Ferrari: What happens when you staple a luxury brand to a sports team? (Audio)

Okay, David. The question: Do you have a favorite Ferrari?

That's a tough one. I would never actually want to get behind the wheel of it, but I think I gotta go with the F40.

Of course.

I remember just being a kid in elementary school and getting a model of one and thinking, “Oh my God, this is the most incredible machine that mankind has ever created.”

How about you?

I actually have 2. One is the car from Charles Leclerc's wedding: the 1957 250 Testa Rossa. And the car from Ford v Ferrari, that 1966 330 P3, is just beautiful. It's got these curves. It looks like a spaceship. It's gorgeous.

Beauty and power. The story of Ferrari.

Yes. All right. Should we do it?

Let's do it.

Almost everyone needs transportation. It is a giant market serving a huge human need, and it is one of the top 3 things that households spend money on, along with their housing and their food. The automobile has become the default way that humans move around the world.

And that is not what we're talking about today.

1. Ferrari Sells Dreams

This episode has absolutely nothing to do with any of that. Today's episode, listeners, is about selling dreams.

Oh, yes.

We are talking about Ferrari, one of the most paradoxical companies that we have ever studied here on Acquired. Ferrari ships very, very few cars—around 14,000 per year. That is approximately the number of Toyotas that are sold every 10 hours.

But of course, we know Toyota and Ferrari are a silly comparison. So what about a company that we have covered in the past? Porsche. Even Porsche ships 22 times the number of cars that Ferrari does.

And yet, even though almost nobody owns a Ferrari—only about 180,000 people globally—they have among the highest levels of brand recognition. I would argue that more than 1 billion people know what a Ferrari is.

Easily.

Which means, David, that Ferrari has the highest ratio of people who know about its products to people who actually own its products of any company in human history.

I think we have to scope it to companies that make products that are nominally available for purchase by consumers, but yes.

Yes. The space shuttle is a product, but you can't go buy a space shuttle. So I would say Ferrari is the only ultraluxury brand that has reached mass cultural awareness.

There are some fun numbers just to keep putting this in perspective. There are 10 times more Birkin and Kelly bags made each year over at Hermès than there are Ferraris, and there are 70 times more Rolexes made each year than there are Ferraris.

Yeah, it's wild.

The paradoxes continue. People are dying for their SUVs, and yet Ferrari limits them to just 20% of total volume.

Wait, what is this SUV of which you speak?

I'm sorry: Ferrari Utility Vehicle, because they would never—

Yes, the FUV, the Ferrari Utility Vehicle.

Ford, here's another good one, makes 160 times the number of cars that Ferrari does, yet Ferrari has a higher market capitalization. They're worth more than the Ford Motor Company, Volkswagen, Honda, Stellantis, and Mercedes-Benz.

This company is worth so much more than most giant manufacturers. Ferrari makes all its cars mostly by hand, inefficiently and one-off, in a single town: Maranello, Italy. And they have the highest margins in the entire auto industry.

Of the very few cars that they do make, this is my favorite one, David: About 80% of them are earmarked specifically for people who already own a Ferrari.

Right, right, right.

So that means there's less than 3,000 new customers buying Ferraris in any given year.

It's actually completely insane when you think about it.

Right.

This funnel narrows pretty tight.

So how on earth did Ferrari manage to build this incredibly valuable business while selling its cars to almost nobody?

Well, the answer is bloody. It is half a century of death and speed and love and feeling alive. And of course, there are some of the most clever business-model mechanics that we have ever studied here on Acquired.

It really is very Italian, you might say. It's beautiful. It's tragic. It's romantic.

There's death, sex, betrayal, and very, very fast cars.

2. Enzo Ferrari Begins Racing

Ooh. All right. We start in 1898 in the medieval Italian town of Modena, with the birth of our hero, Enzo Anselmo Giuseppe Maria Ferrari—better known, of course, either by the name of the company he would found, which bears his last name, Ferrari, or, to his hundreds of millions of fans around the world, simply as Enzo.

So Enzo is born here in 1898 in Modena, the second of 2 sons, and his mother, Adalgisa, is a beautiful young woman. His father, Alfredo, is 12 years older than his mother, and his father runs a successful metalworking shop and is a fairly well-to-do, middle-class entrepreneur about town.

Enzo and his father are often at odds growing up. But part of his dad does rub off on him in the form of this entrepreneurial influence. His dad says something to him that sticks with Enzo for the rest of his life: “A company is perfect when the number of partners in it is odd and less than 3.” In other words, don't take on partners. Always be self-sufficient.

It's a great quote.

We should say that much of this history—this whole episode—comes from the fantastic, really definitive biography of Enzo called Enzo Ferrari, written by Luca Dal Monte, who worked at Ferrari and Maserati for many years. After he retired, he dedicated about a decade of his life to researching and writing this definitive biography. It's really excellent.

Anyway, his mother and his father are always fighting. They're always yelling, arguing, and swearing. And this has a very different effect on each of their 2 children.

For Enzo's older brother, who is named after his father—he's also named Alfredo, nicknamed Dino to tell them apart—he, Dino, becomes the golden child. He's the peacemaker, the pleaser, the striver, the smart and successful one. He's going to make his parents proud, and he's going to take over the family business.

Enzo, on the other hand, as the younger brother, takes right after all the less savory parts of Mom and Dad. He's mischievous. He doesn't apply himself in school or pay any attention. And why should he? His family's got money for the place and time. His older brother Dino, the golden child, is going to make them proud and take over the family business. Enzo can just knock about town.

He dreams of someday becoming a journalist or an opera singer, mostly so that he can hang out with the showgirls.

Oh, what could have been a very different Enzo Ferrari.

Ah, well, his life is an opera, as we shall see.

There's one thing, though, that really captivates Enzo's spirit, which is the new, modern sporting and leisure pursuit of automobile racing. And one blissful night when Enzo is a teenager, he declares to his best friend his true intention in life: “I am going to be a racing driver.”

And that dream does indeed come true, but probably not in any way that Enzo expected that night, because very shortly thereafter, World War I breaks out, and 2 tragedies happen to Enzo in quick succession.

First, his father, Alfredo, contracts pneumonia and dies. Unrelated to the war—he just got pneumonia and suddenly died shortly thereafter.

His older brother Dino, the golden child, goes off and enlists in the Italian Army, where he also contracts pneumonia and dies. So Enzo is left alone with his mother, whom he needs to support.

The family business is gone. And because Enzo has never applied himself, he has no discernible skills or ability to continue it or really do much else that would provide gainful employment for him. That was supposed to be Dino's role in the family.

Before Enzo can stop and really think, he too gets drafted into the Army, where he also comes down with pneumonia and nearly dies. But he survives. He's the one who survives.

He has a quote later in life in which he acknowledged this emotional burden and his life's work that he would go on to create. He said, “I feel alone after a life crowded by so many events and almost guilty of having survived.”

Yeah. I mean, the title of his memoirs is My Terrible Joys. It tells you everything you need to know right there about Enzo's life.

So when he comes back home to Modena at the end of the war, he has no hope, but he does still have his dream of motor racing. And remember, he's still basically a teenager at this point—a late teenager, an early 20-something.

