credits.
The Stage V regulation, issued on December 31, 2019, sets the fuel consumption fleet average targets for the period 2021-2025, targeting a national average fuel consumption of 4.0 l/100km by 2025. Consequently,Following the adoption of the Stage V fuel consumption regulation, an update ofto the Administrative Measures on CAFC and NEV Credits is awaited,credits was published in June 2020, keeping the additional flexibility for SVMs and relaxing the minimum CAFC yearly improvement rate required. In addition to the fuel consumption target on the entire fleet, the Chinese regulation GB 19578-2021 sets specific fuel consumption limits on model types. Currently, this standard is only applicable to domestic cars, as it is not adopted by the China Certification and Accreditation Administration (CNCA). In the current Ferrari portfolio, only the plug-in hybrid models would be compliant with this regulation. Following the same approach also with respect to pure electric vehicles, during 2021 the relevant Chinese authorities have published a notice to call for participation in a working group that should define the energy consumption limit standards for electric vehicles.
In the future, driving bans on combustion engine vehicles could be imposed, particularly in metropolitan areas, promoting progress in electric and hybrid technology. On September 23, 2020, the Governor of California issued an executive order requiring that all in-state sales of new passenger vehicles be zero-emission by 2035. CARB is developing regulations among the Advanced Clean Cars II (ACC II) regulatory package to implement such executive order. The ACC II regulations will seek to increase the number of zero-emission vehicles (ZEVs) for sale and reduce criteria and greenhouse gas emissions from new light- and medium-duty vehicles beyond the 2025 model year. During 2021, the state of Washington introduced legislation that could phase out sales of non-ZEVs. The Washington State House bill 1204 titled “Clean Cars 2030” provides that all privately and publicly owned passenger and light duty vehicles of model year 2030 or later registered in Washington state must be electric vehicles and the state’s transportation commission will now work on a scoping plan for achieving the 2030 requirement, anticipating the California target by five years. In November 2020, the UK Prime Minister, the Transport Secretary and the Business Secretary announced, in the context of the 10-Point Plan for a Green Industrial Revolution, the end of the sale of new petrol and diesel cars in the United Kingdom by 2030. On July 14, 2021 the UK Government published the Green Paper on a New Road Vehicle CO2 Emissions Regulatory Framework for the United Kingdom. The commitment is to reach net zero carbon emissions by 2050. Following Brexit, the UK Government is autonomous in defining the legal framework to deliver the internal combustion engine vehicles phase out dates announced
and is expected to publish a proposal in 2022. This will put the United Kingdom on course to be the first G7 country to decarbonize cars and vans.
Exhaust and evaporative emissions requirements
In 2007, the European Union adopted a series of updated standards for emissions of other air pollutants from passenger and light commercial vehicles, such as nitrogen oxides, carbon monoxide, hydrocarbons and particulates. These standards were phased in from September 2009 (Euro 5) and September 2014 (Euro 6) for passenger cars. In 2016, the European Union established that Euro 6 limits shall be evaluated through Real Driving Emissions (RDE) measurement procedure and a new test-cycle more representative of normal conditions of use (Worldwide Light Vehicles Test Procedure). SVMs (vehicle manufacturers with a worldwide annual production lower than 10,000 units in the year prior to the grant of the type-approval) are required to be compliant with RDE standards starting from 2020 while non-SVMs have been required to comply with RDE standards starting from 2017. We believe all new Ferrari models are fully compliant with RDE requirements. In 2018, the European Commission issued Regulation 2018/1832 for the purpose of improving the emission type approval tests and procedures for light passenger and commercial vehicles, including those for in-service conformity and RDE and introducing devices for monitoring the consumption of fuel and electric energy. Under the EU Regulation, which became applicable in January 2019, among other things, the extended documentation package provided by manufacturers to type approval authorities to describe Auxiliary Emission Strategies (AES) is no longer required to be kept confidential, and the decision whether to allow access to such documentation package is left to national authorities. In addition, the Regulation introduced a new methodology for checking In-Service Conformity (ISC) which includes RDE tests. Compliance is tested based on ISC checks performed by the manufacturer, the granting type approval authority (GTAA), and accredited laboratories or technical services. Test results will be publicly available; in addition, the GTAA will publish annual reports on the ISC checks performed, in order to improve transparency. The European Commission is currently working on another amendment to the WLTP and RDE test procedures primarily to align them with the corresponding UNECE Regulations. However, other EU-specific requirements are also anticipated.
On 13th of December 13, 2018, the General Court of the European Union issued a ruling on the action started in mid-2016 by the cities of Madrid, Brussels and Paris on the legality of the Commission introducing in the second RDE Regulation (2016/646) RDE conformity factors (CF) which had the effect of increasing the emission limits. This led to the appeal proceedings during 2019 against the General Court’s judgment that annulled the conformity factors in the RDE legislation. The judgmentappeal is currently expected towards the end of 2020.pending.
During 2019, the European Commission announced that it will propose more stringent air pollutant emissions standards for combustion-engine vehicles and indicated 2021 as a target timeline. The European Commission created an Advisory Group on Vehicle Emission Standards (AGVES), by joining all the relevant expert groups working on emission legislation, in order to provide technical advice for the development of the post-EURO 6/VI emission standards for motor vehicles. In March 2020, the European Commission launched a public consultation on its roadmap outlining the policy options that it could pursue in revising the emission standards for light and heavy duty vehicles (Euro 7). This initiative is part of the European Green Deal, advocating the European automotive industry’s role as a leader in the global transition to zero-emission vehicles. More stringent air pollutant emissions standards for combustion engine vehicles are expected to be set by early 2022. Depending on the future regulatory developments, the technological solutions required to ensure compliance with Euro 7 standards may affect customers’ expectations on performance, sound and driving experience. The European Commission is also expected to assess and evaluate the current noise emissions limits, with the risk of more stringent thresholds.
In the United States, the “Tier 3” Motor Vehicle Emission and Fuel Standards issued by the EPA were finalized in April 2014. With Tier 3, the EPA has established more stringent vehicle emission standards, requiring significant reductions in both tailpipe and evaporative emissions, including nitrogen oxides, volatile organic compounds, carbon monoxide and particulate matter. The new standards are intended to harmonize with California’s standards for 2015-2025 model years (so called “LEV3”) and will be implemented over the same timeframe as the U.S. federal CAFE and GHG standards for cars and light trucks described above. Because of our status as an operationally independent SVM, Ferrari obtained a longer, more flexible schedule for compliance with these standards under both the EPA and California Program.
In addition, California is moving forward with other stringent emission regulations for vehicles, including the Zero Emission Vehicle regulation (ZEV). The ZEV regulation requires manufacturers to increase their sales of zero emissions vehicles year on year, up to an industry average of approximately 15 percent of vehicles sold in the state by 2025. Because we currently sell fewer than 4,500 units in California, we are exempt from these requirements.
Additional stringency of evaporative emissions also requires more advanced materials and technical solutions to eliminate fuel evaporative losses, all for much longer warranty periods (up to 150,000 miles in the United States).
As already mentioned, the California Air Resources Board is working on the development of the ACC II regulations and in December 2021 presented proposals to amend the Low Emission Vehicle (or LEV) Regulation to reduce both tailpipe and evaporative emissions.
In response to severe air quality issues in Beijing and other major Chinese cities, in 2016 the Chinese government published a more stringent emissions program (National 6), providing two different levellevels of stringency (6a and 6b) effective starting from 2020. In July 2018 China’s central government launched a three-year plan to reduce air pollution, extending targets for reducing lung-damaging airborne particulate pollution to the country’s 338 largest cities. This plan includes reductions in steel and other industrial capacity, reducing reliance on coal, promoting electric vehicles and cleaner transport, enhancing air-pollution warning systems, and increasing inspections of businesses for air pollution infractions. Several autonomous regions and municipalities have implemented the requirements of the National 6 program even ahead of the mandated deadlines.
During 2020, the Chinese Vehicle Emission Control Center (VECC) launched the “Pre-study on Next Stage Emission Standards for Light duty Vehicles”, an ongoing research project expected to be finalized in a more stringent emission program in the next years.
55Several others regulations are also emerging to take into account the non-exhaust emissions and the environmental impact of electric and hybrid vehicles components. Brake particulate emissions from passenger cars are currently not regulated by any UNECE or regional Regulations. However, the representatives of some contracting parties (e.g. the European Union, UK and Japan) are asking for the authorization to develop a new UN Global Technical Regulation (UN GTR) on the topic of brake particulate emissions of light duty vehicle’s brake systems. The Informal Working Group on Electric Vehicles and Environment of the United Nations proposed during 2021 a Global Technical Regulation on in-vehicle battery durability. This regulation is applicable to both pure electric and plug-in hybrid vehicles and establishes provisions regarding state-of-health monitors, minimum performance requirements and in-service conformity checks. A UN GTR is not binding for certification purposes. However, it could be transposed into a UN Regulation or a regional regulation required for the certification. The European Commission has expressed the will to include these GTR requirements in Euro 7 regulation. Moreover, the European Commission published, in December 2020, a proposal for a new regulation on batteries and waste batteries. This proposal will apply to all kind of batteries, including automotive and electric vehicle batteries, and establishes requirements on sustainability, labelling, information and end-of-life. This regulation is currently under discussion.
To comply with current and future environmental rules, related to both fuel economy and pollutant emissions, we may have to incur substantial capital expenditure and research and development expenditure to upgrade products and manufacturing facilities, which would have an impact on our cost of production and results of operation.
Vehicle safety
Vehicles sold in Europe are subject to vehicle safety regulations established by the EU or by individual Member States.member states. In 2009, the EU established a simplified framework for vehicle safety, repealing more than 50 directives and replacing them with a single regulation (the “General Safety Regulation”) aimed at incorporating relevant United Nations standards. This incorporation process began in 2012. With respect to regulations on advanced safety systems, the EU now requires new model cars from 2011 onwards to have electronic stability control systems and tire pressure monitoring systems. Regulations on low-rolling resistance tires have also been introduced. The framework is reviewed periodically, and a revised version of the General Safety Regulation is currently under discussion. In May 2018, the European Commission adopted a proposal for a regulation to make certain vehicle safety measures mandatory. On March 25, 2019, the European Parliament, Council and Commission reached a provisional political agreement on the revised General Safety Regulation. As of 2022, new safety technologies will become mandatory in European vehicles, such as Advanced Emergency Braking, Emergency Lane Keeping systems, crash-test improved safety belts, intelligent speed assistance and warning of driver drowsiness or distraction. In 2017, the EU published technical requirements for the Emergency Call (eCall) system, mandatory for new model cars starting from 2018. Starting from July 1, 2019, new types of pure electric vehicle and new types of hybrid electric vehicle capable of operating without propulsion from a combustion engine operating are required to be equipped with an Acoustic Vehicle Alerting System (AVAS), and from July 1, 2021 for all new vehicles of such types, in order to alert pedestrians that a vehicle is moving at low speeds. Starting from 2022, European authorities and United Nation’s Contracting Partiescontracting parties will enforce Regulationsregulations on cyber security and over the air updates. Starting from 2024, European authorities and United Nation’s
contracting parties will enforce amendments for the existing regulation on pedestrian protection, modifying the current test procedures and enhancing the measurement methods on extended vehicle areas such as the windscreen. In 2020 the European Commission issued its new digital strategy policies, which represent a priority in its regulatory agenda. During 2021, several draft proposals were issued in this respect, including in relation to Real Time Traffic Information (RTTI), Connected and Intelligent Transport Systems (C-ITS), Artificial Intelligence (AI). During 2022 more legislative acts are forecasted, including regarding access to vehicle data and automated driving).
Under U.S. federal law, all vehicles sold in the United States must comply with Federal Motor Vehicle Safety Standards (“FMVSS”) promulgated by the NHTSA. Manufacturers need to provide certification that all vehicles are in compliance with those standards. In addition, if a vehicle contains a defect that is related to motor vehicle safety or does not comply with an applicable FMVSS, the manufacturer must notify vehicle owners and provide a remedy at no cost to the owner. Moreover, the Transportation Recall Enhancement, Accountability, and Documentation Act (“TREAD”) requires manufacturers to report certain information related to claims and lawsuits involving fatalities and injuries in the United States if alleged to be caused by their vehicles, and other information related to client complaints, warranty claims, and field reports in the United States, as well as information about fatalities and recalls outside the United States. Several new or amended FMVSSs have taken or will take effect during the next few years in certain instances under phase-in schedules that require only a portion of a manufacturer’s fleet to comply in the early years of the phase-in. These include an amendment to the side impact protection requirements that added several new tests and performance requirements (FMVSS No. 214), an amendment to roof crush resistance requirements (FMVSS No. 216), and a rule for ejection mitigation requirements (FMVSS No. 226). U.S. federal law also sets forth minimum sound requirements for hybrid and electric vehicles (FMVSS No. 141). Because of our status as SVM, Ferrari is required to be compliant at the end of the phase-in period.
On May 4, 2016, the NHTSA published a Consent Order Amendment (the “Amended Consent Order”) to the November 3, 2015 Takata Consent Order regarding a defect which may arise in the non-desiccated Takata passenger airbag inflators manufactured using phase stabilized ammonium nitrate and mounted on certain vehicles, including Ferrari cars. As a result of such Amended Consent Order, Ferrari filed a Part 573 Defect Information Report on May 23, 2016 withthis order and subsequent orders by the NHTSA and hasrelating to the non-desiccated Takata passenger airbag inflators, in 2016 Ferrari initiated a global recall relatingcampaign to certaininclude all Ferrari cars produced between 2008 and 2011. In December 2016, the NHTSA issued a Third Amendment to the Coordinated Remedy Order (“ACRO”) which included the list of Ferrari vehicles sold in the United States up toall model year 2017 to be recalled. As a consequence of the ACRO, Ferrari decided to extend the Takatayears mounting such airbag inflators. The global recall campaign to all vehicles worldwide mounting non-desiccated Takata passenger airbag inflators. In January 2017 Ferrari, in accordance with the Amended Consent Orderwas implemented based on priority groups and the ACRO, filed withtimeline set by the NHTSA a Part 573 Defect Information Report to include model year 2012 Zone A vehicles. In January 2018, Ferrari, in accordance with the Amended Consent Order and the ACRO, also filed with the NHTSA a Part 573 Defect Information Report to include model year 2013 Zone A vehicles. In January 2019, Ferrari, in accordance with the Amended Consent Order and the ACRO, filed with the NHTSA a Part 573 Defect Information Report to include model year 2014 - 2018 vehicles. In January 2020, Ferrari, in accordance with the Amended Consent Order and the ACRO, filed with the NHTSA a Part 573 Defect Information Report to include vehicles that had received the so-called “like-for-like” repair. As a result of the ACRO and the decision to extend the worldwide Takata airbag inflator recall,NHTSA. Ferrari recognized provisions of €37 million in 2016 for the estimated charges for Takata airbag inflators recalls to cover the costcosts of the worldwide global Takata recall due to uncertainty of recoverability of the costs from Takata. At December 31, 20192021 the provision amounted to €16 million.
In 2016approximately €3 million, reflecting the NHTSA published Phase II draft guidelinescurrent best estimate for driver distraction, for portable and aftermarket devices, andfuture costs related to the associated compliance costs mayentire recall campaign to be substantial. These guidelines, together with previously published Phase I provisions focus, among other things, oncarried out by the need to modify the design of car devices and other driver interfaces to minimize driver distraction. Compliance with these new requirements, as well as other possible future NHTSA requirements, may be difficult and/or costly. We are in the process of evaluating these guidelines and their potential impact on our results of operations and financial position and determining what steps and/or countermeasures, if any, we will need to make. However, NHTSA rulemaking on driver distraction guidelines has not progressed since early 2017, and the announced Phase III draft on voice-activated controls has not yet been published.Group.
