Aston Martin Lagonda (AML) Ordinary 10p

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Aston Martin’s first-half revenue fell 25% to £454mn, largely due to a sharp decline in Special model deliveries which carry higher average selling prices, and disruption caused by US tariffs.

Excluding Specials, average selling prices were up 7% to £192,000, reflecting the success of the new model ranges and increased customer personalisation.

Underlying operating losses widened by 22% to £122mn, reflecting the decline in revenue.

Free cash outflows worsened from £313mn to £321mn, due to higher interest payments and operating costs offsetting lower capital expenditure. Net debt rose from £1.2bn to £1.4bn.

Full-year underlying operating profit guidance has been downgraded from “positive over the full year” to “improve towards breakeven”. Positive free cash flows are still expected in the second half.

The shares fell 3.6% in early trading.

Our view

Aston Martin continued to see its losses widen over the first half. Performance has been worse than expected, leading management to downgrade guidance as the group’s hopes of returning to profitability have been pushed back into at least 2026.

Looking ahead, performance was always expected to be weighted to the second half, as deliveries of its high-priced Valhalla model ramp up. With the first deliveries not expected until the final quarter, a lot now depends on those going smoothly. Any demand or production issues here would very likely see full-year targets lowered further, spelling serious trouble for the group.

In the meantime, Aston Martin continues to burn through cash. To help shore up the balance sheet, previously announced deals are underway to raise over £125mn of funds. While that may not seem like a big amount in today’s world, it is around 16% of the group’s current market value.

We see scope for tariffs to cause further pain. The current regime allows the first 25,000 UK cars to be exported to the US each quarter to be subject to a basic tariff of 10%, on a first-come, first-served basis. Anything over that in each quarter will be subject to a much higher tariff of 27.5%. Given that so much of this is outside of the group’s control, and a third of Aston Martin’s revenue comes from across the pond, this is likely to cause trip hazards for guidance and profits.

The current high level of debt and the associated financing costs are also a big problem. Double-digit interest rates show that lenders need to be compensated heavily for the high level of risk they’re taking on.

To make matters worse, the group still isn’t generating positive cash flows. That could spell real trouble if it runs out of funds to meet these obligations. As a reminder, debt investors are in the driving seat when it comes to claims on assets if Aston Martin fails to meet scheduled debt payments.

Given the group’s lack of scale—it made only 6,030 cars last year—even a small reduction in volumes can have a big negative impact on profits and vice versa. Returning to profitability will require Aston Martin to grow volumes again, benefitting from the improved efficiencies that greater scale brings.

We’re quite concerned given the recent tariffs, struggling demand, and high rate of cash burn. While it’s already well below the long-run average, which could suggest upside potential if things go well, the valuation is likely to come under more pressure if volumes don’t pick up.

Environmental, social and governance (ESG) risk

Most of the auto industry falls into the medium risk category in terms of ESG. Product governance, particularly around safety, and the carbon emissions from companies’ products and services are key risk drivers. Business ethics, labour relations and operational carbon emissions are also contributors to ESG risk.

According to Sustainalytics, Aston Martin’s management of ESG risks is strong.

ESG issues are overseen by the board and overall disclosure is strong. There’s a robust environmental policy in place, with a commitment to net zero for scope 1 and 2 emissions by 2030 and scope 3 emissions by 2039 and has interim targets in place. However, AML doesn’t divulge sustainability-linked revenue and environmental impact isn’t systematically considered in the design phase. Although some of AML’s facilities are externally certified, scope is unclear and its product and safety programme needs improvement.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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