He starts making noise to his mom about selling the family house to finance buying a racing car and going out to race it and win prize money to support them.

It's an audacious plan! His mom is like, “No. How about this? Why don't you go try to get a job at a car company and see where things go from there?” Enzo's like, “Okay, okay, fair compromise.” So his mom arranges for him to travel to Turin, a big city in the northeast of Italy, where he interviews for a job at Fiat.

Fiat is the biggest Italian car company at the time and will come back up many, many times in this story. It is, as you all probably know, essentially the Ford Motor Company of Italy, and the family behind it, the Agnellis, are the wealthiest and most important industrialists in the history of Italy. Today, they own and control both Stellantis, which is the merged result of Fiat Chrysler and Peugeot, and Ferrari. Don't worry, we'll get there. We'll get there, but not for the better part of a century.

Yes. So back to Enzo here in 1918. Fiat, of course, rejects his job application because, again, he has no discernible skills. But Enzo is persistent, and in 1919, he lands a job at a new startup automobile company called CMN. There, he pledges his future salary—the next several months of it—to purchase one of the company's sports cars for himself, which he then takes racing.

He didn't have to sell his house to finance this dream, but he did pledge his future salary. This is an important point to land here. With very few exceptions, one of which we'll talk about in just a minute, motor racing at this point in time was a private individual sport. Drivers generally bought and raced their own cars, either because they were independently wealthy and successful and could afford their own staffs and mechanics to maintain these cars. These were folks known as gentlemen racers.

That's right. I've heard that term. This is the group of people that ultimately, once Ferrari gets founded, become Enzo's core client base. The other group of drivers at this time are like Enzo. They're hustlers and dreamers who managed to glom on somewhere in the car industry and leverage that into entering races. Basically, motorsport was this passionate privateer pursuit.

So Enzo enters into this world and does pretty well—well enough not only to send some prize money back home to Mom, but also to attract the attention of Alfa Romeo, which is Italy's other large car company at the time, although much, much smaller than Fiat. Alfa has one of the few, if not the only, in-house racing teams in Italy and Europe. Even though most racing is happening among privateers, Alfa has its own racing team, which is pretty unique for Europe at the time.

They scoop up this young, hotshot, talented driver, Enzo, to come and race for them. This is a huge coup for Enzo. Basically, his whole dream as a teenager is coming true. He's racing, making money from prizes, and is part of this Alfa Romeo team that's going to support him, provide him with great vehicles to race, and give him mechanics and everything he needs.

So he hatches a plan. He's going to cash in on this newfound fame and notoriety by starting his own business. He's going to be an entrepreneur just like his dad. At age 22, in 1920, Enzo starts his first company, a coach-building business in Modena called Carrozzeria Emilia.

What is a coach-building business? This is another really important point to understand about the car business at this point in time. For most companies, and especially car companies that were making sports cars, the actual bodies, or the coaches, were built and designed by third-party coachbuilders. The cars were just an engine and a chassis that the carmaker would deliver, and then the clients would go to a coachbuilder like this one that Enzo is starting up and have them build the body to their taste and specifications to go on top of the mechanics of the car.

Yeah, it reminds me of our Rolex episode, where the movement makers were totally different from the case makers, which were totally different from the jewelry stores that sold them—not the sort of integrated way that we know it today, where the movement maker is often the same as the case maker, and then you often just sell pseudo-directly.

Yes, totally. In this case, it's actually a holdover from the horse-drawn carriage days, where the coachbuilders built carriages, but they obviously didn't supply the horses. So the same thing starts to emerge here in the early automobile industry.

Enzo's admittedly pretty half-baked plan here is that, thanks to his sure-to-come new fame and fortune as an Alfa Romeo race car driver, customers—Alfa Romeo customers and customers of other car companies—are going to come banging down his door to build their car bodies, to build their coaches. What the connection is between being a good race car driver and being a great coachbuilder, I'm not sure. Neither is the market, because the business does not go well. It's a failure, and within 2 years, Enzo is bankrupt.

Perhaps relatedly, Enzo's mettle as a professional race car driver also proves to be good, but he's not great. He has all the talent and all the skill, but he comes to realize he doesn't have the one final thing that separates the true motorsport champions from everyone else. He's too afraid to die. He can't push himself and the car to the point that it's really, really, really on the edge.

The limit, as they say.

The limit. Yes. Part of this, of course, is his haunted past—the deaths of his brother and father. Death has had this huge presence in his life. But it's also very much his present.

Once he joins the Alfa Romeo team, there are 2 senior drivers on the team who really take him under their wings as mentors, and they become friends. Enzo watches them both die during races at the wheel. In the first case, Enzo is the first person to find him, and he actually died in Enzo's arms. After all these experiences, Enzo just can't push himself to do the same thing over and over like they did.

That is the sick reality of racing, at least at this point in history: It is the people who are absolutely willing to go right up to that line and maybe cross it. Often cross it. It kind of depends where you put the line. Those who win are the ones who are absolutely willing to die.

On our Formula 1 episode, we talked about how, through the ’70s, there was an average of more than 1 death a year in Formula 1 out of a field of only about 20 drivers. That's the reality for a very long time in this business. Paradoxically, that's also part of the appeal.

In 1924, Enzo makes the decision to quit racing, cast off the coach-building business, and instead open an Alfa Romeo dealership in Modena.

Oh, I didn't know this.

Yeah, he's now married. He wants to have a family. His son, naturally named Dino after his father and brother, would be born a few years later. Basically, he's going down the time-honored path of a retired ex-athlete with some degree of notoriety opening a local car dealership.

Pioneering. Toward the end of his racing career, Enzo had also gotten more involved in the actual management of the team and gotten to know some of the managers of Alfa Romeo, the company itself. So he still has these close connections to the company, which are certainly going to help him in becoming a dealer.

Then, the very next year, the Alfa Romeo board of directors makes the inexplicable decision to drastically cut back on their racing activities. They're going to keep the company team, but only enter a few races, and the budget is going to be cut.

Enzo's like, “Whoa. Hang on a second here. I need the publicity from the Alfa Romeo racing team. That's my only connection to fame here and why people would come to my dealership and buy my cars. I need to have Alfas racing on a regular basis.”

So he goes to Alfa Romeo headquarters in Milan with a proposal: “I understand that you want to cut the expense of the day-to-day of running your own racing team. What if I take it over? All the races that you don't want to run, you bless me—your dealer, Enzo Ferrari—as the official racing agent of Alfa Romeo, and I'll put together my own private team. I'll hire the drivers, I'll hire the mechanics, and I'll cover the costs.”

Right. It's like a fully outsourced racing team that's just a contract relationship. You don't have to have this on your books. This is a loose affiliation.

And for Enzo, what better marketing activity could you imagine than to become the quasi-official racing agent, sort of second team, of Alfa Romeo?

3. Scuderia Ferrari Is Born

And thus, the first iteration of the Ferrari business is born: Scuderia Ferrari, which is the name that he gives to his new racing team. Scuderia means “stables” in Italian. It's a stable of drivers and cars for Alfa Romeo. The Ferrari racing team to this very day in Formula 1 and elsewhere is Scuderia Ferrari. That is the SF that you see on the Ferrari shield everywhere.