In 2017, the Chinese authorities published an updated version of the current local general safety standard which allows China to become the driver market for the Event Data Recorder mandatory installation starting from 2021. Technical requirements were defined in mid-2019, through the formal adoption of the local standard.Amongstandard. Among the United Nations Contracting Parties,contracting parties, China has been the first country to propose an early adoption of updated test procedures on high-voltage batteries for hybrid and electric vehicles, which is expectedhas been enforced starting in 2020. During 2021, the Chinese authorities worked on several rulemaking initiatives related to be enforcedactive safety (e.g. ADAS, eCall), vehicle digitalization, cyber security and software updates which are not yet mandatory for certification purposes and contribute to the regulatory uncertainty in 2020.
this market.
C. Organizational Structure
Subsidiaries
The following table sets forth a list of the principal subsidiaries that are directly or indirectly controlled by Ferrari.
For each company, the following information is provided: name, country of residence, nature of business, the percentage interest held by Ferrari and its subsidiaries, and the percentage interest held by non-controlling interests at December 31, 2019.2021.
Subsidiaries at December 31, 2019:2021:
| | Name | | Country | | Nature of business | | Shares held by the Group | | Shares held by non-controlling interests | Name | | Country | | Nature of business | | Shares held by the Group | | Shares held by non-controlling interests |
Directly held interests | | Directly held interests | | | | | | | | |
Ferrari S.p.A. | | Italy | | Manufacturing | | 100% | | —% | Ferrari S.p.A. | | Italy | | Manufacturing | | 100% | | —% |
| | |
Indirectly held through Ferrari S.p.A. | | Indirectly held through Ferrari S.p.A. | |
Ferrari North America Inc. | | USA | | Importer and distributor | | 100% | | —% | |
Ferrari North America, Inc. | | Ferrari North America, Inc. | | USA | | Importer and distributor | | 100% | | —% |
Ferrari Japan KK | | Japan | | Importer and distributor | | 100% | | —% | Ferrari Japan KK | | Japan | | Importer and distributor | | 100% | | —% |
Ferrari Australasia Pty Limited | | Australia | | Importer and distributor | | 100% | | —% | Ferrari Australasia Pty Limited | | Australia | | Importer and distributor | | 100% | | —% |
Ferrari International Cars Trading (Shanghai) Co. L.t.d. | | China | | Importer and distributor | | 80% | | 20% | Ferrari International Cars Trading (Shanghai) Co. L.t.d. | | China | | Importer and distributor | | 80% | | 20% |
Ferrari (HK) Limited | | Hong Kong | | Importer and distributor | | 100% | | —% | Ferrari (HK) Limited | | Hong Kong | | Importer and distributor | | 100% | | —% |
Ferrari Far East Pte Limited | | Singapore | | Service company | | 100% | | —% | Ferrari Far East Pte Limited | | Singapore | | Service company | | 100% | | —% |
Ferrari Management Consulting (Shanghai) Co. L.t.d. | | China | | Service company | | 100% | | —% | Ferrari Management Consulting (Shanghai) Co. L.t.d. | | China | | Service company | | 100% | | —% |
Ferrari South West Europe S.a.r.l. | | France | | Service company | | 100% | | —% | Ferrari South West Europe S.a.r.l. | | France | | Service company | | 100% | | —% |
Ferrari Central Europe GmbH (1) | | Germany | | Service company | | 100% | | —% | |
G.S.A. S.A. | | Switzerland | | Service company | | 100% | | —% | |
Ferrari Central Europe GmbH | | Ferrari Central Europe GmbH | | Germany | | Service company | | 100% | | —% |
G.S.A. S.A. in liquidation | | G.S.A. S.A. in liquidation | | Switzerland | | Service company | | 100% | | —% |
Mugello Circuit S.p.A. | | Italy | | Racetrack management | | 100% | | —% | Mugello Circuit S.p.A. | | Italy | | Racetrack management | | 100% | | —% |
Ferrari Financial Services Inc. | | USA | | Financial services | | 100% | | —% | |
Ferrari Financial Services, Inc. | | Ferrari Financial Services, Inc. | | USA | | Financial services | | 100% | | —% |
| | |
Indirectly held through other Group entities | | Indirectly held through other Group entities | |
Ferrari Auto Securitization Transaction LLC (2) | | USA | | Financial services | | 100% | | —% | |
Ferrari Auto Securitization Transaction - Lease, LLC (2) | | USA | | Financial services | | 100% | | —% | |
Ferrari Auto Securitization Transaction LLC (1) | | Ferrari Auto Securitization Transaction LLC (1) | | USA | | Financial services | | 100% | | —% |
Ferrari Auto Securitization Transaction - Lease, LLC (1) | | Ferrari Auto Securitization Transaction - Lease, LLC (1) | | USA | | Financial services | | 100% | | —% |
Ferrari Auto Securitization Transaction - Select, LLC (1) | | Ferrari Auto Securitization Transaction - Select, LLC (1) | | USA | | Financial services | | 100% | | —% |
Ferrari Financial Services Titling Trust (2)(1) | | USA | | Financial services | | 100% | | —% | | USA | | Financial services | | 100% | | —% |
Ferrari Auto Securitization Transaction - Select, LLC (2) | | USA | | Financial services | | 100% | | —% | |
410, Park Display Inc. (3) | | USA | | Retail | | 100% | | —% | |
410 Park Display, Inc. (2) | | 410 Park Display, Inc. (2) | | USA | | Retail | | 100% | | —% |
___________________________
| |
(1) | Changed its name from Ferrari Central East Europe GmbH to Ferrari Central Europe GmbH, effective December 2, 2019. |
| |
(2) | Shareholding held by Ferrari Financial Services Inc. |
| |
(3) | Shareholding held by Ferrari North America Inc. |
(1) Shareholding held by Ferrari Financial Services, Inc.
(2) Shareholding held by Ferrari North America, Inc.
D. Property, Plant and Equipment
Our principal manufacturing facility is located in Maranello (Modena), Italy. It has an aggregate covered area of approximately 690823 thousand square meters.Our Maranello plant hosts our corporate offices and most of the facilities we operate for the design, development and production of our sportsroad and GTtrack cars, as well as of our Formula 1 single-seaters. (See “Item 4.B. Business Overview—Production and Procurement—Production Process”). Except for some leased technical equipment, we own all of our facilities and equipment in Maranello.
Since 2002 we have either rebuilt or renovated most of the buildings in Maranello, including the paint shop building and the production building. In 2015 we completed construction of the new building entirely dedicated to our Formula 1 team and racing activities, as well as the new wind tunnel 4WD.
In 2018 we completed the new Ferrari Design Centre, a building that covers more than 7.37 thousand square meters.
In 2019 we completed the office area and workshop area of the New Technical Center covering approximately 9 thousand square meters, for the development of engines and hybrid systems. The entire building and the engine and hybrid test benches for a totalcover an area of approximately 20 thousand square meters are expected to beand was completed during the course of 2020. We alsoin 2021. Also in 2019, we purchased land of approximately 16 thousand square meters in line with our expansion plans.
In 2020, we purchased approximately 64 thousand square meters of land in Maranello to be used for future developments. In 2021, we completed the construction of the new building related to new GT sport activities (which covers an area of approximately 6 thousand square meters near the Fiorano track), the new building for our Formula 1 simulator and the renovation of the offices used by our Marketing and Commercial department. In 2020 we also purchased approximately 52 thousand square meters of land in 2019,Maranello to be used for future developments.
Adjacent to the plant is our Fiorano track, of approximately 3,0003 thousand meters, built in 1972 and remodeled in 1996. The track also houses the Formula 1 logistics offices. Additional facilities in Maranello include a product development center, a hospitality area and the Ferrari museum.
We also own the Mugello racing circuit in Scarperia, near Florence, which we rent to racing events organizers (see “Item 4.B. Business Overview—Formula 1 Activities—The Mugello Circuit”).
We own a second plant in Modena, named Carrozzeria Scaglietti. At this approximately 26 thousand square meter plant we manufacture aluminum bodyworks for our regular range, special series and prototype cars.
The total carrying value of our property, plant and equipment at December 31, 20192021 was €1,070€1,353 million.
For information on our principal expenditures on property, plants and equipment, see “Item 5.B Liquidity and Capital Resources—Capital Expenditures—Property, plant and equipment”.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE GROUP
The following discussion of our financial condition and results of operations should be read together with the information included under “Item 3.A. Selected Financial Data”,“Item 4. Information on the Company” and the Consolidated Financial Statements included elsewhere in this document. This discussion includes forward-looking statements, and involves numerous risks and uncertainties, including, but not limited to, those described under “Forward-Looking Statements” and the “Item 3.D. Risk Factors”. Actual results may differ materially from those contained in any forward-looking statements.
Overview
Ferrari is among the world’s leading luxury brands, focused on the design, engineering, production and sale of the world’s most recognizable luxury performance sports cars. Our brand symbolizes exclusivity, innovation, state-of-the-art sporting performance and Italian design and engineering heritage. Our name and history and the image enjoyed by our cars are closely associated with our Formula 1 racing team, Scuderia Ferrari, the most successful racing team in the history of Formula 1 history.1. From the inaugural year of Formula 1 in 1950 through the present, Scuderia Ferrari has won 238 Grand Prix races, 16 ConstructorConstructors’ World titles and 15 Drivers’ World titles. We are the only team which has taken part in all the editions of the Championship, racing in more than 1,000 Formula 1 Grand Prix races. We believe our history of excellence, technological innovation and defining style transcends the automotive industry, and is the foundation of the Ferrari brand and image. We design, engineer and produce our cars in Maranello, Italy, and sell them in over 60markets worldwide through a network of 166172 authorized dealers operating 187191 points of sale.sale as of the end of 2021.
We believe our cars are the epitome of performance, luxury and styling. Our product offering comprises four main pillars: the sports range, the GT range, special series and Icona, a line of modern cars inspired by our iconic cars of the past. Our current product range (including cars presented in 2019,2021, for which shipments will commence in 2020)future years) is comprised of fivesix sports cars (SF90 Stradale,(the 812 GTS, the Ferrari F8 Tributo, the Ferrari F8 Spider, 812 Superfastthe 296 GTB, the SF90 Stradale and 812 GTS)the SF90 Spider), fourtwo GT cars (Ferrari(the Ferrari Roma and the Ferrari Portofino GTC4Lusso and GTC4Lusso T) andM), two special series cars (488 Pista(the 812 Competizione and 488 Pista Spider)the 812 Competizione A), as well as two versions of our first Icona car,model, the Ferrari Monza SP1 and the Ferrari Monza SP2.SP2, as well as the recently presented new model in the Icona range, the Ferrari Daytona SP3.
In 2021 we completed the shipments of the 812 Superfast, while the shipments of the Ferrari Monza SP1 and SP2 will be completed in the first quarter of 2022. We also produce limited edition hypercarsfuori serie and one-off cars. Our most recent hypercar, the LaFerrari Aperta, was launched in 2016 to celebrate our 70th70th Anniversary and finished its limited series run in 2018. In 2019,2021, we unveiledlaunched 4 new models, including the SF90 Stradale (our first296 GTB, a new PHEV featuring a new V6 engine, the limited series production Plug-in Hybrid Electric Vehicle (PHEV)), the F8 Tributo, the F8 Spider, theV12 812 GTSCompetizione and 812 Competizione A, and the new Icona series model, the Ferrari Roma,Daytona SP3, and we have launched 13 models in accordance with shipments of the F8 Tributo commencing in the fourth quarter of 2019 and shipments of the other cars expectedour plan to commence in 2020.launch 15 new models by 2022 as announced at our 2018 Capital Markets Day.
In 2019,2021, we shipped 10,13111,155 cars and recorded net revenues of €3,766€4,271 million, EBIT of €917€1,075 million, and net profit of €699€833 million and earnings before interest, taxes, depreciation, and amortization (EBITDA) of €1,269€1,531 million. For additional information regarding EBITDA, including a reconciliation of EBITDA to net profit, as well as other non-GAAP financial measures we present, see “Item 5. Operating and Financial Review and Prospects—Non-GAAP Financial Measures”.
Whilst broadening our product portfolio to target a larger customer base, we continue to pursue a low volume production strategy in order to maintain a reputation for exclusivity and scarcity among purchasers of our cars and we carefully manage our production volumes and delivery waiting lists to promote this reputation. We divide our regional markets into (i) EMEA, (ii) Americas, (iii) Mainland China, Hong Kong and Taiwan, and (iv) Rest of APAC, representingwhich represented respectively 48.349.2 percent, 28.625.4 percent, 8.38.1 percent and 14.817.3 percent of units shipped in 2019.2021. The geographical distribution of shipments reflects deliberate allocations driven by the phase-in pace of individual models.
We focus our marketing and promotion efforts in the investments we make in our racing activities and in particular, Scuderia Ferrari’s participation in the FIA Formula 1 World Championship, which is the pinnacle of motorsport and is one of the most watched annual sports series in the world, with approximately 405.5445 million unique television viewers in 2019 in the top 20* markets2021 and an average total audience for a Grand Prix weekend of 70.3 million. (Source:Formula 1 Press Office). Although our most recent
Formula 1 world title was in 2008, we continuously enhance our focus on Formula 1 activities with the goal of improving racing results and restoring our historical position as the premier racing team in Formula 1. We believe that these activities support the strength and awareness of our brand among motor enthusiasts, clients and the general public.
__________________________
(*) Top 20 markets are, in alphabetical order, Australia, Austria, Belgium, Brazil, China, Finland, France, Germany, Greece, Italy, Mexico, Netherlands, Pan Africa, Pan Latin America, Pan Middle East, Pan Russia, Poland, Russia, United Kingdom and United States.
We license the Ferrari brand to a selected number of producers and retailers of luxury and lifestyle goods. In addition, we design, source and sell Ferrari-branded products through a network of 20 Ferrari-owned stores and 24 franchised stores (including 15 Ferrari Store Junior), as well as on our website. As one of the world’s most recognized premium luxury brands, we believe we are well positioned to selectively expand the presence of the Ferrari brandoperate in attractivecarefully selected luxury and growing lifestyle categories consistent with our image,image. We launched our first fashion collection on June 13, 2021 in Maranello, drawing inspiration from our marque’s style, innovation and performance. We also license the Ferrari brand to a limited number of producers and retailers of luxury and lifestyle sectors, including sportswear, watches, accessories, consumer electronics and theme parks which,that, we believe, enhance the brand experience of our loyal clients and Ferrari enthusiasts. The world of Ferrari can also be experienced in our Ferrari Museum in Maranello and in the Enzo Ferrari Museum in Modena.
Our international network of Ferrari Stores consists of 16 Ferrari owned store and 14 franchised stores (including 12 Ferrari Store Junior) where visitors can find our fashion collection as well as on our website. In 2021 we began giving a fresh new look to the stores, starting with our stores in Maranello, Milan, Rome and Los Angeles.
On June 15, 2021 we reopened and revitalized our Ristorante Cavallino, which is situated opposite to the entrance of our Maranello factory, while retaining the heritage of this historic location.
We continue in our unwavering pursuit of reaching carbon neutrality by 2030, addressing – in addition to our electrification journey – both direct and indirect emissions with a focus on energy and materials. As a further step forward in this process, in 2021 we calculated our carbon footprint considering the emissions related to all of our activities over our entire value chain. Our calculation, based on greenhouse gas protocol methodology, has been certified according to ISO 14064-1:2018 requirements by a third-party and allowed us to determine priority areas for action.
We will continue focusing our efforts on protecting and enhancing the value of our brand to preserve our strong financial profile and participate in the growth of the premium luxury market. We intend to selectively pursue controlled and profitable growth in existing and emerging markets while expanding the Ferrari brand to carefully selected lifestyle categories.
COVID-19 Pandemic Update
The global spread of the COVID-19 virus (“COVID-19”), which was declared a global pandemic by the World Health Organization in March 2020, has led to governments around the world mandating various restrictive measures to contain the pandemic, including social distancing, quarantine, “shelter in place” or similar orders, travel restrictions and suspension of non-essential business activities. To date, several of these measures are still in place or were reintroduced at various points in time as a result of further “waves” of the pandemic, although the scope and timing of restrictive measures have varied greatly across jurisdictions.
As the virus spread and the severity of the COVID-19 pandemic became apparent, Ferrari’s leadership took actions to protect and support its employees and communities, mitigate the impacts on the Group’s financial performance and strengthen the Group’s liquidity and financial position.
