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Aston Martin shares hit the brakes ahead of earnings

The iconic luxury sports car manufacturer’s full-year results for 2021 showed a company cutting losses, increasing production and continuing its push into electrification. But will rising inflation, a cost of living crisis and global supply chain issues force the Aston Martin share price off the road?

Many market spectators will have their focus on the Aston Martin Lagonda [AML.L] share price when the luxury car manufacturer releases its first quarter results on 4 May. Investors will be hoping that the firm has continued to build on its recovery from the tough market conditions posed by Covid-19.

However, with inflation on the rise, Aston Martin may struggle to combat rising manufacturing prices. With inflation hitting 7% in the UK for March, along with the war in Ukraine and ongoing supply chain issues, many firms have struggled since the turn of the year. As of 29 April close, the Aston Martin share price has taken a 37% hit year-to-date. In fact, more than 50% has been shaved off its share price in the past year.

2021 increase in car production set to drop off

Earlier this year, Aston Martin had released positive full-year results for 2021. During the 12 month period, sales were up 82% and the firm’s revenue jumped 79%. In the fourth quarter alone, these figures represented a 5% increase in car production year-on-year. The annual report stated that the strong increase in sales were due to “substantial volume growth, driven by customer demand”. Within the year, the firm had sold more than 6,000 vehicles.

However, with the rising cost of living, the upcoming first quarter results may paint a different picture. As essentials, such as electricity, gas and fuel costs, continue to rise, Aston Martin may witness a fall in demand. On top of this, the increase in the cost of living may also signify a negative impact on its operating costs as the firm’s margins are squeezed. As a result, the impressive rise witnessed last year in sales may not be reciprocated in the first quarter as these costs eat into the firm’s revenues.


Reducing losses key to Q1 performance

Martin managed to reduce its losses by 91% in the final quarter of 2021 compared to the previous year, erasing more than £200m in debt. While unlikely, should the firm continue to trim its losses this could reflect positively on where the Aston Martin share price goes next.

In February, Aston Martin had unveiled the DBX707 — the most powerful luxury SUV on the market. Deliveries of the vehicle are expected from the second quarter of this year. This could, if the firm remains on track to reduce its losses, provide investors with an increase in confidence.

Aston Martin has also continued to transform its business with its embrace of electrification. The company released a mild-hybrid of its DBX crossover in China in the fourth quarter, and is targeting 2024 as the launch date for its first plug-in hybrid. Given the attention placed on clean energy alternatives amid a shortage in the supply of fossil fuels, this move into hybrid vehicles could provide a further boost for the Aston Martin share price.

However, with this said, the stock has sunk almost 15% following the full-year announcement in February. This stemmed from lockdown concerns in China affecting potential demand in the lucrative car market, and slow UK economic growth, especially in car production, impacting investor confidence.

Analysts downgrade Aston Martin shares

Analysts don’t appear to be optimistic about the company’s upcoming earnings. Citigroup analyst Gabriel Adler downgraded the stock from ‘buy’ to ‘neutral’ ahead of the luxury sports car manufacturer’s results announcement this week. He also adjusted the target price for the stock from £29 to £10. With the share price trading at 853.4p on 29 April, this move still offers Aston Martin room for growth. However, the large decrease in target price will not leave investors feeling confident about the business.

Should Aston Martin be able to temper the impact of rising inflation and macro pressures, such as those seen from the war in Ukraine, the upcoming earnings update could be a positive one. However, with tough economic conditions continuing to squeeze the business’s ability to prosper, as costs rise and demand falls, the upcoming results may see further downside pressure.

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