And for a team that would go on to adopt the prancing horse, I am loving the thick metaphor here with the stable and the—

Oh, Enzo, as we shall see, is a natural-born marketer. It's important to note a couple of things here. The Scuderia Ferrari is very much intended to be a junior partner to Alfa Romeo, or at least Alfa intends it that way. But Enzo does, in the back of his mind, have broader ambitions, as we alluded to with the whole coach-building thing. Unless you're one of the few new, really mass-assembly-line consumer car companies at this point, like Fiat or the Ford Motor Company over in America.

The line and the barrier to entry between being a garage that develops and maintains racing cars and graduating to making your own cars that you sell to privateers who go racing is pretty thin. Enzo’s always got this in the back of his mind, and he’s got some examples out there. So there are other garages, for lack of a better word, in Italy at the time that have made the jump from developing race-car versions of other cars made by other manufacturers to selling their own cars. The prime example is Maserati, right there in Modena, across town: the Maserati brothers.

In the video game world, this is modding.

Yes.

You’re sort of taking someone’s basic game and souping it up into something really special for you that you’re customizing.

Yep. So for Enzo, in the back of his mind, he’s thinking, “Okay, this is my opportunity to build my own team, hire my own engineers and mechanics, use, hopefully, my team’s success combined with the Scuderia Ferrari brand that I’m building. Maybe someday I, too, can launch my full-on car company like the Maserati brothers across town.” As he gets going with this grand master plan and developing the Scuderia, he knows that he needs to build up more than just his own operations. He also needs to build a brand if he’s going to sell his own cars someday. Specifically, he needs a logo, and he’s got the perfect one.

David, where does the famous, infamous prancing horse for Scuderia Ferrari come from?

How did all those Ferraris come to have a black prancing horse on them?

I have to say, it is the strangest thing looking at some of these old pictures because the first thing that the prancing horse went on was these Alfa Romeo cars.

Yes, yes!

There are these old pictures of an Alfa Romeo-badged car, and on the fender in front of the door, there’s a Scuderia Ferrari prancing horse.

It’s bizarre to look at today.

So back when Enzo was a promising young racing driver, one of his early fans and supporters was a noble Italian count and countess whose son, Francesco Baracca, had been Italy’s No. 1 ace fighter pilot during World War I—World War I dogfighting. Baracca had won 34 aerial victories before he was tragically killed in combat right before the end of the war. On his airplane, he had painted, as his symbol and a good-luck charm, the black prancing horse.

Now, he’s a national hero, and everybody in Italy knows about Count Baracca and his exploits during World War I. His parents are fans of Enzo, and so, 1 night after the war, the countess tells Enzo, “Why don’t you paint the black horse on your car? It will bring you luck.” To symbolize this gift, she gives Enzo a photo of her son in front of his plane before he was killed, with the horse and an inscription from her below it that told Enzo he should use this symbol.

That’s an official endorsement right there.

Absolutely. So here we are now: Enzo is launching his Scuderia, his stables, his horses, and he knows that this is the moment to put the gift to use as the Scuderia’s logo. It’s perfect: stable horses. But it’s more than that. This man had been a national hero. Everybody in Italy knows him and knows the symbol, and Enzo has had it bestowed upon him not just with his mother’s blessing, but with the explicit direction to put it on his race cars.

So Enzo takes the prancing horse and places it within a yellow shield, yellow being the city color of Modena, with the 3 colors of the Italian flag above. This is just a genius marketing move. The prancing horse reflects both the Scuderia and links Enzo and the team to this national hero. The shield reflects his intention to do battle on the racetrack, and the Italian colors reflect the ultimate ambition to establish this team, this company, and its future cars as the Italian national team and sports car company.

In our research, I spoke to Luca di Montezemolo, the legendary Ferrari chairman who would ultimately succeed Enzo and, really, in many ways, be his heir, as we will tell in this story.

It’s important to note: a different Luca from the Luca who wrote the book that most of this narrative is based on.

I asked Montezemolo, “You knew Enzo probably as deeply and as well as just about anybody who’s still alive today. There’s this kind of popular legend that Enzo was just a racer. He only wanted to race. He didn’t really care about business or road cars, and the road cars only existed to fund his racing activities.”

This is the biggest thing that people say today. When I say, “We’re doing an episode on Ferrari,” they say, “Oh my gosh, yeah, it’s such a crazy story because Enzo really just wanted to race cars, and he built this car company. But really, that was just sort of to finance the racing. And he doesn’t even care about those road cars. He’s not really a business guy. He just wants to make great cars with great engines and send them racing.”

Completely false. Montezemolo confirmed that when I asked him. Enzo was a natural-born entrepreneur and marketer. He really was Italy’s Steve Jobs in every aspect. I mean, think about it: what was Steve Jobs? Steve Jobs was not an engineer. He was a marketer, the same as Enzo. Enzo is not an engineer. He’s not a car mechanic. He can’t build the cars himself.

But they both had an understanding and deep appreciation for the technical things that enabled their visions to be possible.

Yes. Enzo would say about himself, when asked, that he’s not an engineer, he’s not a car designer, and he’s no longer a driver, even though he runs this team. He is, quote, “an agitator of men.” And that perfectly described Enzo. I think it perfectly describes Steve Jobs, too.

So if you think about it, what is Enzo doing here with the brand that he’s building? There’s the prancing horse. And then what’s the other famous visual symbol associated with Ferrari? The red—Ferrari red, Rosso Corsa—that he adopts here. Sure, Ferraris are red because red was the assigned national racing color of Italy. But come on, Enzo is the one who embraced it and imbued this Rosso Corsa with so much more than just the national racing color of Italy. It’s not Alfa Romeo’s colors. It’s Ferrari’s colors.

Right. When you draw a picture of a race car today, let’s say you’re 10 years old, you’re coloring it red, and you’re coloring it red because that is Ferrari red.

Yes. And what does red represent? It’s passion. It’s blood. It’s desire. It’s all of this that is deeply wrapped up into a Ferrari. I mean, just look at Italy’s other luxury supercar company today, Lamborghini. You know what their colors are? Not red. In fact, their color is every color but red because Ferrari has co-opted it.

So back to the Scuderia here. After a couple of years, in 1933, the golden opportunity arrives for Enzo. Alfa Romeo finally decides that it is going to disband its official racing team entirely and designate Scuderia Ferrari as its official racing operation in all races, all across the globe. So Enzo “acquires” the entire Alfa operation—engineers, mechanics, everything—and his dream has come true. He is not only Alfa Romeo’s official racing team; by this point in time, Alfa had been nationalized by the fascist Italian state, by Mussolini. So he is Italy’s official national racing team.

There’s just 1 problem, though: Alfa got out of the racing business for a reason, because Hitler is coming to power in Germany. One of Hitler’s most important national agenda items is making sure that his German auto industry is the best and that he proves it on the racetrack, just like the Olympics.

So throughout the rest of the 1930s, the German state is supporting Mercedes and Auto Union, which would go on to become what is Audi today. Their cars are just dominating European Grand Prix racing. Enzo and Ferrari are sent out there by Alfa and the Italians to compete, but it’s a fool’s errand. In 1938, Alfa and Mussolini, fed up with losing, actually acquired the Scuderia Ferrari and remade it as part of Alfa Romeo, into this official sort of government entity.