The impacts of the COVID-19 pandemic on the Group’s operations and the main actions taken by Ferrari in response to the pandemic since its inception are summarized below:
•With the safety and well-being of Ferrari employees in mind and considering government restrictions implemented to combat the spread of the virus, production and deliveries to the distribution network were temporarily suspended from the end of March until the beginning of May 2020. Although certain restrictions have remained in place in some of the countries where Ferrari operates, since May 2020 substantially all Ferrari dealerships remained operational and order collections continued as usual. The Group remains focused on maintaining a robust order book going forward and on the careful management of our waiting lists in line with our strategy of controlled growth and preservation of brand exclusivity.
•To protect the health and well-being of its workforce and customers as Ferrari returned to regular business operations, we successfully implemented our “Back on Track” program, which facilitated our return to full production by May 8, 2020 through the implementation of various safety measures to combat and contain the spread of the COVID-19 virus in the workplace.
•Following various initiatives implemented by Ferrari since the start of the pandemic to support local communities, the Group continues to provide logistical support as well as facilities at its Fiorano race track for the vaccination
campaign, where more than 230 thousand vaccine doses have been administered to date by the local medical authority. This is in addition to the more than 115 thousand serological tests, rapid swabs tests and flu vaccinations provided at the Fiorano race track since the start of the pandemic. With the commencement of the national COVID-19 vaccination campaign in Italy, in mid-June 2021 Ferrari launched its own vaccination plan, dedicated to its employees, their families and all the resident consultants and suppliers; planned alongside local Health Authorities. The campaign resulted in a high number of vaccinations and is now completed. Ferrari also organized an additional extraordinary COVID-19 vaccination campaign for employees, resident consultants and suppliers at our screening center, with first doses administered on October 1, 2021 and second doses on October 29, 2021. Ferrari also implemented a flu vaccination campaign in November 2021 and more recently a campaign for the booster dose of the COVID-19 vaccine.
•Although production and certain other activities, including Formula 1, our stores and our museums, were temporarily suspended near the end of March 2020, the Group continued many other key business activities and functions through remote working arrangements, and up to the date of this document it continues to take measures to combat the spread of COVID-19 at its facilities while guaranteeing the possibility of remote work for those employees whose job activity is compatible with such work arrangements.
•In order to prudently manage potential liquidity or refinancing risks in the foreseeable future, the Group focused on increasing and preserving its available liquidity and took actions to contain costs and capital expenditures in 2020, while ensuring that all projects that are considered important for the continuing success of Ferrari and its future development are maintained.
•The Group decided to temporarily suspend its share repurchase program from the end of March 2020 to the beginning of March 2021, when the program was restarted.
•The start of the 2020 Formula 1 World Championship season was postponed from March to July 2020 and it ultimately consisted of 17 Grand Prix events, five fewer than those originally scheduled. Additionally, most of the races were held without public attendance, including Paddock Club and paddock guests. These circumstances adversely impacted our financial results in 2020 due to a reduction of sponsorships and consequent reduced commercial revenues from partners and the holder of Formula 1’s commercial rights (Formula One Management). Although the 2021 season remained affected by the COVID-19 pandemic, including changes in venues and several races being held with a reduced number of spectators, the season ultimately consisted of a record number of 22 Grand Prix races.
•Brand activities were also adversely impacted as a result of the temporary closure of Ferrari stores and museums in the first quarter of 2020, which gradually reopened starting from May 2020 with appropriate safety measures in place to protect our staff and customers. To date, in-store traffic has not yet recovered to pre-pandemic levels and museums continue to be subject to certain restrictions as a result of local regulations, although overall brand activities have increased in 2021 compared to 2020.
•There have been no significant effects on the valuation of assets or liabilities and no increases in allowances for credit losses as a result of COVID-19. Moreover, no material impairment indicators have been identified and there have been no changes in accounting judgments or other significant accounting impacts relating to COVID-19.
•No significant changes occurred in controls that materially affect internal control over financial reporting.
Ferrari’s leadership is continuously monitoring the evolution of the COVID-19 pandemic as new information becomes available as well as the related effects on the results of operations and financial position of the Group. Ferrari has been gradually recovering from the effects of the COVID-19-related suspension of production and other business activities that occurred primarily in 2020. The effects of the pandemic on Ferrari in 2021 were limited and, building on the otherwise strong performance in a year in which the Group exceeded its guidance on all metrics, management looks to seize the opportunities ahead and share its future plans on June 16, 2022 in Maranello at the Capital Markets Day.
The future impacts of COVID-19 on Ferrari’s results of operations and financial condition will depend on ongoing developments in relation to the pandemic, including the success of the gradual release of containment measures and vaccination programs worldwide, as well as the overall condition and outlook of the global economy. See also “Item 3.D. Risk Factors—We are subject to risks related to the COVID-19 pandemic or similar public health crises that may materially and adversely affect our business”.
Trends, Uncertainties and Opportunities
Shipments -— Our net revenues and results of operations depend on, among other things, the achievement of shipment targets established in our budgets and business plans, which we establishdefine in line with our low volume strategy to pursue controlled growth and growth objectives.preserve brand exclusivity. As part of this strategy, we seek to manage waiting lists in the
various markets in which we operate in order to respond appropriatelyoptimally to relative levels of demand, based on our order books, while being sensitive to local client expectations in those markets. In certain markets, we believe that waiting lists have promoted the sense of exclusivity of our products and, accordingly, we monitor and manage waiting lists to maintain this exclusivity while ensuring that we do not jeopardize client satisfaction.
In order to maintain our brand’s reputation of exclusivity among purchasers of our cars, we have continued our low volume strategy while responding to growing demand in emerging markets and to demographic changes as the size and spending capacity of our target clients has grown, gradually increasing annual shipments from 8,39810,131 in 20172019 to 9,25111,155 in 2018 and 10,131 units2021, despite a decrease to 9,119 in 2019.2020 driven by the effects of the COVID-19 pandemic, resulting in average annual shipments of 10,135 over the three year period from 2019 to 2021. Our strategic business planplans reflects a continuation of this strategy and a broadening ofmeasured but significant increase in shipments above current levels as we broaden our product portfolio to target a potentially larger customer base, while preserving and enhancing the exclusivity and value of our brand.
The following table sets forth our shipments(1) by geographic location: | | | | For the years ended December 31, | | For the years ended December 31, |
| | 2019 | | % | | 2018 | | % | | 2017 | | % | | 2021 | | % | | 2020 | | % | | 2019 | | % |
EMEA | | | | | | | | | | | | | EMEA | | | | | | | | | | | | |
Germany | | Germany | | 1,252 | | | 11.2 | % | | 995 | | | 10.9 | % | | 967 | | | 9.5 | % |
UK | | 1,120 |
| | 11.1 | % | | 981 |
| | 10.6 | % | | 843 |
| | 10.0 | % | UK | | 996 | | | 8.9 | % | | 971 | | | 10.6 | % | | 1,120 | | | 11.1 | % |
Germany | | 967 |
| | 9.5 | % | | 803 |
| | 8.7 | % | | 710 |
| | 8.5 | % | |
Italy | | 559 |
| | 5.5 | % | | 479 |
| | 5.2 | % | | 417 |
| | 5.0 | % | Italy | | 668 | | | 6.0 | % | | 574 | | | 6.3 | % | | 559 | | | 5.5 | % |
Switzerland | | 454 |
| | 4.5 | % | | 380 |
| | 4.1 | % | | 339 |
| | 4.0 | % | Switzerland | | 481 | | | 4.3 | % | | 456 | | | 5.0 | % | | 454 | | | 4.5 | % |
France | | 452 |
| | 4.5 | % | | 399 |
| | 4.3 | % | | 346 |
| | 4.1 | % | France | | 473 | | | 4.2 | % | | 463 | | | 5.1 | % | | 452 | | | 4.5 | % |
Middle East(2) | | 309 |
| | 3.1 | % | | 326 |
| | 3.5 | % | | 331 |
| | 3.9 | % | Middle East(2) | | 334 | | | 3.0 | % | | 304 | | | 3.3 | % | | 309 | | | 3.1 | % |
Other EMEA(3) | | 1,034 |
| | 10.1 | % | | 859 |
| | 9.3 | % | | 751 |
| | 9.0 | % | Other EMEA(3) | | 1,288 | | | 11.6 | % | | 1,055 | | | 11.6 | % | | 1,034 | | | 10.1 | % |
Total EMEA | | 4,895 |
| | 48.3 | % | | 4,227 |
| | 45.7 | % | | 3,737 |
| | 44.5 | % | Total EMEA | | 5,492 | | | 49.2 | % | | 4,818 | | | 52.8 | % | | 4,895 | | | 48.3 | % |
Americas(4) | | 2,900 |
| | 28.6 | % | | 3,000 |
| | 32.4 | % | | 2,811 |
| | 33.5 | % | Americas(4) | | 2,831 | | | 25.4 | % | | 2,325 | | | 25.5 | % | | 2,900 | | | 28.6 | % |
Mainland China, Hong Kong and Taiwan | | 836 |
| | 8.3 | % | | 695 |
| | 7.5 | % | | 617 |
| | 7.3 | % | Mainland China, Hong Kong and Taiwan | | 899 | | | 8.1 | % | | 456 | | | 5.0 | % | | 836 | | | 8.3 | % |
Rest of APAC(5) | | 1,500 |
| | 14.8 | % | | 1,329 |
| | 14.4 | % | | 1,233 |
| | 14.7 | % | Rest of APAC(5) | | 1,933 | | | 17.3 | % | | 1,520 | | | 16.7 | % | | 1,500 | | | 14.8 | % |
Total | | 10,131 |
| | 100.0 | % | | 9,251 |
| | 100.0 | % | | 8,398 |
| | 100.0 | % | Total | | 11,155 | | | 100.0 | % | | 9,119 | | | 100.0 | % | | 10,131 | | | 100.0 | % |
(1)Excluding the XX Progamme,Programme, racing cars, Fuori Serie, one-off and pre-owned carscars.
(2)Middle East mainly includes the United Arab Emirates, Saudi Arabia, Bahrain, Lebanon, Qatar, Oman and KuwaitKuwait.
(3)Other EMEA includes Africa and the other European markets not separately identifiedidentified.
(4)Americas includes the UnitesUnited States of America, Canada, Mexico, the Caribbean and Central and South AmericaAmerica.
(5)Rest of APAC mainly includes Japan, Australia, Singapore, Indonesia, South Korea, Thailand, India and MalaysiaMalaysia.
We target our products to the upper end of the luxury car segment and buyers of our cars tend to belong to the wealthiest segment of the population. As the size and spending capacity of our target client base has grown significantly in recent years, our addressable market and the sense of exclusivity fostered by our low volume strategy have been further enhanced. In response, we have expanded our distribution capabilities and sought to rebalance the geographic distribution of shipments from several traditional markets, particularly in Europe, to growing markets such as China and other regions in Asia. For example, in 1993, 90 percent of our cars were sold in Italy, Germany and the United States; those markets now represent less than half of our unit shipments. Furthermore, the profitability of our cars may vary from market to market. Given that our shipment strategy is flexible, we are able to adjust shipment allocations across marketsthe geographical allocation of our shipments to respond to changes in our key markets. The geographic allocation of our shipments and their mix by product is generally impacted by the phase-in/phase-out pace of individual models, as well as the length of waiting lists and other market-specific factors and conditions, including the potential for future growth. We expect that further growth in shipments will result primarily from our deliberate targeting of new customer groups and modes of use through the expansion of our product range. For example, the decrease in shipments in the Americas and the growth in Mainland China, Hong Kong and Taiwan in 2019 reflect a deliberate geographical rebalancing driven by the pace of product phase-ins, waiting lists and other specific market conditions.
Research, Development and Product Lifecycle -— We engage in research and development activities aimed at improving the design, performance, advanced technology, safety, efficiency and reliability of our cars. The first stage of product development is the research phase. In this phase, we research the specifications of new models that we believe will appeal to our clients and will be commercially viable. Costs we incur for the development of our cars and engines, as well as their related components and systems, are recognized as an asset if, and only if, both of the following conditions under IAS 38 - Intangible Assets are met: (i) development costs can be measured reliably and (ii) the technical feasibility of the product, estimated volumes and expected pricing all support the view that the development expenditure will generate future economic
benefits. All other research and development costs are expensed as incurred. Capitalized development costs include all direct and indirect costs that may be directly attributed to the development process.
The level of our capitalized development costs is primarily affected by the timing of updates and renewals to our product range and, more recently, by our intentiondecision to integrate newly-introduced powertrain technologies (including hybrid and electric) more broadly into our product portfolio. We continually launch new cars with enhanced technological innovations and design improvements. From 2019 to 2021 we launched 13 new models in accordance with our plan to launch 15 new models by 2022 as announced at our 2018 Capital Markets Day, with the objective of maintaining our product portfolio’s leading position and to respond quickly to market demand and technological breakthroughs. A clear example of this is the integration of hybrid engine technology in several recent models, including the 296 GTB, which we launched in 2021 and features Plug-in Hybrid Electric Vehicle (PHEV) technology and a new V6 engine, as well as the SF90 Stradale and the SF90 Spider, our first series production models to feature PHEV technology, which were launched in 2019 and 2020, respectively. Additionally, some of our past models, such as LaFerrari and the LaFerrari Aperta, also included hybrid technology. Our range models typically have a lifecycle of four to five years, while our special series, Icona hypercars and limited edition carshypercars typically have shorter lifecycles. A portion of our research and development efforts are related to the development of the various components used in our models, and in particular, hybrid, electric, electronic and mechanical components. Our new models generally includeThe new and advanced technological content integrated into our new models is in part of which is driven by the output from the research and development efforts overfor vehicle components. Our continued focus on component development has the objective of improving performance and reducing the costs to develop new models. Capitalized development costs are amortized on a straight-line basis from the start of production over the estimated lifecycle of the model or the useful life of the related assets or components, which is generally between four and eight years.
We also incur research and development expensescosts in connection with Formula 1 racing activities, including initiatives to maximize the performance, efficiency and safety of our racing cars. While we develop these technologies for initial use in our Formula 1 racing cars, we seek to transfer these componentstechnologies and technologies,components, where appropriate, to models in our current and future product range. Technological developments and changes in the regulations of the Formula 1 World Championship generally lead us to design, develop and construct a new racing car each year. Theto be used for one year only and the costs incurred for these activitiesthe design, development and construction of a new racing car are generally expensed as incurred and classified as research and development costs in the income statement.statement, unless the technology is expected to be used for more than one year and the costs meet the capitalization criteria in IAS 38. Research and development costs for Formula 1 activities can vary from year to year and may be difficult to predict because they are subject to, among other things, changes in racing regulations and the need to respond to our car’s performance relative to other racing teams.
Research and development costs expensed, which primarily relate to ourare recognized net of technology-related government incentives.
Under the recently effective Formula 1 financial regulations, a budget cap has been introduced to limit the amount of certain types of costs (primarily relating to the development and manufacturing of the racing car chassis) that may be incurred by the teams participating in the Formula 1 World Championship to a maximum of $147 million for the recently completed 2021 season and research phase activities, remained relatively consistent from 2017 to 2019. a maximum of $142 million for the upcoming 2022 season, to be further reduced to $137 million for the 2023 season (assuming 23 Grand Prix races in both the 2022 and 2023 seasons).
As a result of our strategy to update and broaden our product range and significantly increase our efforts relating to hybrid, electric and other advanced technologies, our overall research and development expenditure and in particular our capitalized development costs, increased significantly during the period from 20172019 to 2019.2021. In particular, we made significant investments in product development in relation to both our current product portfolio and models to be launched in future years, as well components. Notwithstanding actions taken in 2020 to contain costs as a result of the COVID-19 pandemic, we continued to invest significantly in research and development projects that are considered important for the continuing success of Ferrari and its future development.
The following table summarizes our research and development for the years ended December 31, 2019, 20182021, 2020 and 2017:2019:
| | | For the years ended December 31, | | For the years ended December 31, |
| 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 |
Capitalized development costs (1) | 330 |
| | 318 |
| | 185 |
| Capitalized development costs (1) | 363 | | | 320 | | | 330 | |
Research and development costs expensed (A) | 559 |
| | 528 |
| | 556 |
| Research and development costs expensed (A) | 574 | | | 527 | | | 559 | |
Total research and development | 889 |
| | 846 |
| | 741 |
| Total research and development | 937 | | | 847 | | | 889 | |
| | | | | | |
Amortization of capitalized development costs (B) | 140 |
| | 115 |
| | 101 |
| Amortization of capitalized development costs (B) | 194 | | | 180 | | | 140 | |
| | | | | | |
Research and development costs as recognized in the consolidated income statement (A+B) | 699 |
| | 643 |
| | 657 |
| Research and development costs as recognized in the consolidated income statement (A+B) | 768 | | | 707 | | | 699 | |
__________________________
(1) Capitalized to developeddevelopment costs within intangible assets during the year.
Car Profitability -— The relative profitability of the cars we sell tends to vary depending on a number of factors, including exclusivity of the offering, technological advancement and content of the car, engine size and performance, level of personalization and the geographic market in which it is sold. For example, our Icona models, which include the Ferrari Daytona SP3 presented in November 2021 and the Ferrari Monza SP1 and SP2 (our first Icona models) andmodels, whose shipments commenced in 2019), as well as our limited edition hypercars (the latest of which was the LaFerrari Aperta (our latest limited edition hypercar)which concluded shipments in 2018) have sales prices that are much higher than other models in the Ferrari product range in light of their exclusivity, as well as the advanced technology and design that accompaniesintegrated in these models. In general, more exclusive offerings generate higher net revenues and provide better margins than those generated on shipments of range models and special series cars, and therefore they benefit our results in the periods in which they are sold. We plan to launch our Icona models more frequently compared to our hypercars and limited edition cars,hypercars, and we expect this to reduce the volatility in financial performance that we have at times experienced historically experienced due to the cadence of our hypercars and limited edition cars.hypercars.
We seek to increase the average price point of our range models and special series models over time by continually improving performance, technology and other features, as well as by leveraging the exclusivity of certain model offerings and the scarcity value resulting from our low volume strategy. In particular, in recent years we have increasedbeen increasing the price of selected models in selectedcertain markets and introduced new models with higher average selling prices compared to the corresponding predecessor models. Furthermore, as we continue to integrate advanced technologies more broadly into our car portfolio, we expect that our average price point will continue to increase reflecting the superior technological content of our new models.
Furthermore,Additionally, the interior and exterior technology and content of the cars we sell can be customized through our personalization program,offerings, which can be further enhanced through additional bespoke specifications. Incremental revenues from personalization are a particularly favorable factor of our pricing and product mix, due to the fact that we generate incremental margin on each additional option selected by the client. Additionally, as we integrate hybrid technology more broadly into our car portfolio, we expect our average price point to increase reflecting the more advanced technological content of the new hybrid models.clients.
Cost of Sales -— Cost of sales comprises expenses incurred in the manufacturing and distribution of cars and parts, including engines sold to Maserati and engines rented to other Formula 1 racing teams. The cost of materials, components and labor are the most significant elements of our cost of sales. Thesales, while the remaining costs principallyprimarily include depreciation, insurance and transportation costs. Cost of sales also includes warranty and product liability-related costs, which are estimated and recorded at the time of shipment of the car.our cars are shipped. Interest expenses and other financial charges that are directly attributable to our financial services activities, including provisions for risks and write-downs of financial assets, are also reported in cost of sales.
We purchase a variety of components (including mechanical, electrical, electronic, aluminum, steel and plastic components, as well as castingcastings and tires), raw materials (the most significant of which is aluminum) and supplies, and we incur costs offor utilities, logistics and other services from numerous suppliers in the manufacture of our cars. Fluctuations in the cost of sales are primarily related to the number of cars we produce and sell along with shiftschanges in car mix. Newer models generally have more technologically advanced components and enhancements, including hybrid and electric technology, and therefore have higher costs per unit; however we expectaim to price our cars appropriately to recover these costs. Limited edition hypercars, fuori serie and one-off cars, Our Icona models,
as well as our Iconalimited edition hypercars and one-off cars, also tend to have higher costs per unit, but these higher costs tend to be more than offset by higher sales prices. Cost of sales are also affected to a lesser extent, by fluctuations of certain raw material prices, although we typically seek to manage these costs and minimize their volatility through the use of long-term fixed price purchase contracts.
In recent years we have made efforts to achieve technical and commercial efficiencies. In particular, technical efficiencies focus on efforts to produce components using innovative and cost-effective materials, without compromising the quality or performance of the components. In order to achieve these technical efficiencies, we perform in-house research and development activities and we invite our suppliers to present us with innovative technical solutions that they have developed. Commercial efficiencies have been achieved through negotiating discounts and entering into long-term contracts with suppliers, who commit upfront to pass on to us a portion of the efficiencies they achieve in performing our supply contracts. Furthermore, efforts are made to award new business to existing suppliers, where appropriate, in order to negotiate favorable pricing. As cost of sales also includes depreciation of plant and equipment, cost of sales is affected by the number and timing of product launches, which trigger the commencement of depreciation of plant and equipment acquired specifically for the production of certain car models.
As further described in the “Results of Operations” section below, due to the effects of the temporary suspension of production and shipments, as well as the changes to the calendar and format of the 2020 Formula 1 World Championship, which were caused by the COVID-19 pandemic, costs as a percentage of net revenues were higher in 2020 compared to other years. Furthermore, a portion of our costs are fixed in nature and we decided to pay all employees throughout the whole suspension period and not accede to any government aid programs, therefore management actions to reduce costs only partially compensated the decrease in net revenues experienced in 2020 as a result of the pandemic.
Economic Conditions and Macro Events — Significant inflationary pressures appeared in 2021 in many of the markets in which we operate and this trend has continued in early 2022. Although there were no material effects on our results of operations in 2021 from the recent rise in inflation in certain goods and services, management is carefully monitoring the inflation outlook, as well as any changes to interest rates, to appropriately address the potential impacts on our operating costs and financial expenses, as well as our new order intake.
Additionally, as a result of the current geopolitical tensions and conflict between Russia and Ukraine, and the recent recognition by Russia of the independence of the self-proclaimed republics of Donetsk and Luhansk, in the Donbas region of Ukraine, the governments of the United States, the European Union, Japan and other jurisdictions have recently announced the imposition of sanctions on certain industry sectors and parties in Russia and the regions of Donetsk and Luhansk, as well as enhanced export controls on certain products and industries. Despite the fact that Ferrari has limited commercial interests in Russia, Ukraine and the areas of conflict, these and any additional sanctions and export controls, as well as any counterresponses by the governments of Russia or other jurisdictions, could adversely affect, directly or indirectly, our supply chain, with negative implications on availability and prices of raw materials, and our customers, as well as the global financial markets and financial services industry.
Effects of Foreign Currency Exchange Rates -— We are affected by fluctuations in foreign currency exchange rates through (i) through the translation into Euro upon consolidation of foreign currency financial statements of our subsidiaries with functional currencies other than Euro, which we refer to as the translation impact, and (ii) through transactions by entities inof the Group in currencies other than their own functional currencies, which we refer to as the transaction impact.
Translation impacts arise in the preparation of the consolidated financial statements; in particular, we present our consolidated financial statements in Euro, while the functional currency of each of our subsidiaries depends on the primary economic environment of that entity. In preparing the consolidated financial statements, we translate into Euro the assets and liabilities of foreign subsidiaries expressed in local functional currency other than Euro using the foreign currency exchange raterates prevailing at the balance sheet date, while we translate income and expenses using the average foreign currency exchange rates for the period presented. Accordingly, fluctuations in the foreign currency exchange raterates of the functional currencies of our subsidiaries against the Euro impacts our results of operations.
Transaction impacts arise when our Group entities conduct transactions in currencies other than their own functional currency. Therefore, we are also exposed to foreign currency risks in connection with scheduled receipts and payments in multiple currencies. Our costs are primarily denominated in Euro, while the majority of our net revenues may be denominatedare generated in currencies other than the Euro, including in U.S. Dollars, Pound Sterling, Japanese Yen, Chinese Yuan, orSwiss Franc and, to a lesser extent, certain other currencies.
In general, an appreciation of the U.S. Dollar, and the other currencies in which we operate, against the Euro would positively impact our net revenues and results of operations.
Our risk management policies contemplate the use of derivative financial instruments to hedge foreign currency exchange rate risk. In particular, we have used derivative financial instruments as cash flow hedges for the purpose of hedging the foreign currency exchange rate at which a predetermined proportion of forecasted transactions denominated in foreign currencies will occur. Accordingly, our results of operations have not been fully exposed to fluctuations in foreign currency exchange rates. See “Item 11. Note 30 “Qualitative and Quantitative and Qualitative Disclosures About Market RiskInformation on Financial Risks” to the Consolidated Financial Statements included elsewhere in this document for additional information related to our foreign currency exchange rate risk policies.
Regulation -— We ship our cars throughout the world and are therefore subject to a variety of laws and regulations, including tariffs. These laws regulate our cars, including their emissions, fuel consumption and safety, as well as our manufacturing facilities. As we are currently a small volume manufacturer in certain jurisdictions, we benefit from certain regulatory exemptions, including less stringent emissions caps. Developing, engineering and producing cars which meet continuously evolving regulatory requirements, and can therefore be sold in the relevant markets, requires a significant effort and expenditure of resources. See “Item 4.B. Business Overview—Regulatory Matters” for additional information.
Equity Incentive Plan - Following the approval of the equity incentive plan by the Board of Directors in March 2017, in April 2017 our Shareholders approved an award of performance share units (“PSUs”) to our former Chief Executive Officer and awards of PSUs and restricted share units (“RSUs”) to members of the Senior Management Team and key leaders of the Group (“Equity Incentive Plan 2016-2020”). The grants of the PSUs and the RSUs, each representing the right to receive one Ferrari common share, cover a five-year performance period from 2016 to 2020. In 2018 additional PSU and RSU awards were granted to our current Chief Executive Officer and certain key employees of the Group under the Equity Incentive Plan 2016-2020.
Under a new equity incentive plan approved in 2019, additional PSUs and RSUs were awarded to the Executive Chairman, the Chief Executive Officer, all members of the SMT and other key employees of the Group (“Equity Incentive Plan 2019-2021”). These additional PSUs and RSUs cover a three-year performance period from 2019 to 2021.
ForPatent Box Benefit— Income taxes for the years ended December 31, 2021, 2020 and 2019 2018 and 2017,benefited from the Company recognized €17 million, €22 million and €28 million, respectively, as share-based compensation expense and an increase to other reserves in equity for the PSU awards and RSU awards. At December 31, 2019, unrecognized compensation expense amounted to €19 million and will be recognized over the remaining vesting periods through 2021.
For additional information see Note 21 “Share-Based Compensation” to the Consolidated Financial Statements included elsewhere in this document.
Patent Box Benefit - In September 2018, the Group signed an agreement with the Italian Revenue Agency in relation toapplication of the Patent Box tax regime, which provides tax benefits for companies that generate income through the use both direct and indirect, of copyrights, patents, trademarks, designs and know-how. The agreement relates tointangible assets. Starting in 2020 the five-year period from 2015 to 2019. The Group has applied the Patent Box tax regime for the calculation ofperiod from 2020 to 2024 and determined the income taxes starting ineligible for the third quarter of 2018. The Patent Box tax benefit relating to the years 2015 to 2017, amounting to €141 million, was recognized in 2018, in addition toregime with recognition of the Patent Box tax benefit relating toin three equal annual installments.
Italian legislation recently enacted in 2021 will replace the year 2018. As a result of applying thecurrent Patent Box tax regime ourwith a 110% “super tax expense was significantly reduceddeduction” for certain costs related to eligible intangible assets and provides for a specific transitional procedure between the two regimes. The new legislation should not have any impact on income taxes of the Group for the year ended December 31, 2021 and management will continue to follow updates in 2018 and 2019.the legislation as they become known.
The benefit relating
For additional information see Note 10 “Income taxes” to the Consolidated Financial Statements included elsewhere in this document.
Trademark Step-up — In the fourth quarter of 2020, the Group benefited from the measures introduced in Italy by the art. 110 of the Law Decree n. 104/2020, converted in the Law n.126/2020, enacting “Urgent measures to support and relaunch the economy” which reopened the voluntary step up of tangible and intangible assets, with the application of a substitutive tax rate (3%). In particular, Ferrari S.p.A. benefited from the one-off partial step-up of its trademark for tax purposes, which resulted in the recognition in 2020 of deferred tax assets for €84 million and a substitute tax liability for €9 million, resulting in a net tax benefit of €75 million. There was no cash effect in 2020 from the step-up of the trademark. The deferred tax asset will be utilized over a 50-year period (recently extended from the previous 18 years 2015following the approval of Law 234/2021; see also Note 10 “Income taxes” to 2017the Consolidated Financial Statements included elsewhere in this document) and the substitute tax will be paid in three equal annual installments starting in 2021.
Management considers this item significant in nature but non-recurring and not reflective of €141ongoing operational activities, therefore the positive impact of €75 million which was recognized in 2018, washas been excluded in the calculation of Adjusted Net Profit and Adjusted Basic and Diluted Earnings per Common Share for 2018.2020.
The Group is progressing with the required activities to apply the Patent Box tax regime for the period from 2020 to 2024, in line with currently applicable tax regulations in Italy.
For additional information see Note 10 “Income taxes” to the Consolidated Financial Statements included elsewhere in this document.
Asset-backed financing (securitizations) - Starting in 2016 we have pursuedFinancing (Securitizations) — We pursue a strategy of autonomous financing for our financial services activities in the United States, furtherwhich involves limiting or reducing dependency on intercompany funding and increasing the portion of self-liquidating debt with various securitization transactions. At December 31, 20192021 and 20182020 our funding under securitization programs amounted to €788€900 million and €683€761 million, respectively.
For additional information see Note 24 “Debt”Debt” to the Consolidated Financial Statements included elsewhere in this document.
Takata Airbag Inflator Recalls - In 2016, an industry wide recall relating to Takata airbags manufactured using non-desiccated Phase Stabilized Ammonium Nitrate (“PSAN”) occurred. Although we are not aware of any confirmed incidents or warranty claims relating to such airbag inflators mounted in our cars or that the airbag inflators were not performing as designed, in 2016 we initiated a global recall campaign to include all of our cars produced in all model years that contained such airbag inflators. The global recall campaign was implemented based on priority groups and the timeline set by the United States National Highway Traffic Safety Administration (“NHTSA”). See “Item 4.B. Business Overview—Regulatory Matters” for additional information. As a result of these developments and due to the uncertainty of recoverability of the costs from Takata, an aggregate provision of €37 million was recognized within cost of sales in 2016. At December 31, 2019, the provision amounted to €16 million, reflecting the current best estimate for future costs related to the entire recall campaign to be carried out by the Group.
Due to the significant scope and industry-wide nature of the Takata recall and the supply constraints of Takata, the charges for Takata airbag inflator recalls and subsequent partial release are considered to be significant in nature but expected to incur infrequently and therefore Ferrari has excluded these charges in the calculation of Adjusted EBITDA, Adjusted EBIT, Adjusted Net Profit and Adjusted Basic and Diluted Earnings per Common Share.
Maserati Engine Volumes -— We have been producing engines for Maserati since 2003. The V8 engines that we historically produced and continue to produce for Maserati are variants of Ferrari families of engines and are mounted on Maserati’s highest performing models. In 2011, we began producingWe also produce a V6 family of engines exclusively for Maserati. We currently have a multi-year arrangement with Maserati to provide V6 engines up to 2020.2023. Net revenues generated from sales of engines to
Maserati depend on the orders received from Maserati, which in turn depend on Maserati production volumes and product launches. Our net revenues from engines have declinedincreased in the periods presented2021 compared to 2020 as a result of lowerhigher orders received from Maserati.Maserati, although they remain below 2019 levels.
A. Operating Results
Results of Operations
Consolidated Results of Operations – 2021 compared to 2020 and 2020 compared to 2019
The following is a discussion of the results of operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020, and for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The presentation includes line items as a percentage of net revenues for the respective periods presented to facilitate year-over-year comparisons.