So they decide we do want to put resources behind this. And now you’re kind of the only game left in town, since we shut down the other operations.

Yeah, at the end of the day, this is just rearranging deck chairs because the war is coming. The very next year, Hitler invades Poland and World War II begins. Needless to say, European automobile racing is on hold indefinitely. During this period, Enzo gets into a fight with Alfa Romeo management and manages to get himself fired.

Yeah, this is 1939. He cares about one thing, and that’s auto racing. It’s just not the strategic priority for Alfa Romeo as a company or for the country, and so I think this friction leads to it. The crazy thing is his separation agreement. I think he got paid to leave. But yes, it’s a firing, and it forbids him for 4 years from (a) building cars to race them and (b) using the name Ferrari associated with a racing team or a car builder. He lost the rights to his own name for 4 years.

Well, he gave them up to the Italian government, essentially. So, speaking of which, during the war, Enzo creates a new company to feed the Italian war effort that he names Auto Avio Costruzioni—Auto and Aviation Construction. Which is funny—he sneaks that auto in there because—

You’re not really supposed to be building cars and racing them, but I’m doing other stuff too. It’s not called “Ferrari.”

It’s not called “Ferrari.” But this same company is better known today as Ferrari Società per Azioni, or Ferrari S.p.A., the Ferrari joint-stock company that is publicly traded on the New York Stock Exchange under the ticker RACE.

Yes, best stock ticker ever.

Best stock ticker ever. Indeed. So what is this company doing? They’re not making cars, even though auto is in the name. They’re making machine tools in the workshops—in essentially the factory that Enzo has created there in Modena. On each tool they make throughout the war effort, Enzo has them stamp the prancing horse and the words “Scuderia Ferrari Modena,” clearly signaling his intentions after the war of what he’s going to do.

I bet those are some very valuable collector’s items if you can find them.

So anyway, Enzo and his factory are pretty good at making these machine tools, and they become part of the war effort. As the war wears on and the Allies push into Europe, Enzo and the government start to worry about them bombing the factory in Modena. So in 1943, he decides that he’s going to move all of his operations out to a small town in the countryside to avoid the bombing. He’s going to go about 15 kilometers south of Modena to Maranello. And that’s why Ferrari, to this very day, is in the small hamlet of Maranello, not in the bigger city of Modena.

Yep. So even despite the move to Maranello, the factory does get bombed twice during the last days of the war. After the war, that leaves Enzo at a crossroads. The factory’s not quite in ruins, but it’s been bombed.

Disarray. Significant disarray.

Disarray. And he’s just spent the last 4 or 5 years building machine tools and has gotten pretty good at it. Then Enzo gets a visit from an old racing pal, an Italian who spent the war not in Europe, but in exile in America: Luigi Chinetti, the man who brings Ferrari to America. So Luigi and Enzo met way back when Enzo joined the Alfa Romeo racing team as a driver, and Luigi was a mechanic on the team who also became a driver and eventually ended up in New York.

When the war is over, Luigi goes back to Italy to visit Enzo, and he tells him about America. So this is a quote here from Brock Yates’s biography of Enzo. Brock Yates was the longtime editor of Car and Driver magazine.

“Chinetti described the miracle that was America, the aggressiveness of its people, their childlike acquisitiveness, and their bourgeois credulities. Yet there was a rich upper class whose tastes were European. He had seen them, met them, gained their trust as he kept their aging European automobiles operating through the war years. He knew they would pay a king’s ransom for Enzo’s elite machines. And he, Luigi Chinetti, meant to exploit that naive colonial lust.”

What writing!

What writing! Enzo agrees. Now, legends would say later, and Luigi, I think, would probably perpetuate this himself, that Luigi is the one who convinced Enzo to abandon the machine-tools business and focus only on cars again after World War II. That’s false. Enzo was planning to anyway. There’s no way that he really was gonna go into machine tools.

By 1943, his non-compete is up and he’s allowed to use the name again. And so the clock’s ticking.

The clock’s ticking. But it is true. Luigi definitely convinced Enzo about America. And America was critical for Ferrari.

And you know what wealthy Americans are extremely interested in when they’re considering whether they’re going to buy an extremely expensive, rare automobile? They love that cold shoulder of an artist, creating the car mysteriously in some small town in Italy who’s just interested in racing. He’s not interested in mass-market cars. You’re just lucky to get one of these racing cars, and he couldn’t even care less about you.

Oh yeah. Oh yeah.

That sells cars.

And boy, does Enzo know it.

Yeah, he totally leans into this. This is part of the perpetuation of the myth. This is why everybody believes, oh, he wasn’t really a businessman. He just wanted to race cars.

Yeah, the whole persona of Enzo Ferrari—the dark sunglasses.

Oh yeah. What’s the tidbit you got on the sunglasses?

It was an act. He would wear the sunglasses in public, in press interviews, and in meetings with clients or whomever. Then everybody else would leave the room and he’d just take them off and put them on the table. He didn’t wear sunglasses all the time, only when crafting his image. But he leaned into it.

4. Ferrari Starts Selling Cars

So one way or another, the machine-tools business is out the window, and Enzo is back in cars. 1947 is the first year that they get going with the newly renamed Auto Costruzioni Ferrari, now that he can use the Ferrari name. In 1947, they build 3 cars just for team racing, just for the Scuderia. During the year, they enter 14 races and win 7 of them. Pretty good—a 50% win rate for the newly rebuilt Scuderia Ferrari. They didn’t sell any of those cars.

Yes. Enzo Ferrari, to this point in history, has not sold a car yet. And how old is he, David?

He is, in 1947, 49 years old.

This is this great classic founder myth of the young hotshot who starts this thing. Ferrari, yes, it’s a racing team, but it is a car company that sells cars to consumers. And by age 49, Enzo had never done that.

Yes. Now he has established the brand and the myth and put all the pieces in place to create Ferrari. But yes, he did not sell a single car to a customer until 1948, when they introduced the Ferrari 166 MM Barchetta at the Turin Motor Show. And Luca Dal Monte, in his biography, writes:

“For Enzo Ferrari, the 166 MM Barchetta was a declaration of intent, a sports car with a sensual shape, as fast and powerful as it was beautiful and elegant. It was the foundation on which, from that moment on, he would build every road model. Cars capable of winning races on circuits and roads all over the world, and at the same time, being the protagonist of the most prestigious concours d’élégance in the four corners of the earth.”

What a great description of what a Ferrari is.

Absolutely. Enzo is really figuring out how to create desire here.

Yes. These machines are beautiful. And they’re deadly. That is the point. You can enter them in a race. You can be competitive. You might even win, as we see in a second. And you can drive them around town and look beautiful and elegant when they work.

Yeah. The Ferraris in this era—the late ’40s, ’50s, and ’60s—were not the most reliable machines, especially the road cars.

I think you could also lump in the ’70s and the ’80s, and a large chunk of the ’90s.

There’s this fascinating thing about luxury: reliability is not actually a relevant part of the equation of how desirable this machine is, or how much I lust after it.

I think it’s from the book The Luxury Strategy, anti-law of marketing number something or other: ensure that your product has enough flaws.