For the year ended December 31, 2020 our costs as a percentage of net revenues and our EBIT and EBIT margin were negatively impacted by the COVID-19 pandemic, which caused a seven-week production and delivery suspension in the first half of 2020 (during which we decided to pay all employees throughout the whole suspension period and not accede to any government aid programs) as well as changes to the format of the 2020 Formula 1 World Championship.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
| 2021 | | Percentage of net revenues | | 2020 | | Percentage of net revenues | | 2019 | | Percentage of net revenues |
| (€ million, except percentages) |
Net revenues | 4,271 | | | 100.0 | % | | 3,460 | | | 100.0 | % | | 3,766 | | | 100.0 | % |
Cost of sales | 2,081 | | | 48.7 | % | | 1,686 | | | 48.7 | % | | 1,805 | | | 47.9 | % |
Selling, general and administrative costs | 348 | | | 8.1 | % | | 336 | | | 9.7 | % | | 343 | | | 9.1 | % |
Research and development costs | 768 | | | 18.0 | % | | 707 | | | 20.4 | % | | 699 | | | 18.6 | % |
Other expenses, net | 6 | | | 0.2 | % | | 19 | | | 0.6 | % | | 5 | | | 0.1 | % |
Result from investments | 7 | | | 0.2 | % | | 4 | | | 0.1 | % | | 3 | | | 0.1 | % |
EBIT | 1,075 | | | 25.2 | % | | 716 | | | 20.7 | % | | 917 | | | 24.4 | % |
Net financial expenses | 33 | | | 0.8 | % | | 49 | | | 1.4 | % | | 42 | | | 1.2 | % |
Profit before taxes | 1,042 | | | 24.4 | % | | 667 | | | 19.3 | % | | 875 | | | 23.2 | % |
Income tax expense | 209 | | | 4.9 | % | | 58 | | | 1.7 | % | | 176 | | | 4.6 | % |
Net profit | 833 | | | 19.5 | % | | 609 | | | 17.6 | % | | 699 | | | 18.6 | % |
Net revenues
Critical Accounting Estimates The following table sets forth an analysis of our net revenues for each of the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
| 2021 | | Percentage of net revenues | | 2020 | | Percentage of net revenues | | 2019 | | Percentage of net revenues | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (€ million, except percentages) |
Cars and spare parts (1) | 3,573 | | 83.7 | % | | 2,835 | | | 81.9 | % | | 2,926 | | | 77.7 | % | | 738 | | | 26.0 | % | | (91) | | | (3.1) | % |
Engines (2) | 189 | | 4.4 | % | | 151 | | | 4.4 | % | | 198 | | | 5.3 | % | | 38 | | | 25.7 | % | | (47) | | | (24.0) | % |
Sponsorship, commercial and brand (3) | 431 | | 10.1 | % | | 390 | | | 11.3 | % | | 538 | | | 14.3 | % | | 41 | | | 10.4 | % | | (148) | | | (27.5) | % |
Other (4) | 78 | | 1.8 | % | | 84 | | | 2.4 | % | | 104 | | | 2.7 | % | | (6) | | | (7.4) | % | | (20) | | | (19.5) | % |
Total net revenues | 4,271 | | 100.0 | % | | 3,460 | | | 100.0 | % | | 3,766 | | | 100.0 | % | | 811 | | | 23.4 | % | | (306) | | | (8.1) | % |
(1) Includes net revenues generated from shipments of our cars, any personalization generated on these cars, as well as sales of spare parts.
(2) Includes net revenues generated from the sale of engines to Maserati for use in their cars and from the rental of engines to other Formula 1 racing teams.
(3) Includes net revenues earned by our Formula 1 racing team through sponsorship agreements and our share of the Formula 1 World Championship commercial revenues, as well as net revenues generated through the Ferrari brand, including merchandising, licensing and royalty income.
(4) Primarily relates to financial services activities, management of the Mugello racetrack and other sports-related activities.
2021 compared to 2020
Net revenues for 2021 were €4,271 million, an increase of €811 million, or 23.4 percent (an increase of 26.0 percent on a constant currency basis), from €3,460 million for 2020.
The increase in net revenues was attributable to the combination of (i) a €738 million increase in cars and spare parts, (ii) a €38 million increase in engines, and (iii) a €41 million increase in sponsorship, commercial and brand, partially offset by a €6 million decrease in other revenues.
Cars and spare parts
Net revenues generated from cars and spare parts were €3,573 million for 2021, an increase of €738 million, or 26.0 percent, from €2,835 million for 2020.
The increase in net revenues from cars and spare parts was primarily attributable to higher car volumes, positive mix and personalizations, partially offset by negative foreign currency exchange impact (mainly relating to the U.S. Dollar and the Japanese Yen). Shipments in 2020 were impacted by the seven-week production and delivery suspension in the first half of the year caused by the COVID-19 pandemic.
Overall, shipments increased by 2,036 cars, or 22.3 percent, driven by a 34.6 percent increase in shipments of our V8 models while shipments of our V12 models decreased by 16.1 percent, mainly due to the 812 Superfast, which was phased out during 2021. In particular, the increase in shipments was driven by the F8 family, together with the Ferrari Roma and the SF90 Stradale, which both reached global distribution in the second quarter of 2021, as well as the ramp up of the Ferrari Portofino M and the SF90 Spider, partially offset by the Ferrari Portofino, the 488 Pista family and the 812 Superfast. Additionally, deliveries of the Ferrari Monza SP1 and SP2 increased in 2021 compared 2020, in line with planning, and the models are reaching the end of production. The positive mix impact was driven by the SF90 family and the Ferrari Monza SP1 and SP2, as well as higher revenues from personalizations.
All geographic regions positively contributed in the year, with increases in revenues of: (i) €251 million in EMEA, (ii) €217 million in Americas, (iii) €137 million in Mainland China, Hong Kong and Taiwan, and (iv) €133 million in Rest of APAC. The performance in Mainland China, Hong Kong and Taiwan was boosted by the launch of new models and the comparison versus the prior year, which was negatively impacted by the decision to deliberately accelerate client deliveries in 2019 in advance of new emissions regulations. All changes include the effects of foreign currency hedge transactions.
Engines
Net revenues generated from engines were €189 million for 2021, an increase of €38 million, or 25.7 percent, from €151 million for 2020. The increase was mainly attributable to an increase in engines sold to Maserati and, to a lesser extent, higher revenues from the rental of engines to other Formula 1 racing teams.
Sponsorship, commercial and brand
Net revenues generated from sponsorship, Formula 1 commercial agreements and brand management activities were €431 million for 2021, an increase of €41 million, or 10.4 percent, from €390 million for 2020. The increase was primarily attributable to Formula 1 racing activities, driven by the more favorable Formula 1 calendar compared to 2020, and brand-related activities, partially offset by a lower prior year Formula 1 ranking.
Other
Other net revenues were €78 million for 2021, a decrease of €6 million, or 7.4 percent, from €84 million for 2020.
2020 compared to 2019
Net revenues for 2020 were €3,460 million, a decrease of €306 million, or 8.1 percent (a decrease of 8.9 percent on a constant currency basis), from €3,766 million for 2019.
The change in net revenues was attributable to the combination of (i) a €91 million decrease in cars and spare parts, (ii) a €47 million decrease in engines, (iii) a €148 million decrease in sponsorship, commercial and brand, and (iv) a €20 million decrease in other revenues.
Cars and spare parts
Net revenues generated from cars and spare parts were €2,835 million for 2020, a decrease of €91 million, or 3.1 percent, from €2,926 million for 2019.
The decrease in net revenues was primarily attributable to lower volumes as well as their personalizations, mainly due to the seven-week production suspension in the first half of 2020 and the temporary closure of certain dealerships caused by the COVID-19 pandemic, partially offset by positive mix driven by deliveries of the Ferrari Monza SP1 and SP2.
Overall, shipments decreased by 1,012 cars, or 10.0 percent, compared to the prior year, driven by the COVID-19 pandemic, with a gradual recovery of production and shipments in the second half of 2020. Shipments of our V8 models decreased by 10.3 percent while our V12 models decreased by 9.0. The decrease in shipments also reflects the phase-out of the Ferrari Portofino as well as the Ferrari 488 Pista and Ferrari 488 Pista Spider gradually approaching the end of their lifecycles, partially offset by the ramp up of the Ferrari F8 Tributo, the Ferrari F8 Spider, and the 812 GTS which reached global distribution, as well as the Ferrari Monza SP1 and SP2, which were delivered as originally scheduled in 2020. The deliveries of the SF90 Stradale started in the fourth quarter of 2020 following the industrialization delays experienced and subsequently resolved. Deliveries of the Ferrari Roma also commenced in the fourth quarter.
The €91 million decrease in net revenues was composed of (i) a €170 million increase in EMEA, (ii) a €143 million decrease in Americas (including positive foreign currency translation impact driven by the strengthening of the U.S. Dollar compared to the Euro), (iii) a €146 million decrease in Mainland China, Hong Kong and Taiwan, and (iv) a €28 million increase in the Rest of APAC. Net revenues by geography were impacted by the deliberate geographic allocations driven by the phase-in/phase-out pace of individual models, which primarily favored EMEA in 2020. The decrease in Mainland China, Hong Kong and Taiwan was primarily impacted by the decision to accelerate client deliveries in the first half of 2019, in addition to the effects of COVID-19 in 2020.
Engines
Net revenues generated from engines were €151 million for 2020, a decrease of €47 million, or 24.0 percent, from €198 million for 2019. The decrease was attributable to lower shipments of engines to Maserati and lower revenues from the
rental of engines to other Formula 1 racing teams driven by the reduced number of races in 2020 as a result of the COVID-19 pandemic.
Sponsorship, commercial and brand
Net revenues generated from sponsorship, Formula 1 commercial agreements and brand management activities were €390 million for 2020, a decrease of €148 million, or 27.5 percent, from €538 million for 2019. The decrease was primarily attributable to impacts of the COVID-19 pandemic, which resulted in a reduced number of Formula 1 races in 2020 and a decrease in-store traffic and museum visitors.
Other
Other net revenues were €84 million for 2020 a decrease of €20 million, or 19.5 percent, from €104 million for 2019. The decrease was primarily attributable to reduced sports-related activities and the cancellation of the Moto GP event at the Mugello racetrack, the effects of which were only partially offset by the first ever Formula 1 Grand Prix held at the Mugello racetrack.
Cost of sales | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
| 2021 | | Percentage of net revenues | | 2020 | | Percentage of net revenues | | 2019 | | Percentage of net revenues | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (€ million, except percentages) |
Cost of sales | 2,081 | | | 48.7 | % | | 1,686 | | | 48.7 | % | | 1,805 | | | 47.9 | % | | 395 | | | 23.4 | % | | (119) | | | (6.6) | % |
2021 compared to 2020
Cost of sales for 2021 was €2,081 million, an increase of €395 million, or 23.4 percent, from €1,686 million for 2020. As a percentage of net revenues, cost of sales was 48.7 percent for both 2021 and 2020.
The increase in cost of sales was primarily attributable to higher car volumes and a change in product mix, as well as higher Maserati engine volumes and costs for other supporting activities.
2020 compared to 2019
Cost of sales for 2020 was €1,686 million, a decrease of €119 million, or 6.6 percent, from €1,805 million for 2019. As a percentage of net revenues, cost of sales increased from 47.9 percent in 2019 to 48.7 percent in 2020.
The decrease in cost of sales was primarily attributable to a decrease in car volumes due to COVID-19 pandemic and lower engine volumes produced for Maserati, partially offset by higher depreciation. Cost of sales in 2020 includes the full cost of employees’ paid days of absence during the COVID-19-related production suspension.
Selling, general and administrative costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
| 2021 | | Percentage of net revenues | | 2020 | | Percentage of net revenues | | 2019 | | Percentage of net revenues | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (€ million, except percentages) |
Selling, general and administrative costs | 348 | | | 8.1 | % | | 336 | | | 9.7 | % | | 343 | | | 9.1 | % | | 12 | | | 3.5 | % | | (7) | | | (2.1) | % |
2021 compared to 2020
Selling, general and administrative costs were €348 million for 2021, an increase of €12 million, or 3.5 percent, from €336 million for 2020. As a percentage of net revenues, selling, general and administrative costs were 8.1 percent in 2021 compared to 9.7 percent in 2020.
The increase was mainly attributable to communication and marketing activities related to models unveiled in 2021, as well as lifestyle events and costs to support the organic growth of the business.
2020 compared to 2019
Selling, general and administrative costs for 2020 were €336 million, a decrease of €7 million, or 2.1 percent, from €343 million for 2019. As a percentage of net revenues, selling, general and administrative costs were 9.7 in 2020 compared to 9.1 percent in 2019.
The decrease in selling, general and administrative costs was primarily attributable to the deployment of significant cost containment actions, partially offset by Formula 1 racing activities.
Research and development costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
| 2021 | | Percentage of net revenues | | 2020 | | Percentage of net revenues | | 2019 | | Percentage of net revenues | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (€ million, except percentages) |
Research and development costs expensed during the year | 574 | | | 13.4 | % | | 527 | | | 15.2 | % | | 559 | | | 14.9 | % | | 47 | | | 8.9 | % | | (32) | | | (5.9) | % |
Amortization of capitalized development costs | 194 | | | 4.6 | % | | 180 | | | 5.2 | % | | 140 | | | 3.7 | % | | 14 | | | 7.7 | % | | 40 | | | 29.3 | % |
Research and development costs | 768 | | | 18.0 | % | | 707 | | | 20.4 | % | | 699 | | | 18.6 | % | | 61 | | | 8.6 | % | | 8 | | | 1.2 | % |
2021 compared to 2020
Research and development costs for 2021 were €768 million, an increase of €61 million, or 8.6 percent, from €707 million for 2020. As a percentage of net revenues, research and development costs were 18.0 percent in 2021 compared to 20.4 percent in 2020.
The increase in research and development costs was primarily attributable to an increase in research and development costs expensed of €47 million driven by product innovation and Formula 1 activities, and comparison was impacted by higher technology incentives in the prior year, as well as an increase in amortization of capitalized development costs of €14 million driven by a general increase in capitalized development costs in recent years in line with our strategy to update and broaden our product range and significantly increase our efforts in relation to hybrid and other advanced technologies.
2020 compared to 2019
Research and development costs for 2020 were €707 million, an increase of €8 million, or 1.2 percent, from €699 million for 2019. As a percentage of net revenues, research and development costs were 20.4 percent in 2020 compared to 18.6 percent in 2019.
The increase of €8 million in research and development costs during the period was primarily attributable to an increase in amortization of capitalized development costs of €40 million driven by a general increase in capitalized development costs in recent years in line with our strategy to update and broaden our product range and significantly increase our efforts relating to hybrid and other advanced technologies, partially offset by lower research and development costs expensed during the period of €32 million, including as a result of technology-related government incentives recognized in 2020.
We continued to invest in research and development projects important for the continuing success of Ferrari and its future development, despite certain actions taken in 2020 to contain costs as a result of the COVID-19 pandemic.
Other expenses/(income), net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
| 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (€ million, except percentages) |
Other expenses/(income), net | 6 | | | 19 | | | 5 | | | (13) | | | (69.9) | % | | 14 | | | 270.2 | % |
Generally, other expenses/(income), net consist of other expenses that primarily include indirect taxes, provisions and other miscellaneous expenses, as well as other income that primarily includes rental income, gains on the disposal of property, plant and equipment and other miscellaneous income, including the release of previously recognized provisions.
Other expenses/(income), net in 2021 is composed of other expenses of €14 million, partially offset by €8 million of other income. Other expenses/(income), net in 2020 is composed of other expenses of €25 million, partially offset by €6 million of other income. Other expenses/(income), net in 2019 is composed of other expenses of €14 million, partially offset by €9 million of other income. Other expenses, net in 2021 and 2019 include releases of provisions relating to legal disputes following developments favorable to Ferrari.