Yes!

Boy, do Ferraris have a lot of flaws.

Yep. So this first Ferrari, the 166 MM Barchetta, they produce about a dozen of them that year in 1948, both to race themselves with their own team drivers and also to sell them to wealthy private clients. Two of the very first models are sold to American clients through Luigi Chinetti: one to Tommy Lee, who is a wealthy Cadillac dealer in Los Angeles, and one to Briggs Cunningham, who is one of the Procter & Gamble heirs. You get a sense of who the customers are in America.

Right, they’re setting the precedent.

Others are sold to various European racers and nobility, including Italy’s own most celebrated industrialist, Gianni Agnelli, the patriarch of the Agnelli family, which owns Fiat. Some might say the Henry Ford of Italy.

The founding family of Fiat.

Not only the owners, but the founders. He was one of the first Ferrari customers?

He was indeed. He bought a 166 Barchetta.

That's an amazing full circle. Poetic. We'll come back to that at the end of the story.

Oh, yes, we will. So then, the next year, Luigi Chinetti—he's a real believer in the potential of these machines that Enzo is building to make a lot of money and generate a lot of desire—takes one of the 166s and enters it in the first running of the 24 Hours of Le Mans after World War II, the first postwar running of Le Mans.

The car that he takes—Enzo doesn't think the 166 is ready for Le Mans. He doesn't want to enter. But Chinetti says, “No, no, I'm going to go do it.” So he takes a privately owned car owned by the British nobleman and gentleman driver Lord Selsdon. And they win. They win Le Mans.

Oh, wow.

The whole thing.

Not endorsed by Ferrari the company, just a sort of gentleman driver.

It is the first major international race victory for a Ferrari car, but it's not run by the Ferrari team. So this is a big deal. This is the first time it's being run after the war, and here's this startup Italian—I mean, startup—everybody knows the heritage of Enzo Ferrari and who he is. But here's a Ferrari winning. And it's the perfect illustration of the business model and Enzo's entrepreneurial genius. He's got the brand. It's the Ferrari that won, but it doesn't even have to be his own racing team.

Right. Oh, that's interesting. It creates just as much consumer desire for those cars, whether it's him entering the competition or not.

All anybody knows, and all anybody in America definitely knows, is that a Ferrari just won Le Mans. And, man, I have to get my hands on one of those things.

And it really validates the engine. Famously, Enzo Ferrari's reputation is that he was an engine guy. He's got a few great quotes on this. His comment is, “I sell engines, and the car I throw in for free.”

Yes, such a great quote.

Another great one: “Aerodynamics are for people who can't build engines.”

That's like that one from the AMD guy: “Real men have fabs.”

Yes. Yes. Eventually, Ferrari would become very much about aerodynamics, in addition to engines.

Yes. But we know where Enzo's heart always was.

Yes. He also famously was a late adopter of new technology. This is very, very different today. But in the early days—I mean, we're going to talk about Formula 1 here shortly—in those early days of F1, other teams figured out, “Hey, you should probably move the engine to be a mid-engine, sort of above the rear axle, not in the front of the car.” And Enzo is very much biding his time. He's like, “Well, wait and see.” And he's got this idea that, in a carriage, the horse pulls the carriage.

Yeah. God put the horse in front of the carriage, so the engine's going in front of the car.

Surely the engine should be in the front. Yes. And it took years to adopt the sort of correct, most balanced way to do it, because he not only wanted to be a late adopter of technology to let other people prove it out, but also because he was in a position to do so as a very early luxury pioneer here. He realized that it only helped build the Ferrari myth to talk about the old ways of doing things.

This is the point. It's all about the myth-building. Enzo knew exactly what he was doing.

There are even funny entries in the historical record where, in the same month that Enzo is out there talking about how the engine belongs in the front of the car, in Maranello there are teams constructing next year's mid-engine car. So: say one thing, do the other.

Yes. Yes. Very Enzo. It's worth a moment here to talk about what actually is Ferrari at this point in time, after Le Mans and when they're selling the 166, because it's pretty pioneering. It's 3 separate things all under the same roof. It's its own professional racing team. It is a world-class racing-car constructor that builds cars both for its own team and for private clients. And it's also all of the support infrastructure that you need to do both of those things.

It's not like Lord Selsdon could just buy a 166, drive it up to France, and enter Le Mans. You have to tune these things for the race that you're driving, and Ferrari is providing that for its own team and for its clients. This is pretty revolutionary. Nobody else had really created something like this before.

Other car manufacturers, as we talked about with Alfa or Mercedes, or even for a point in time, Fiat, had their own racing teams, but they were separate operations. Think about the Mercedes racing team today. It is a completely separate operation.

Yes. Or most of the F1 operations today that carry the name of a constructor or a car brand. They're actually separate companies that happen to be owned by—

Yeah, separate locations.

Yes.

The whole thing. There is some tech transfer, I'm sure, from the Mercedes F1 team to AMG performance cars, but it's a tenuous connection.

Whereas in Maranello, they're sitting there on the same plot of land.

For many decades. The early history of Ferrari: it's the same people, the same people making the same cars under the same roof. The pinnacle of motorsports, road cars that you can buy, built and maintained and serviced by the very same people. That is an incredible proposition as a client.

And if you think about it, it's really not that different from any other luxury-company heritage out there, like Thierry Hermès and his sons making saddles for the nobility and the new haute bourgeoisie on the boulevards in Paris, and also making saddles for the jockeys jumping and racing on the weekends. They're the same people making the same saddles. Enzo and his team are the same people making the same cars.

But I think you nailed this point that is a little bit lost today, which is that even then, in 1950-ish, you're not just going to go buy a Ferrari and then race it. This is a highly maintained, serviced thing that is not just a product that you own. It is a bundle of product and services that get it ready for any given situation.

Yeah, we joked earlier about how you could drive these things on the street when they worked. That was part of the point. They were built to be racing machines. A lot of clients didn't race them, or, if they did race them, didn't race them very well. But the point was, you could. This was a weapon. This was not a mode of transportation.

That's a trade-off clients were intentionally willing to make. This is not the most practical car. It's going to have all sorts of issues if I want to use it as my daily driver. But it's an amazing race machine. And because I race—or maybe not because I race—I want to own a race machine. And so I'm buying it, trade-offs and all.

Yes. Yes. So then, in 1950, the pinnacle of motorsport arrives: the new Formula 1 World Championship Series, as we talked about at great length on our Formula 1 episode. Ferrari, of course, would become one of the founding teams and the only F1 team continuously operating from the beginning of the sport all the way through to today.

Of course, they are participating in the pinnacle of motorsport. As we've just been talking about, that is integral to what Ferrari is. And if you buy a Ferrari as a client, what you are buying is a direct connection to that ongoing heritage in a way that you are not with any other auto manufacturer.

At least not at this point in history. In 1950, there have been many others who have tried that strategy since, obviously less successfully than Ferrari, and we'll talk about why. But yes, this is the Ferrari formula that they uniquely execute well on.

Yep. So as we continue the operatic life of Enzo Ferrari here, the reentry into the racing business and the new pinnacle of motorsport in Formula 1 unfortunately comes with renewed tragedy.