EBIT | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
| 2021 | | Percentage of net revenues | | 2020 | | Percentage of net revenues | | 2019 | | Percentage of net revenues | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (€ million, except percentages) |
EBIT | 1,075 | | | 25.2 | % | | 716 | | | 20.7 | % | | 917 | | | 24.4 | % | | 359 | | | 50.2 | % | | (201) | | | (21.9) | % |
2021 compared to 2020
EBIT for 2021 was €1,075 million, an increase of €359 million, or 50.2 percent, from €716 million for 2020. As a percentage of net revenues, EBIT increased from 20.7 percent in 2020 to 25.2 percent in 2021.
The increase in EBIT was primarily attributable to the combined effects of (i) positive volume impact of €220 million, (ii) positive product mix impact of €212 million, (iii) an increase in research and development costs of €61 million, (iv) an increase in selling, general and administrative costs of €12 million, (v) positive contribution of €77 million driven by Formula 1 racing activities reflecting the more favorable Formula 1 calendar compared to 2020 as well as higher contribution from brand-related activities, Maserati engines and other supporting activities, partially offset by a lower prior year Formula 1 ranking, and (vi) negative foreign currency exchange impact of €77 million (including foreign currency hedging instruments) primarily driven by the strengthening of the Euro compared to the U.S. Dollar and the Japanese Yen.
The positive mix impact was driven by the SF90 family, the Ferrari Monza SP1 and SP2, and personalizations, partially offset by the ramp up of the Ferrari Roma and the Portofino M and reduced contribution of the 812 Superfast, which was phased out during 2021.
2020 compared to 2019
EBIT for 2020 was €716 million, a decrease of €201 million, or 21.9 percent, from €917 million for 2019. As a percentage of net revenues, EBIT decreased from 24.4 percent in 2019 to 20.7 percent in 2020.
The decrease in EBIT was attributable to the combined effects of (i) negative volume impact of €126 million, (ii) positive product mix and price impact of €130 million, (iii) an increase in industrial costs of €58 million, including higher depreciation, (iv) an increase in research and development costs of €8 million (net of the benefit from technology-related government incentives), (v) a decrease in selling, general and administrative costs of €7 million, (vi) negative contribution of €184 million due to the impacts of COVID-19 on the Formula 1 racing calendar, lower traffic for brand related activities and lower engine sales to Maserati, and (vii) positive foreign currency exchange impact of €38 million (including foreign currency hedging instruments) primarily driven by the strengthening of the U.S. Dollar and Japanese Yen compared to the Euro.
The negative volume impact was primarily attributable to the temporary suspension of shipments for seven weeks during the first half of 2020 as a result of the COVID-19 pandemic, the effects of which were partially recovered in the second half of the year. The positive product mix and price impact was primarily attributable to deliveries of the Ferrari Monza SP1 and SP2 as well as an otherwise richer product mix, partially offset by fewer shipments of the FXX-K EVO and lower contributions from our personalization programs, which are correlated to the decrease in volumes.
Net financial expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
| 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (€ million, except percentages) |
Net financial expenses | 33 | | | 49 | | | 42 | | | (16) | | | (32.3) | % | | 7 | | | 16.7 | % |
2021 compared to 2020
Net financial expenses for 2021 decreased to €33 million compared to €49 million for 2020.
The decrease in net financial expenses was primarily attributable to a decrease in net foreign exchange losses, including hedging costs.
2020 compared to 2019
Net financial expenses for 2020 increased to €49 million compared to €42 million for 2019.
The increase in net financial expenses was primarily attributable to (i) a decrease in the fair value of investments held by the Group (compared to an increase in the fair value of investments held by the Group 2019), and (ii) an increase in net foreign exchange losses, including the net costs of hedging.
Income tax expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
| 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (€ million, except percentages) |
Income tax expense | 209 | | | 58 | | | 176 | | | 151 | | | n.m. | | (118) | | | (67.1) | % |
2021 compared to 2020
Income tax expense for 2021 was €209 million, an increase of €151 million, compared to €58 million for 2020. Income taxes for both years benefited from the application of the Patent Box regime. See Note 10 “Income Taxes” to the Consolidated Financial Statements included elsewhere in this document for additional information related to the Patent Box tax regime in Italy.
The increase in income tax expense was primarily attributable to the combined effects of (i) an increase in profit before taxes and (ii) a net tax benefit recognized in 2020 from the partial step up of trademarks for tax purposes amounting to €75 million, as further described below.
The effective tax rate was 20.1 percent in 2021 compared to 8.7 percent in 2020. The increase in the effective tax rate was primarily attributable to the effects of a net tax benefit recognized in 2020 from the voluntary, partial step-up of trademarks for tax purposes, as further described below.
In the fourth quarter of 2020, the Group benefited from the measures introduced in Italy by the art. 110 of the Law Decree n. 104/2020, converted in the Law n.126/2020, enacting “Urgent measures to support and relaunch the economy” which reopened the voluntary step up of tangible and intangible assets, with the application of a substitutive tax rate (3%). In particular, Ferrari S.p.A. benefited from the one-off partial step-up of its trademark for tax purposes, which resulted in the recognition in 2020 of deferred tax assets for €84 million and a substitute tax liability for €9 million, resulting in a net tax benefit of €75 million. There was no cash effect in 2020 from the step-up of the trademark. The deferred tax asset will be utilized over a 50-year period (following the introduction of the 2022 Italian budget law (Law 234/2021) which provides for an extension from 18 years to 50 years of the amortization period for tax purposes for any trademarks and goodwill that benefited from the step-up regime) and the substitute tax will be paid in three equal annual installments starting in 2021. The
net benefit has been treated as an adjusting item in the calculation of Adjusted Net Profit and Adjusted Basic and Diluted Earnings per Common Share for 2020.
2020 compared to 2019
Income tax expense for 2020 was €58 million, a decrease of €118 million, or 67.1 percent compared to €176 million for 2019.
The decrease in income tax expense was primarily attributable to the combined effects of (i) a tax benefit from the partial step up of trademarks for tax purposes amounting to €75 million, as further described above, (ii) a decrease in profit before taxes, and (iii) the effects of deductions for eligible research and development costs. Income taxes for both years benefited from the application of the Patent Box regime.
The effective tax rate was 8.7 percent in 2020 compared to 20.2 percent in 2019. The decrease in the effective tax rate was primarily attributable to the effects of the net tax benefit recognized in 2020 from the trademark step-up as described above, and to a lesser extent, the effects of deductions for eligible research and development costs.
Recent Developments
See Note 32 “Subsequent Events”, to the Consolidated Financial Statements.
B. Liquidity and Capital Resources
Liquidity Overview
We require liquidity in order to fund our operations and meet our obligations. Short-term liquidity is required, among others, to purchase raw materials, parts, components and utilities for car production, as well as to fund personnel expenses and other operating costs. In addition to our general working capital and operational needs, we require cash for capital investments to support continuous product range renewal and expansion and, more recently, for research and development activities to transition our product portfolio to hybrid and electric technology. We also make investments to, among others, enhance manufacturing efficiency, improve capacity, implement sustainability initiatives, ensure environmental compliance and carry out maintenance activities. We fund our capital expenditure primarily with cash generated from our operating activities.
We centrally manage our operating cash management, liquidity and cash flow requirements with the objective of ensuring efficient and effective management of our funds. We believe that our cash generation together with our available liquidity, including committed credit lines granted from primary financial institutions, will be sufficient to meet our obligations and fund our business and capital expenditures.
See the “Net Debt and Net Industrial Debt” section below for additional details relating to our liquidity.
Cyclical Nature of Our Cash Flows
Our working capital is subject to month to month fluctuations due to, among other things, production and sales volumes, our financial services activities, the timing of capital expenditures and, to a lesser extent, tax payments. In particular, our inventory levels generally increase in the periods leading up to the launch of new models, during the phase out of existing models when we build up spare parts, and at the end of the second quarter when our inventory levels are preparedgenerally higher to support the summer plant shutdown.
We generally receive payment for cars between 30 and 40 days after the car is shipped (or earlier when sales financing schemes are utilized by us or by our dealers) while we generally pay most suppliers between 60 and 90 days after we receive the raw materials, components or other goods and services. Additionally, we also receive advance payments from our customers, mainly for our Icona and limited edition models. We maintain sufficient inventory of raw materials and components to ensure continuity of our production lines, however delivery of most raw materials and components takes place monthly or more frequently in accordance with IFRSorder to minimize inventories. The manufacture of one of our cars typically takes between 30 and 45 days, depending on the level of automation of the relevant production line, and the car is generally shipped to our dealers three to six days following the completion of production, although we may warehouse cars in local markets for longer periods of time to ensure prompt deliveries in certain regions. As a result of the above, including the advances received from customers for certain car models, we tend to receive payment for cars shipped before or around the time we are required to make payments for the raw materials, components or other materials used in manufacturing the cars.
Our investments for capital expenditure and research and development are, among other factors, influenced by the timing and number of new models launches. Our development costs, as well as our other investments in capital expenditure, generally peak in periods when we develop a significant number of new models to renew or expand our product range. Our investments in research and development are also influenced by the timing of research costs for our Formula 1 activities, for which requireexpenditure in a normal season is generally higher in the usefirst and last quarters of estimates, judgmentsthe year, and assumptionsotherwise depends on the evolution of the applicable Formula 1 technical regulations, as well as the number and cadence of races during the course of the racing season. We are currently undergoing a period of structurally higher capital spending as we broaden our car architectures and work on the transition to hybrid and electric technologies. We also continue to make significant capital investments by prioritizing capital projects that affectare considered important for the carryingcontinuing success of Ferrari and its future development, including the acquisition in 2020 and, to a lesser extent, in 2021, of tracts of land adjacent to our facilities in Maranello as part of our expansion plans.
The payment of income taxes also affects our cash flows. We typically pay the first tax advance payment in the second quarter of the year and the remaining portion in the third and/or fourth quarters. Our tax expense and tax payments in 2021, 2020 and 2019 benefited from applying the Patent Box tax regime. See Note 10 “Income Taxes” to the Consolidated
Financial Statements included elsewhere in this document for additional information related to the Patent Box tax regime in Italy.
Cash Flows
The following table summarizes the cash flows from/(used in) operating, investing and financing activities for each of the years ended December 31, 2021, 2020 and 2019. For additional details of our cash flows, see our Consolidated Financial Statements included elsewhere in this document.
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
| 2021 | | 2020 | | 2019 |
| (€ million) |
Cash and cash equivalents at beginning of the year | 1,362 | | | 898 | | | 794 | |
Cash flows from operating activities | 1,283 | | | 838 | | | 1,306 | |
Cash flows used in investing activities | (733) | | | (708) | | | (701) | |
Cash flows (used in)/from financing activities | (580) | | | 340 | | | (502) | |
Translation exchange differences | 12 | | | (6) | | | 1 | |
Total change in cash and cash equivalents | (18) | | | 464 | | | 104 | |
Cash and cash equivalents at end of the year | 1,344 | | | 1,362 | | | 898 | |
2021 compared to 2020
For the year ended December 31, 2021 cash and cash equivalents held by the Group decreased by €18 million compared to an increase of €464 million for year ended December 31, 2020. The difference in the net change in cash and cash equivalents in 2021 compared to 2020 of €482 million was primarily attributable to the combined effects of:
(i)the full repayment of a bond for €501 million in January 2021 (including a principal amount of €500 million and interest of €1 million);
(ii)lower cash proceeds from the issuance of bonds and notes of €491 million (net proceeds of €149 million in 2021 from the issuance of the 2032 Notes (as defined below) compared to €640 million in 2020 from the issuance of the 2025 Bond (as defined below);
(iii)higher share repurchases of €101 million (€231 million in 2021 compared to €130 million in 2020 as the share repurchase program was restarted on March 11, 2021 following the decision to temporarily suspend the program on March 30, 2020 to preserve liquidity as a result of the COVID-19 pandemic); and
(iv)higher investments in intangible assets of €33 million to support the development of our current and future product offering.
partially offset by:
(i)an increase in EBITDA of €388 million;
(ii)an increase of €123 million in net proceeds from bank borrowings and other financial institutions;
(iii)a positive impact of €62 million from working capital and other operating assets and liabilities, and
(iv)lower dividends paid to owners of the disclosureparent of contingent48 million (€160 million paid in 2021 compared to 208 million paid in 2020, primarily driven by the effects of the COVID-19 pandemic).
2020 compared to 2019
For the year ended December 31, 2020 the total change in cash and cash equivalents was €464 million compared to €104 million for year ended December 31, 2019. The increase in cash generation of €360 million in 2020 compared to 2019 was primarily attributable to:
(i)net cash proceeds of €640 million received in 2020 from the issuance of the 2025 Bond; and
(ii)lower share repurchases of €257 million (€130 million in 2020 compared to €387 million in 2019) driven by our decision to temporarily suspend the share repurchase program in March 2020 to preserve liquidity as a result of the COVID-19 pandemic;
partially offset by:
(i)a decrease in advances received for the Ferrari Monza SP1 and SP2 (which were primarily received in 2019 ahead of shipments, including for cars actually delivered in 2020);
(ii)the adverse impacts on our cash flows from operating activities as a result of the COVID-19 pandemic, including the temporary suspension of production and deliveries for seven weeks during the first half of 2020, as well as higher inventories reflecting efforts to mitigate potential supply chain issues;
(iii)an increase in income taxes paid, and
(iv)lower net proceeds from our securitization programs.
Please refer to the following discussion and to the Consolidated Statement of Cash Flows included elsewhere in this document for additional information related to our cash flows.
A summary of the cash flows from or used in operating, investing and financing activities for each year is provided below.
Operating Activities — Year Ended December 31, 2021
For the year ended December 31, 2021, our cash flows from operating activities were €1,283 million, primarily the result of:
(i)profit before tax of €1,042 million, adjusted for €456 million for depreciation and amortization expense, €33 million of net finance costs and net other non-cash expenses and income of €48 million (including provision accruals, result from investments and share-based compensation expense recognized in relation to the Group’s equity incentive plans);
partially offset by:
(ii)€123 million related to cash absorbed by receivables from financing activities driven by an increase in the financial services portfolio;
(iii)€30 million of cash absorbed from the change in other operating assets and liabilities, primarily attributable to reversals of advances received for the Ferrari Monza SP1 and SP2, partially offset by advances received for the amounts812 Competizione and 812 Competizione A;
(iv)€6 million of cash absorbed from the net change in inventories, trade receivables and trade payables. In particular, the movement was attributable to: (a) cash absorbed by inventories of €81 million driven by higher volumes, partially offset by (b) cash generated from trade receivables of €2 million and (c) cash generated from trade payables of €73 million;
(v)€28 million of net finance costs paid; and
(vi)€109 million of income tax paid.
Operating Activities — Year Ended December 31, 2020
For the year ended December 31, 2020, our cash flows from operating activities were €838 million, primarily the result of:
(i)profit before tax of €667 million, adjusted for €427 million for depreciation and amortization expense, €49 million of net finance costs, and net other non-cash expenses recognized. The estimates and associated assumptions are based on elements that are known whenincome of €59 million (including provision accruals, result from investments and share-based compensation expense recognized in relation to the financial statements are prepared, on historical experience and on any other factors that are considered to be relevant.Group’s equity incentive plans).
The estimates and underlying assumptions are reviewed periodically and continuously by us. If the items subject to estimates do not perform as assumed, then the actual results could differ partially offset by:
(i)€15 million of cash absorbed from the estimates, which would require adjustment accordingly. Thenet change in inventories, trade receivables and trade payables. In particular, the movement was attributable to: (a) cash absorbed by inventories of €68 million driven by higher finished goods and raw materials, including the effects of any changesefforts to protect the supply chain from potential COVID-19-related disruptions, partially offset by (b) cash generated from trade receivables of €44 million and (c) cash generated from trade payables of €9 million;
(ii)€137 million of cash absorbed related to the net change in estimate are recognized in the consolidated income statement in the period in which the adjustment is made, or prospectively in future periods.
The items requiring estimates for which there is a risk that a material difference may arise in respect of the carrying amounts ofother operating assets and liabilities, primarily attributable to reversals of advances received for the Ferrari Monza SP1 and SP2;
(iii)€69 million related to cash absorbed from receivables from financing activities, driven by an increase in the financial receivables portfolio;
(iv)52 million of net finance costs paid; and
(v)€91 million of income tax paid.
Operating Activities — Year Ended December 31, 2019
For the year ended December 31, 2019, our cash flows from operating activities were €1,306 million, primarily the result of:
(i)profit before tax of €875 million, adjusted to add back €352 million of depreciation and amortization expense, €42 million of net finance costs and net other non-cash expenses and income of €49 million (including provision accruals, result from investments and share-based compensation expense recognized in relation to the Group’s equity incentive plans); and
(ii)€146 million of cash generated by the change in other operating assets and liabilities, primarily attributable to advances received for the Ferrari Monza SP1 and SP2.
partially offset by:
(i)€77 million of cash absorbed from receivables from financing activities driven by an increase in the financial services portfolio;
(ii)€9 million of cash related to the net change in inventories, trade payables and trade receivables. In particular, the movement was attributable to (a) cash absorbed by inventory of €41 million and (b) cash absorbed by trade receivables of €22 million, which were both primarily driven by higher volumes, partially offset by (c) cash generated from trade payables of €54 million driven by higher capital expenditures and an increase in volumes;
(iii)€39 million of net finance costs paid; and
(iv)€33 million of income tax paid.
Investing Activities — Year Ended December 31, 2021
For the year ended December 31, 2021, our net cash used in investing activities was €733 million, primarily the result of: €385 million for additions to intangible assets, mainly related to externally acquired and internally generated development costs to support the development of our current and future are discussed below.
Recoverabilityproduct offering and, (ii) €352 million of non-current assets with definite useful lives
Non-current assets with definite useful lives includecapital expenditures additions to property, plant and equipment, partially offset by proceeds from disposals. For a detailed analysis of additions to property, plant and equipment and intangible assets. Intangible assets with definite useful livessee “—Capital Expenditures” below.
Investing Activities — Year Ended December 31, 2020
For the year ended December 31, 2020, our net cash used in investing activities was €708 million, primarily the result of: (i) €352 million for additions to intangible assets, mainly consistrelated to externally acquired and internally generated development costs and, (ii) €357 million of capitalizedcapital expenditures additions to property, plant and equipment, mainly related to plant and machinery for new models as well as our acquisition of tracts of land adjacent to our facilities in Maranello as part of our expansion plans, partially offset by proceeds from the disposals. For a detailed analysis of additions to property, plant and equipment and intangible assets see “—Capital Expenditures” below.
Investing Activities — Year Ended December 31, 2019
For the year ended December 31, 2019, our net cash used in investing activities was €701 million, primarily the result of: (i) €354 million for additions to intangible assets, mainly related to externally acquired and internally generated development costs.costs and, (ii) €352 million of capital expenditures additions to property, plant and equipment, mainly related to plant and machinery for new models as well as our acquisition of tracts of land adjacent to our facilities in Maranello as part of our expansion plans, partially offset by proceeds from disposals. For a detailed analysis of additions to property, plant and equipment and intangible assets see “—Capital Expenditures” below.
We periodically reviewFinancing Activities — Year Ended December 31, 2021
For the carrying amountyear ended December 31, 2021, net cash used in financing activities was €580 million, primarily the result of:
(i)€500 million for the full repayment of non-current assets with definite useful lives when eventsa bond upon maturity in January 2021;
(ii)€231 million to repurchase common shares under the Company’s share repurchase program (including the “Sell-to-Cover” practice under the equity incentive plans);
(iii)€161 million of dividends paid, of which €1 million was to non-controlling interests;
(iv)€22 million in repayments of lease liabilities; and circumstances indicate that an asset may be impaired. Impairment tests are performed by comparing
(v)€7 million related to the carrying amount andnet change in other debt;
partially offset by:
(i)€149 million of net proceeds from the recoverable amountissuance of the cash-generating unit (“CGU”). The recoverable amount is the higher of the CGU’s fair value less costs of disposal and its value2032 Notes in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specificJuly 2021;
(ii)€121 million related to the CGU.net change in bank borrowings and other financial institutions; and.
(iii)€71 million of proceeds net of repayments related to our revolving securitization programs in the United States.
Financing Activities — Year Ended December 31, 2020
For the period coveredyear ended December 31, 2020, our net cash from financing activities was €340 million, primarily the result of:
(i)€640 million of net proceeds from the issuance of the 2025 Bond;
(ii)€44 million of proceeds net of repayments related to our revolving securitization programs in the United States; and
(iii)€18 million related to the net change in other debt.
partially offset by:
(i)€211 million of dividends paid, of which €3 million was to non-controlling interests;
(ii)€130 million paid to repurchase common shares under the Company’s share repurchase program in the first quarter of 2020;
(iii)€20 million in repayments of lease liabilities; and
(iv)€1 million related to the net change in bank borrowings.
Financing Activities — Year Ended December 31, 2019
For the year ended December 31, 2019, our net cash used in financing activities was €502 million, primarily the result of:
(i)€387 million paid to repurchase common shares under the Company’s share repurchase program;
(ii) €315 million related to the cash tender offer to repurchase an aggregate nominal amount of €200 million of 0.25 percent notes due January 2021 and an aggregate nominal amount of €115 million of the 1.5 percent notes due March 2023;
(iii)€195 million of dividends paid, of which €2 million was to non-controlling interests; and
(iv) €7 million related to the net change in bank borrowings and lease liabilities.
partially offset by:
(i)€298 million of net proceeds from the Company’s issuance of 1.12 percent senior notes due August 2029 and 1.27 percent senior notes due August 2031, each having a principal amount of €150 million;
(ii)€92 million of proceeds net of repayments related to our revolving securitization programs in the United States; and
(iii)€12 million related to the net change in other debt;
Capital Expenditures
Capital expenditures are defined as additions to property, plant and equipment (including right-of-use assets recognized in accordance with IFRS 16 — Leases) and intangible assets. Capital expenditures for the years ended December 31, 2021, 2020 and 2019 were €750 million, €734 million and €706 million, respectively.
The following table sets a forth a breakdown of capital expenditures by category for each of the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
| 2021 | | 2020 | | 2019 |
| (€ million) |
Intangible assets | | | | | |
Externally acquired and internally generated development costs | 363 | | | 320 | | | 330 | |
Patents, concessions and licenses | 17 | | | 27 | | | 18 | |
Other intangible assets | 5 | | | 5 | | | 6 | |
Total intangible assets | 385 | | | 352 | | | 354 | |
Property, plant and equipment | | | | | |
Industrial buildings | 35 | | | 28 | | | 16 | |
Plant, machinery and equipment | 123 | | | 115 | | | 176 | |
Other assets | 20 | | | 24 | | | 18 | |
Advances and assets under construction | 187 | | | 215 | | | 142 | |
Total property, plant and equipment | 365 | | | 382 | | | 352 | |
Total capital expenditures | 750 | | | 734 | | | 706 | |
Intangible assets
Our total capital expenditures in intangible assets for the year ended December 31, 2021 were €385 million (€352 million and €354 million for the years ended December 31, 2020 and 2019, respectively).
The most significant investments relate to externally acquired and internally generated development costs. In particular, we make such investments to support the development of our current and future product offering. The capitalized development costs primarily include materials and personnel costs relating to engineering, design and development activities focused on content enhancement of existing cars and new models, including to broaden our product range and our ongoing investments in hybrid and electric technology and the development of components, which are necessary to provide continuing performance upgrades to our sports car customers and to help us capture the preferences of the urban, affluent purchasers of GT cars whom we are increasingly targeting as we transition our product portfolio to hybrid and electric technology. We continually invest in product development to ensure we can quickly and efficiently respond to market demand and technological breakthroughs, as well as to maintain our position at the top of the luxury performance sports cars market.
For the year ended December 31, 2021, we invested €363 million in externally acquired and internally generated development costs, of which €229 million related to the development of models to be launched in future years and €134 million primarily related to the development of our current product portfolio and components.
For the year ended December 31, 2020, we invested €320 million in externally acquired and internally generated development costs, of which €244 million primarily related to the development of models to be launched in future years and, to a much lesser extent, to investments required for new technical regulations applicable for the 2022 to 2025 Formula 1 seasons, and €76 million related to the development of models in our current product portfolio and car components.
For the year ended December 31, 2019, we invested €330 million in externally acquired and internally generated development costs, of which €145 million related to development of models to be launched in future years and €185 million primarily related to the development of our current product portfolio as well as components.
Property, plant and equipment
Our total capital expenditures in property, plant and equipment for the year ended December 31, 2021 were €365 million (€382 million and €352 million for the years ended December 31, 2020 and 2019, respectively).
Our most significant investments generally relate to plant, machinery and equipment, which amounted to €123 million for the year ended December 31, 2021 (€115 million and €176 million for the years ended December 31, 2020 and 2019, respectively) as well as advances and assets under construction, which amounted to €187 million for the year ended December 31, 2021 (€215 million and €142 million for the years ended December 31, 2020 and 2019, respectively). Our main investments primarily related to industrial tools needed for the production of cars and investments in car production lines (including those for models to be launched in future years), as well as investments related to our personalization programs and engine assembly lines. Investments in advances and assets under construction and industrial buildings for the periods presented reflect our focus on the hybridization and broadening of our product range and supporting future model launches, including our acquisition of tracts of land adjacent to our facilities in Maranello as part of our expansion plans, which amounted to €42 million in 2021 (cumulative acquisitions of land since the start of 2019 amounted to €117 million).
At December 31, 2021, the Group had contractual commitments for the purchase of property, plant and equipment amounting to €74 million (€101 million at December 31, 2020).
Contractual Obligations
The following table summarizes payments due under our significant contractual commitments at December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by period |
| | Less than 1 year | | 1 to 3 years | | 3 to 5 years | | After 5 years | | Total |
| | (€ million) |
Long-term debt (1) | | 343 | | | 781 | | | 753 | | | 508 | | | 2,385 | |
Interest on long-term debt (2) | | 28 | | | 38 | | | 17 | | | 21 | | | 104 | |
Lease obligations (3) | | 15 | | | 19 | | | 13 | | | 11 | | | 58 | |
Unconditional minimum purchase obligations (4) | | 80 | | | 61 | | | 15 | | | 1 | | | 157 | |
Purchase obligations (5) | | 74 | | | — | | | — | | | — | | | 74 | |
Total contractual obligations | | 540 | | | 899 | | | 798 | | | 541 | | | 2,778 | |
(1) Amounts presented relate to the principal amounts of long-term debt, excluding lease liabilities and the related interest expense that will be paid when due. For additional information see Note 24 “Debt” to our Consolidated Financial Statements included elsewhere in this document. The table above does not include short-term debt obligations. See the table below for a reconciliation of the contractual commitments of our long-term debt to our debt recorded in the consolidated statement of financial position included within our Consolidated Financial Statements.
(2) Amounts include interest payments based on contractual terms and current interest rates on our long-term debt. Interest rates based on variable rates included above were determined using the rates in effect at December 31, 2021.
(3) Lease obligations mainly relate to leases for Ferrari stores, industrial buildings and certain other assets used in our business.
(4) Unconditional minimum purchase obligations relate to our unconditional purchase obligations to purchase a fixed or minimum quantity of goods and/or services from suppliers with fixed and determinable price provisions. From time to time, in the ordinary course of our business, we enter into various arrangements with key suppliers in order to establish strategic and technological advantages. In particular, such agreements primarily relate to research and development activities and, to a lesser extent, tooling obligations. This amount also includes unconditional purchase obligations to purchase a minimum quantity of goods and/or services in connection with certain of our sponsorship contracts.
(5) Purchase obligations represent obligations to purchase property, plant and equipment.
The long-term debt obligations reflected in the table above can be reconciled to the amount in the consolidated statement of financial position at December 31, 2021 (in our Consolidated Financial Statements included elsewhere in this document) as follows:
| | | | | |
| Amount |
| (€ million) |
Debt | 2,630 | |
Short-term debt obligations | (186) | |
Lease liabilities | (56) | |
Amortized cost effects | (3) | |
Long-term debt | 2,385 | |
Pension, post-employment benefits and other provisions for employees
We provide post-employment benefits for certain active employees and retirees of the Group. We classify these benefits on the basis of the type of benefit provided and in particular as defined contribution plans, defined benefit obligations and other provisions for employees. At December 31, 2021 the liability for such obligations amounted to €101 million (€60 million at December 31, 2020). See Note 22 “Employee benefits” to the Consolidated Financial Statements weincluded elsewhere in this document.
Off balance sheet arrangements
We have not recognized any impairment charges for non-current assetsentered into various off-balance sheet arrangements with definite useful lives.
Recoverabilityunconsolidated third parties in the ordinary course of goodwill
In accordance with IAS 36 - Impairment of Assets, goodwill is not amortized and is tested for impairment annually or more frequently if facts or circumstances indicate that the asset may be impaired.
As the Group is composed of one operating segment, goodwill is tested at the Group level which represents the lowest level within the Group at which goodwill is monitored for internal management purposes in accordance with IAS 36. The impairment test is performed by comparing the carrying amount (which mainly comprises property, plant and equipment, goodwill and capitalized development costs) and the recoverable amount of the CGU. The recoverable amount of the CGU is the higher of its fair value less costs of disposal and its value in use.
business. For the period covered by theadditional information see Note 29 “Commitments” to our Consolidated Financial Statements we have not recognized any impairment charges for goodwill.
Development costs
Development costs are capitalized if the conditions under IAS 38 - Intangible Assets have been met. The starting point for capitalization is based upon the technological and commercial feasibility of the project, which is usually when a product development project has reached a defined milestone according to our established product development model. Feasibility is based on management’s judgment which is formed on the basis of estimated future cash flows. Capitalization ceases and amortization of capitalized development costs begins on start of production of the relevant project.
The amortization of development costs requires management to estimate the lifecycle of the related model. Any changesincluded elsewhere in such assumptions would impact the amortization charge recorded and the carrying amount of capitalized development costs. The periodic amortization charge is derived after determining the expected lifecycle of the related model and, if applicable, any expected residual value at the end of its life. Increasing an asset’s expected lifecycle or its residual value would result in a reduced amortization charge in the consolidated income statement.
this document.
The useful lives and residual values of our models are determined by management at the time of capitalization and reviewed annually for appropriateness and recoverability. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their life, such as changes in technology. Historically, changes in useful lives and residual values have not resulted in material changes to the amortization charge or estimated recoverability of the related assets.
Product warranties liabilities
We establish reserves for product warranties at the time the sale is recognized. We issue various types of product warranties under which the performance of products delivered is generally guaranteed for a certain period or term, which is generally defined by the legislation in the country where the car is sold. The reserve for product warranties includes the expected costs of warranty obligations imposed by law or contract, as well as the expected costs for policy coverage. The estimated future costs of these actions are principally based on assumptions regarding the lifetime warranty costs of each car line and each model year of that car line, as well as historical claims experience for our cars. In addition, the number and magnitude of additional service actions expected to be approved, and policies related to additional service actions, are taken into consideration. Due to the uncertainty and potential volatility of these estimated factors, changes in the assumptions used could materially affect the results of operations.
We periodically initiate voluntary service actions to address various client satisfaction, safety and emissions issues related to cars sold. Included in the reserve is the estimated cost of these services and recall actions. The estimated future costs of these actions are based primarily on historical claims experience for our cars and the cost of parts and services to be incurred in the specified activities and are recognized at the time when they are probable and reasonably estimable. Estimates of the future costs of these actions are inevitably imprecise due to several uncertainties, including the number of cars affected by a service or recall action. It is reasonably possible that the ultimate cost of these service and recall actions may require us to make expenditures in excess of (or less than) established reserves over an extended period of time. The estimate of warranty and additional service obligations is periodically reviewed during the year.
In addition, we make provisions for estimated product liability costs arising from property damage and personal injuries including wrongful death, and potential exemplary or punitive damages alleged to be the result of product defects. By nature, these costs can be infrequent, difficult to predict and have the potential to vary significantly in amount. Costs associated with these provisions are recorded in the consolidated income statement and any subsequent adjustments are recorded in the period in which the adjustment is determined.