Enzo would hire the young Alberto Ascari, who is the son of one of his 2 mentors who died when Enzo was racing for Alfa Romeo. Enzo would take Alberto under his wing and treat him almost like a surrogate son. Until, in 1955, Alberto is killed practicing in a Ferrari at Monza at exactly the same age that his father died.

Enzo vows that he will never become emotionally close to a driver again. He's witnessed too many deaths in his life. But unfortunately for Enzo, death during this time was only just beginning to reenter his life and his company.

And the next death is really the one that kind of defines the rest of his life going forward.

So here in the 1950s, the truly, truly beautiful and truly, truly tragic opera of Enzo and Ferrari continues. First, let's talk about the beauty: the Ferrari 250 series, which for some of you means a lot. For the rest of you, we're talking about the Ferris Bueller car—undeniably one of the most beautiful automobiles ever manufactured.

But David, did you know it is the Ferris Bueller car, but the car you see on screen is actually not a Ferrari?

Yes, it's a replica. And Ferrari sued the replica maker after the movie, right?

That's right. Believe it or not, it is essentially a retrofitted Ford.

Yes. Deeply ironic, given what we are going to talk about in a minute here.

And then there's a second version of it that I think is an even less real, drivable car that they used when it slid through the glass and fell down and smashed on the ground. So they did not wreck a real Ferrari. In fact, there isn't even a real Ferrari on camera in that entire movie, or at least in that shot.

Yes, you don't need to worry. No 250s were actually harmed in the making of Ferris Bueller's Day Off. So, as we talked about, the first Ferrari that Enzo sold to clients was the 166, but fewer than 100 of them were ever made.

Which must mean that there was demand for 101, because there's the famous Enzo Ferrari quote that is the business strategy today: Ferrari will always deliver one car less than the market demand.

I think that actually might be the strategy today. Back then, with the 166, there was demand for a lot more than 101, but they could only make 100. So in 1952, Ferrari comes out with the 250 series, and this is the first real production Ferrari. Over the next set of years throughout the '50s, Ferrari manufactures a few thousand of them.

So, still a very, very boutique, essentially handmade sports-car manufacturer, but a lot more scale than the 100 or so.

Yeah, real production volumes.

Yeah. And as we were alluding to earlier, this car is just stunning. No matter which variant you're looking at, the one in Ferris Bueller's Day Off is a 250 GT California. It is truly, truly beautiful.

And it was designed not by Enzo Ferrari, or even anybody who worked at Ferrari. It was designed by Battista “Pinin” Farina and his Pininfarina coachbuilders. So remember earlier, when we talked about how Enzo's first business venture was going to be as a coachbuilder? Turns out that was not his calling in life, but that was the calling in life for Pininfarina.

He was basically the Michelangelo of car-body coachbuilders, and Enzo totally realized it, totally glommed onto it, and built this beautiful partnership with Pininfarina—first Battista himself, then his son Sergio, and then multiple generations—that lasted 61 years. This was a multigenerational partnership that lasted all the way up until 2013.

The LaFerrari?

The LaFerrari halo car was the first fully in-house-designed Ferrari. And during those 61 years, I believe every single road-going production Ferrari except for one, I think, was designed by Pininfarina.

Wow. It's quite the run.

It really is. So Luca Dal Monte, in his book, writes: “Enzo was looking for someone who could complement the mechanics of his cars with their body designs. Body and engine, elegance and power had to go hand in hand and had to be born and grow together. He said that he was not looking for a tailor, but for a coachbuilder who worked at his side and conveyed in the shape of the body the power and philosophy of his cars. The coachbuilder, he said, must be involved from the beginning of the project, not merely called upon to dress a finished project.”

It really was a partnership between Enzo and Pininfarina.

As much as Enzo would make noise about, “Oh, I just make engines, and then we slap some aluminum on. I don't really care what the aluminum is.” No, these things were thoughtfully designed and built hand in hand.

Yeah. Pininfarina was like the Jony Ive to Enzo's Steve Jobs.

That's a great analogy.

And in fact, Jony Ive is going to come back into the story later, as we shall see. It's probably also worth a quick moment here to talk about the Italian nature of beauty and luxury versus the French nature of beauty and luxury that we've covered on Hermès or LVMH.

In both cases, French luxury and Italian luxury, what you are buying when you are buying one of these products is a mixture of craftsmanship and a dream that it represents. But the nature of those 2 ingredients is different between French and Italian luxury.

The primary ingredient in French luxury is the dream, and specifically the dreamlike connection to French royalty and this mostly imagined past—that, you know, if you buy a Birkin bag or if you buy a Louis Vuitton trunk, you too can be like the bygone French royalty.

Of the nobility. Yeah.

Yes. Exactly. Exactly. You can live that dream. You can live that life. And the beauty that's associated with that is very regal, very soft, very refined, very elegant.

And quiet. It's not yelling at you. There's no engines involved.

There are no engines involved, that is for sure. There are French carmakers, but we're not going to make any episodes about them, shall we say?

Italy, though, doesn't have the same kind of history as France. I mean, it's got the Roman history and all that ancient history, but it doesn't have the same royal lineage and history. So with Italian luxury, the primary ingredient is the craftsmanship, and that's embodied in the design and the passion.

The myth, the dream that you're buying is about reinforcing that passion, that emotion that went into the product. And the best way I can think of to illustrate this is just the centrality of the designers.

Who are the designers at Hermès? If you really know the house, if you really know Hermès, you probably know who the designers are. But for most Hermès clients, it's just like, “Oh, this is Hermès.” In Italy, it's totally different. You could have Gucci, but it's like, “Well, which Gucci is that? Is that Tom Ford Gucci, or is that Gucci in the wilderness?”

Or name your other designer, like Giorgio Armani, Donatella Versace, Valentino, or Brunello Cucinelli today. The actual people and the designers and their passion and their personality are much more central than in French luxury.

That's interesting. I'm not sure I totally agree with the distinction, but a thing that I will say is you go to Paris to absorb the history and look at the fine museums, and you go to Italy to feel something.

To let loose, to live your life to the fullest, to let your hair down. I mean, it's a whole different side of life they are asking you to embrace when you are doing something distinctively Italian.

Yes, it is a very different kind of thing. And in this era, right after World War II, the greatest designers and the greatest innovators in Italy were the car designers.

And these are death machines.

Totally.

You're on the edge. You're living every ounce of life that you possibly could to the fullest. These are death machines, and they are being designed by the era's and the country's most esteemed designers.

Yes, yes. They are beautiful death machines beckoning to risk it all. That is exactly on point. And thus comes the yang to the yin of beauty, which is this tragedy and death that is such a part of Ferrari and motorsport.

So we talked about how, in 1955, Alberto Ascari, the surrogate son, if you will, to Enzo, was killed at Monza. The very next year, in 1956, Enzo's own son Dino, whom he had been grooming to take over the business—

He's the heir.

He was to continue the family lineage. His heir, his actual heir, dies at age 24 of muscular dystrophy. So not in a race car, but from a horrible, tragic disease.

I mean, and that's even more tragic.

Yeah. It's more romantic if he had died in a race car.

And Enzo has spent 24 years since Dino's birth keeping him safe. I mean, doing everything within his worldly power to keep him from being around race cars.