Share-based compensation
We account for our equity incentive plans in accordance with IFRS 2 - Share-based Payment, which requires the recognition of share-based compensation expense based on the fair value of the awards granted. Share-based compensation for equity-settled awards including market performance conditions is measured at the grant date of the awards using the Monte Carlo simulation model, which requires the input of subjective assumptions, including the expected volatility of our common stock, the dividend yield, interest rates and the correlation coefficient between our common stock and the relevant market index. The probability that the Group will achieve a certain level of Total Shareholder Return performance compared to the defined peer group is also considered. As a result, at the grant date management is required to make key assumptions and estimates regarding conditions that will occur in the future, which inherently involves uncertainty. Therefore, the amount of share-based compensation recognized has been affected by the significant assumptions and estimates used.
Other contingent liabilities
We make provisions in connection with pending or threatened disputes or legal proceedings when it is considered probable that there will be an outflow of funds and when the amount can be reasonably estimated. If an outflow of funds becomes possible but the amount cannot be estimated, the matter is disclosed in the notes to the Consolidated Financial Statements. We are the subject of legal and tax proceedings covering a wide range of matters in various jurisdictions. Due to the uncertainty inherent in such matters, it is difficult to predict the outflow of funds that could result from such disputes with any certainty. Moreover, the cases and claims against us often derive from complex legal issues which are subject to a differing degree of uncertainty, including the facts and circumstances of each particular case and the manner in which applicable law is likely to be interpreted and applied to such fact and circumstances, and the jurisdiction and the different laws involved. We monitor the status of pending legal proceedings and consult with experts on legal and tax matters on a regular basis. It is therefore possible that the provisions for our legal proceedings and litigation may vary as the result of future developments in pending matters.
Litigation
Various legal proceedings, claims and governmental investigations are pending against us on a wide range of topics, including car safety, emissions and fuel economy, early warning reporting, dealer, supplier and other contractual relationships, intellectual property rights and product warranty matters. Some of these proceedings allege defects in specific component parts or systems (including airbags, seatbelts, brakes, transmissions, engines and fuel systems) in various car models or allege general design defects relating to car handling and stability, sudden unintended movement or crashworthiness. These proceedings seek recovery for damage to property, personal injuries or wrongful death and in some cases could include a claim for exemplary or punitive damages. Adverse decisions in one or more of these proceedings could require us to pay substantial damages, or undertake service actions, recall campaigns or other costly actions.
Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. An accrual is established in connection with pending or threatened litigation if a loss is probable and a reliable estimate can be made. Since these accruals represent estimates, it is reasonably possible that the resolution of some of these matters could require us to make payments in excess of the amounts accrued. It is also reasonably possible that the resolution of some of the matters for which accruals could not be made may require us to make payments in an amount or range of amounts that could not be reasonably estimated.
The term “reasonably possible” is used herein to mean that the chance of a future transaction or event occurring is more than remote but less than probable. Although the final resolution of any such matters could have a material effect on our operating results for the particular reporting period in which an adjustment of the estimated reserve is recorded, it is believed that any resulting adjustment would not materially affect our consolidated financial position.
Non-GAAP Financial Measures
We monitor and evaluate our operating and financial performance using several non-GAAP financial measures including: Net Debt, Net Industrial Debt, Free Cash Flow and Free Cash Flow from Industrial Activities, EBITDA, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Profit, Adjusted Basic and Diluted Earnings per Common Share, Net Debt, Net Industrial Debt, Free Cash Flow and Free Cash Flow from Industrial Activities, as well as a number of financial metrics measured on a constant currency basis. We believe that these non-GAAP financial measures provide useful and relevant information to management and investors regarding our performance and improve our ability to assess our financial performance and financial position. They also provide us with comparable measures that facilitate management’s ability to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions. While similar measures are widely used in the industry in which we operate, the financial measures we use may not be comparable to other similarly titled measures used by other companies nor are they intended to be substitutes for measures of financial performance or financial position as prepared in accordance with IFRS.
EBITDA and Adjusted EBITDA
EBITDA is defined as net profit before income tax expense, net financial expenses and amortization and depreciation. Adjusted EBITDA is defined as EBITDA as adjusted for certain income and costs, which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. EBITDA is presented by management to aid investors in their analysis of the performance of the Group and to assist investors in the comparison of the Group’s performance with that of other companies. Adjusted EBITDA is presented to demonstrate how the underlying business has performed prior to the impact of the adjustments, which may obscure the underlying performance and impair comparability of results between periods.
The following table sets forth the calculation of EBITDA and Adjusted EBITDA for the years ended December 31, 2019, 2018 and 2017, and provides a reconciliation of these non-GAAP measures to net profit.
|
| | | | | | | | | |
| | For the years ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (€ million) |
Net profit | | 699 |
| | 787 |
| | 537 |
|
Income tax expense | | 176 |
| | 16 |
| | 209 |
|
Net financial expenses | | 42 |
| | 23 |
| | 29 |
|
Amortization and depreciation | | 352 |
| | 289 |
| | 261 |
|
EBITDA | | 1,269 |
| | 1,115 |
| | 1,036 |
|
Release of charges for Takata airbag inflator recalls | | — |
| | (1 | ) | | — |
|
Adjusted EBITDA | | 1,269 |
| | 1,114 |
| | 1,036 |
|
Adjusted EBIT
Adjusted EBIT represents EBIT as adjusted for certain income and costs which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. We provide such information in order to present how the underlying business has performed prior to the impact of such items, which may obscure the underlying performance and impair comparability of results between the periods.
The following table sets forth the calculation of Adjusted EBIT for the years ended December 31, 2019, 2018 and 2017.
|
| | | | | | | | | |
| | For the years ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (€ million) |
EBIT | | 917 |
| | 826 |
| | 775 |
|
Release of charges for Takata airbag inflator recalls | | — |
| | (1 | ) | | — |
|
Adjusted EBIT | | 917 |
| | 825 |
| | 775 |
|
Adjusted Net Profit
Adjusted Net Profit represents net profit as adjusted for certain income and costs (net of tax effect) which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. The tax effect is calculated by applying the corporate tax rate in Italy, which was 24.0 percent for all years presented, and the Italian Regional Income Tax (“IRAP”), which was 3.9 percent for all years presented. We provide such information in order to present how the underlying business has performed prior to the impact of such items, which may obscure the underlying performance and impair comparability of results between the periods.
The following table sets forth the calculation of Adjusted Net Profit for the years ended December 31, 2019, 2018 and 2017.
|
| | | | | | | | | |
| | For the years ended December 31, |
| | 2019 | | 2018 | | 2017 |
| | (€ million) |
Net profit | | 699 |
| | 787 |
| | 537 |
|
Patent box benefit for the period 2015-2017 | | — |
| | (141 | ) | | — |
|
Release of charges for Takata airbag inflator recalls (net of tax effect) | | — |
| | (1 | ) | | — |
|
Adjusted Net Profit | | 699 |
| | 645 |
| | 537 |
|
Adjusted Basic and Diluted Earnings per Common Share
Adjusted Basic and Diluted Earnings per Common Share represents earnings per share, as adjusted for certain income and costs (net of tax effect) which are significant in nature, expected to occur infrequently, and that management considers not reflective of ongoing operational activities. The tax effect is calculated by applying the corporate tax rate in Italy, which was 24.0 percent for all years presented, and the Italian Regional Income Tax (“IRAP”), which was 3.9 percent for all years presented. We provide such information in order to present how the underlying business has performed prior to the impact of such items, which may obscure the underlying performance and impair comparability of results between the periods.
The following table sets forth the calculation of Adjusted Basic and Diluted Earnings per Common Share for the years ended December 31, 2019, 2018 and 2017.
|
| | | | | | | | | | | |
| | | | For the years ended December 31, |
| | | | 2019 | | 2018 | | 2017 |
Net profit attributable to owners of the Company | | € million | | 696 |
| | 785 |
| | 535 |
|
Patent box benefit for the period 2015-2017 | | € million | | — |
| | (141 | ) | | — |
|
Release of charges for Takata airbag inflator recalls (net of tax effect) | | € million | | — |
| | (1 | ) | | — |
|
Adjusted profit attributable to owners of the Company | | € million | | 696 |
| | 643 |
| | 535 |
|
| | | | | | | | |
Weighted average number of common shares for basic earnings per share | | thousand | | 186,767 |
| | 188,606 |
| | 188,951 |
|
Adjusted basic earnings per common share | | € | | 3.73 |
| | 3.41 |
| | 2.83 |
|
Weighted average number of common shares(1) for diluted earnings per common share | | thousand | | 187,535 |
| | 189,394 |
| | 189,759 |
|
Adjusted diluted earnings per common share | | € | | 3.71 |
| | 3.40 |
| | 2.82 |
|
_____________________________
| |
(1) | The weighted average number of common shares for diluted earnings per share was increased to take into consideration the theoretical effect of (i) the potential common shares that would be issued under the equity incentive plan for the years ended December 31, 2019, 2018 and 2017 (assuming 100 percent of the related awards vested), and (ii) the potential common shares that would have been issued for the Non-Executive Directors’ compensation agreement for the year ended December 31, 2017. |
See Note 12 “Earnings per Share” to the Consolidated Financial Statements, included elsewhere in this document, for the calculation of the basic and diluted earnings per common share.
Net DebtResults of Operations
Consolidated Results of Operations – 2021 compared to 2020 and Net Industrial Debt2020 compared to 2019
Due to different sources The following is a discussion of cash flows usedthe results of operations for the repaymentyear ended December 31, 2021 as compared to the year ended December 31, 2020, and for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The presentation includes line items as a percentage of debt between industrial activitiesnet revenues for the respective periods presented to facilitate year-over-year comparisons.
For the year ended December 31, 2020 our costs as a percentage of net revenues and financial services activities,our EBIT and EBIT margin were negatively impacted by the different business structureCOVID-19 pandemic, which caused a seven-week production and leverage implications, Net Industrial Debt, together with Net Debt, aredelivery suspension in the primary measures used by usfirst half of 2020 (during which we decided to analyze our capital structurepay all employees throughout the whole suspension period and financial leverage. We believenot accede to any government aid programs) as well as changes to the presentation of Net Industrial Debt aids management and investors in their analysisformat of the Group’s financial position and financial performance and to compare the Group’s financial position and financial performance with that of other companies. Net Industrial Debt is defined as total debt less total cash and cash equivalents (Net Debt), further adjusted to exclude the debt and cash and cash equivalents related to our financial services activities (Net Debt of Financial Services Activities). Prior to the first quarter of 2019, we defined Net Industrial Debt as Net Debt adjusted to exclude (a) the funded portion of the self-liquidating financial receivables portfolio, which is the portion of our receivables from financing activities that we fund with external debt or intercompany loans but not (b) the cash and cash equivalents of the financial activities, since such cash was considered also available for use in our industrial activities. We believe the current definition provides a more comprehensive disclosure of our underlying financial leverage from industrial activities. Net Industrial Debt for the comparative period has been restated to conform to the current presentation.2020 Formula 1 World Championship.
The following table sets forth a reconciliation of Net Debt and Net Industrial Debt at December 31, 2019, and 2018.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, |
| 2021 | | Percentage of net revenues | | 2020 | | Percentage of net revenues | | 2019 | | Percentage of net revenues |
| (€ million, except percentages) |
Net revenues | 4,271 | | | 100.0 | % | | 3,460 | | | 100.0 | % | | 3,766 | | | 100.0 | % |
Cost of sales | 2,081 | | | 48.7 | % | | 1,686 | | | 48.7 | % | | 1,805 | | | 47.9 | % |
Selling, general and administrative costs | 348 | | | 8.1 | % | | 336 | | | 9.7 | % | | 343 | | | 9.1 | % |
Research and development costs | 768 | | | 18.0 | % | | 707 | | | 20.4 | % | | 699 | | | 18.6 | % |
Other expenses, net | 6 | | | 0.2 | % | | 19 | | | 0.6 | % | | 5 | | | 0.1 | % |
Result from investments | 7 | | | 0.2 | % | | 4 | | | 0.1 | % | | 3 | | | 0.1 | % |
EBIT | 1,075 | | | 25.2 | % | | 716 | | | 20.7 | % | | 917 | | | 24.4 | % |
Net financial expenses | 33 | | | 0.8 | % | | 49 | | | 1.4 | % | | 42 | | | 1.2 | % |
Profit before taxes | 1,042 | | | 24.4 | % | | 667 | | | 19.3 | % | | 875 | | | 23.2 | % |
Income tax expense | 209 | | | 4.9 | % | | 58 | | | 1.7 | % | | 176 | | | 4.6 | % |
Net profit | 833 | | | 19.5 | % | | 609 | | | 17.6 | % | | 699 | | | 18.6 | % |
|
| | | | | | |
| | At December 31, |
| | 2019 |
| 2018 |
| | (€ million) |
Cash and cash equivalents | | 898 |
| | 794 |
|
Debt | | (2,090 | ) | | (1,927 | ) |
Net Debt (A) | | (1,192 | ) | | (1,133 | ) |
Net Debt of Financial Services Activities (B) | | (855 | ) | | (763 | ) |
Net Industrial Debt (A-B) | | (337 | ) | | (370 | ) |
Free Cash Flow and Free Cash Flow from Industrial Activities
Free Cash Flow and Free Cash Flow from Industrial Activities are two of our primary key performance indicators to measure the Group’s performance. These measures are presented by management to aid investors in their analysis of the Group’s financial performance and to compare the Group’s financial performance with that of other companies. Free Cash Flow is defined as cash flows from operating activities less investments in property, plant and equipment and intangible assets. Free Cash Flow from Industrial Activities is defined as Free Cash Flow adjusted to exclude the operating cash flow from our financial services activities (Free Cash Flow from Financial Services Activities). Prior to the first quarter of 2019, we defined Free Cash Flow as cash flows from operating activities less cash flows used in investing activities, and we defined Free Cash Flow from Industrial Activities as Free Cash Flow adjusted for the change in the self-liquidating financial receivables portfolio (which is the change in our receivables from financing activities). In order to align our definition of Free Cash Flow to other more common definitions and to allow the definition of Free Cash Flow from Industrial Activities to exclude all cash flows from operating activities not attributable to the industrial activities, even if such cash flows were available for industrial activities, we determined it was appropriate to redefine Free Cash Flow and Free Cash Flow from Industrial Activities starting in 2019. Free Cash Flow and Free Cash Flow from Industrial Activities for the comparative periods have been restated to conform to the current presentation.Net revenues
The following table sets forth an analysis of our Free Cash Flow and Free Cash Flow from Industrial Activitiesnet revenues for each of the years ended December 31, 2019, 20182021, 2020 and 2017.2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ended December 31, | | Increase/(Decrease) |
| 2021 | | Percentage of net revenues | | 2020 | | Percentage of net revenues | | 2019 | | Percentage of net revenues | | 2021 vs. 2020 | | 2020 vs. 2019 |
| (€ million, except percentages) |
Cars and spare parts (1) | 3,573 | | 83.7 | % | | 2,835 | | | 81.9 | % | | 2,926 | | | 77.7 | % | | 738 | | | 26.0 | % | | (91) | | | (3.1) | % |
Engines (2) | 189 | | 4.4 | % | | 151 | | | 4.4 | % | | 198 | | | 5.3 | % | | 38 | | | 25.7 | % | | (47) | | | (24.0) | % |
Sponsorship, commercial and brand (3) | 431 | | 10.1 | % | | 390 | | | 11.3 | % | | 538 | | | 14.3 | % | | 41 | | | 10.4 | % | | (148) | | | (27.5) | % |
Other (4) | 78 | | 1.8 | % | | 84 | | | 2.4 | % | | 104 | | | 2.7 | % | | (6) | | | (7.4) | % | | (20) | | | (19.5) | % |
Total net revenues | 4,271 | | 100.0 | % | | 3,460 | | | 100.0 | % | | 3,766 | | | 100.0 | % | | 811 | | | 23.4 | % | | (306) | | | (8.1) | % |
The following is a discussion of the results of operations for the year ended December 31, 20192021 as compared to the year ended December 31, 2018,2020, and for the year ended December 31, 20182020 as compared to the year ended December 31, 2017.2019. The presentation includes line items as a percentage of net revenues for the respective periods presented to facilitate year-over-year comparisons.