Yes. Yes. It's such a great point. It's truly shattering for Enzo. This is the shattering event among many shattering events in his life, because it's, of course, the grief for his lost son, but it's also the grief for his empire. It's gone. He has no heir anymore. The line won't continue.

So, after Dino's death, Enzo stops going to races. It's sort of like a self-inflicted punishment: if Dino can't be here with me to go to the races, then I will no longer travel to or go to the races, to my great, terrible joys.

And it is both the end of his family line, or so he believes at this point in history, but also the end of the inherited company. This is an old-school era of capitalism, where the company would be passed down through the male heir in the family.

Today Ferrari is a publicly traded company with multiple families and owners, and parent companies and holding companies involved. Enzo’s assumption here is that none of that is going to happen in the far future. It is that Dino, my son, will own it and his descendants will own it.

Well, if you know anything about the shareholding structure of Ferrari today or its board of directors, you might say, “Wait a minute.”

There sure is a Ferrari who owns it.

Yeah. Isn’t there a current member of the Ferrari board of directors named Piero Ferrari who owns 10% of the company and is also the biological son of Enzo, who very much would have been alive at this time? Enzo had an affair. Enzo had many affairs, but one of his affairs with a woman named Lina Lardi produced a son, Piero.

The just devastatingly cruel reality of Italy in that time and place is that illegitimate children by law did not exist. They were invisible. Piero was invisible at this point in time. So Enzo knows he has this other son whom he loves, but who will never inherit his empire.

When you say invisible, he certainly isn’t a Ferrari—not taking that surname. Divorce was illegal at this point.

Yes, divorce was not legal in Italy until the 1970s.

So, in the eyes of the law, he was not an heir, not capable of being an heir.

A tragedy is the only word that I can think of to describe it. So that was 1956. And then in 1957, at the Mille Miglia race in Italy—

This is an amazing, legendary race through Italy that ran 1,000 miles. It ran from 1927 to 1957. It is beautiful and bloody. There is at least 1 death in every single year except 1927, a small span from 1931 to 1934, and another 2-year span from 1936 to 1937.

Basically, this was a race that everyone came out for and watched death. Enzo has a quote on this. He loved the Mille Miglia. He said, “It is the race of the people. One may say that the whole of Italy leans forward with her eyes on the tarred strip of road somewhere along the course on Mille Miglia Day. It is a day when I feel that my life is useful.”

Hmm. Wow. I didn’t realize that this 1957 race is the last one.

It is the last one.

So, at this race in 1957—again, 2 years after the Formula 1 crash that killed his driver protégé and 1 year after the death of Dino—a Ferrari flies off the road and into the crowd, killing the driver and 9 spectators, including 5 children. After the race, Enzo is charged by the Italian authorities with manslaughter.

Was he even at the race?

I don’t believe he was at the race, no.

But he’s the owner of the company that made the car, and there’s a high death count.

Right. Well, it’s not just that he’s the owner; it’s that he is the architect of this slaughter, basically, which is exactly what the Catholic Church charges him with. So not only is the Italian state—the police—charging him with manslaughter, the church, the Pope, comes after him.

The Vatican’s official newspaper runs a story after the race with the headline “Industrial Saturn.” Saturn, of course, being the Roman god who devoured his own children. And it calls Enzo, quote, “A modern Saturn become industrial tycoon. He continues to devour his sons, as in the myth, so unfortunately in reality.”

Ultimately, Enzo is acquitted after a long legal process, and he reaches a compromise with the Vatican: He can continue racing, and Ferrari can continue to exist as this national champion within Italy.

Oh, is this as long as they’re not Italian drivers?

As long as he agrees to never hire Italian drivers. Basically, you can kill young men as long as you don’t kill our young men.

Brutal.

Oh, man. But all of this, this whole era, weighs incredibly heavily on Enzo.

And you might be wondering: Why do the drivers—why are they okay with the death? Why is Enzo okay with the death? Enzo viewed this as a fundamental human expression of striving. His comment is that one drives at high speeds in order to transcend oneself, and many of the drivers would echo this same thing.

Ken Miles, who is a very famous race car driver, was actually on the Ford and Shelby, the U.S. side that we’ll talk about shortly. His quote on this is, “I’d rather die in a racing car than get eaten up by cancer.” And it’s this idea that, look, we’re going to die, but I get to feel like I live the most life by putting my life at risk and living right on the limit.

It’s a way of fighting back against death. These cars are weapons to fight against death. You can come right up and stare death in the face, and you can hopefully say, “Not today”—or not.

So again, paradoxically, all of this tragedy is just great for business. This is part of the attraction. It only makes Enzo and his Ferraris more globally known, more romantic, more coveted.

It’s like Porsche when James Dean died in the Porsche 550 Spyder, or in the modern era when Paul Walker died in the Carrera GT. That made those cars legendary. That made people want them. And here is Ferrari. It’s even more.

His cars are being labeled by the Pope as forbidden fruit. If you’re a young man—or, more accurately, a middle-aged man having a crisis—what more could you desire?

And if the Pope says you just can’t do this one thing, what’s the one thing you’re going to be interested in doing? It’s like a toddler: “No, as long as you don’t have candy, you can do anything you want.”

Exactly. So throughout the late 1950s, sales of Ferrari 250s are ramping. They are flying out of showrooms across the world, particularly in America. By 1960, production reaches 300 cars a year. They’re making more or less one 250 every working day. By 1962, it’s 500 cars a year.

I believe at this point, distribution is roughly divided—a third, a third, a third—between local Italian clients, American clients, and the rest of Europe. Production just keeps growing by, call it, 50 to 100 cars a year throughout the early 1960s, and there is plenty of demand.

By 1963, though, Enzo is now getting older. He turns 65. He’s had all this death. He publishes his memoirs, which, as we said before, are aptly titled My Terrible Joys.

His plan by this point is to get ready to hand the company to Dino, but Dino is dead. At a press conference, one of the journalists asks Enzo, “You’re older now. What will happen to Ferrari when you’re gone?” And he replies with the famous quote from King Louis XV in France: “Après moi, le déluge.” Chaos. The French Revolution. It’s all coming after me. It’s all going to end with me.

Of course, Piero at this point is already working at Ferrari. He’s an employee at Ferrari, but it’s a secret that he’s Enzo’s son. And he knows he can never inherit.

I didn’t realize it was still a secret.

Yeah. People within the company know, but you don’t talk about, “Hey, Piero is actually Enzo’s son.” The question that the journalist asked remains, though: What’s going to become of the company? Well, enter the Ford Motor Company and Ford versus Ferrari.

Yes. So, listeners, most of this is from the book Go Like Hell, which is the book that Ford v Ferrari is based on.

The movie. Yep.

5. Ford Takes On Ferrari

So, in 1963, Henry Ford II—notably, this is the grandson of Henry Ford I. There’s Henry Ford, then Edsel, then Henry Ford II—and he’s looking to make his mark.

At this point, it’s third-generation ownership. Ford is this great American company. There are a lot of people throwing barbs, saying, “Well, this is your grandfather, and that was your father, but how much of this is really you?” That’s starting to weigh on him.

He decides that Ford needs to be in the racing business to change their image and stimulate sales for the new generation. Over in the racing world of Ferrari, they’re on a hot streak. We’ve been talking about their production at this point in time, but they had just won Le Mans in 1958, and then all in a row in 1960, 1961, 1962, 1963, 1964, and 1965.

So if you are interested in entering racing, either you’ve got to beat Ferrari or you’ve got to own Ferrari. The Deuce, as Henry Ford II was known—

What a great racing moniker, the Deuce.

Right? Oh, and Enzo’s got some great ones, too.

Yeah. I mean, ultimately, in his older age, he becomes the Grand Old Man. But what was he before that?

Il Commendatore. And the Drake. He’s got some great ones.

So the Deuce, over in America, gets word—strangely, through their German subsidiary—that a mysterious letter has arrived from the German consulate in Milan, saying that an internationally known Italian automobile factory is interested in selling.

Already, you should be a little suspicious of how this information comes to Ford. But Ford just goes, “Oh, this is interesting. Let’s try to figure out who’s thinking about selling.” Well, it doesn’t take them long to figure out that it is Ferrari. It’s Enzo Ferrari.

They begin a process to try to buy it. Ford at this point has basically no racing capability of its own. This is an entirely new muscle for them. So they make an offer to buy Ferrari. The asking price was originally $18 million, but somehow Ford manages to easily negotiate it down to $10 million.

Again, a little mysterious, a little suspicious. Maybe that was a little bit too easy. The agreement that is drafted hits Enzo’s desk. Think about what could have been. This is the craziest pitch.

There are 2 companies that are formed. One is called Ford Ferrari. It is 90% owned by Ford, and it would make road cars.

There's a second called Ferrari Ford that's 90% owned by Ferrari. That's the racing team. So this document is on Enzo's desk. He digs into it and looks through the fine print, and he realizes: if I want to go racing and Ford doesn't want to go racing, who decides? Of course, Ford says, “Well, we're buying your company. We have the final say.”

Right. So Enzo, of course, hates this. In dramatic fashion, he blows up the deal right at the finish line, all while the papers had been reporting—the information had leaked—that the Americans were about to buy this Italian national treasure. It makes big headlines when the deal blows up. You can imagine why this is in Ferrari's public relations interest, based on everything that we've been describing about their business strategy.

Of course, Henry Ford II is absolutely incensed, and he has this great quote. In May 1963, he goes to his lieutenants and says, “We will go to Le Mans and beat his ass. We're going to race him.”

And Enzo is probably thinking, “Dumb Americans,” the whole time. There's this great quote in the Brock Yates book about Enzo and his opinion of the Americans, which is something like: he realized the fundamental truth to selling European luxury goods to Americans—“Treat an American like a hick and you'll own him for life.”

Oof, that hurts. So the whole Ford versus Ferrari movie is what happens next, and it's a great movie with Christian Bale and Matt Damon. While it's, of course, dramatized, the bones of the story are actually pretty factually correct. I highly recommend it.

What happens is Ford, who at this point says, “We've got an unlimited budget. We just gotta go beat these guys,” enlists the help of Carroll Shelby, the driver Ken Miles, and a real crack team of American mechanics and racers. They actually do, after a few years, beat the Ferraris in the 1966 Le Mans race, finishing with Fords in first, second, and third. It's this incredible story, but ultimately this is a complete sideshow.

Yeah. What's really going on? What are Enzo's true intentions here?

So this is done, of course, to market the exclusivity of Ferrari and how they're the mark to beat. It's a great tactic to sell cars, but it's also to signal that Enzo is willing to do a deal. He is willing to sell the company. That's why he wanted all the papers writing about the fact that he was willing to sell. But it had to be on his terms with the right partner, and he had to be able to go racing.

Yeah, it's kind of like Enzo and Ferrari got a dual benefit out of this whole saga. One, as you said, this is only great for the myth and legend of Ferrari: “Oh, we were going to sell to these big, ugly Americans, but they wanted to take our racing from us, and we said, ‘No, you'll have to kill us in order to take it.’”

Exactly. And it is this Italian national treasure. I mean, that's real. That is the cultural export of Italy.

Yep. And it was a way to signal to the market, “Hey, I might be open to a deal.”

Yes. So any last little misconceptions you have about Enzo Ferrari not being an excellent businessperson and negotiator should be completely dispelled at this point. So, David, what happens next?

All the Ford versus Ferrari drama was going down between the years of 1963 and, call it, 1966 or 1967. Through all this, Enzo's doing great. He's in his late 60s at this point, but he's loving life as much as Enzo is capable of loving life. He's healthy. He's reinvigorated by this battle. Everything's going great.

Then, after all the Ford drama, in 1968, Enzo contracts kidney disease. It's pretty bad. He thinks this is probably actually going to be the end.

And statistically, he was right.

Yeah. It gets so bad, as we'll see in a moment, that shortly after this, in 1970, he goes into organ failure and has to be hospitalized for months. He really should have died at this point in time. But, as always for Enzo, fate has other plans.

Once he comes down with the disease, he gets serious about actually selling the company. He sniffs around, talks to his old buddies at Alfa Romeo, and they work on a deal not to Enzo's liking. Really, at the end of the day, there's only one correct buyer for Ferrari, and it's Gianni Agnelli in the Fiat empire.

6. Fiat Buys Into Ferrari

So, in 1969, Enzo strikes a deal with Gianni to sell 50% of Ferrari to Fiat immediately, with a secret agreement that, upon Enzo's death—which, again, he thinks is imminent—Fiat will acquire another 40%, taking its stake to 90%, and 10% of the company will transfer to Piero. Once Enzo dies, his plan is to, as much as he can, legitimize Piero, give him the Ferrari name, and give him a 10% stake in the company so that the bloodline, to some extent—as much as it possibly can in that time and place—will continue.

Part of the deal with Fiat, just like he wanted with Ford, is that Fiat can take control of the road-car business, but I'm going to retain final authority over racing. I know that my end is near, and I want to spend my last days on this earth doing what I love, which is running the racing team.

The incredible irony was that the end was nowhere near—nowhere near. And, actually, the world would change enough between this moment and when he would eventually pass that Piero is able to take over as Piero Ferrari, son of Enzo.

Yes.

So how many years was it between 1969, when the 50% sale to Fiat happened, and when he passed away?

He lived another 20 years.

Yes!

19 years.

1988. He lived until I was born. So where's the end of his life?

Well, he lived to launch the F40, which is the last car that Enzo launched.

So there are 2 really interesting things about this deal. One, Enzo started his career by applying for a job at Fiat and was turned down. So that's a total full-circle moment there. The other full-circle moment is that Gianni Agnelli was one of the very first Ferrari customers for their road cars. It's amazing.

When you look at the actual deal, this blew my mind, David. If you do the lira-to-U.S.-dollar exchange rate in 1969, they ended up selling half the company for a little under $3.5 million, valuing all of Ferrari at $6.8 million. Wow. Oh my goodness.

Enzo really wanted to do this deal, and I think he determined at this point in history—I haven't seen this written anywhere, but I'm reading into this—even Ford thought it was worth somewhere between $10 million and $18 million earlier in the decade. Enzo basically had 1 bidder, and he thought, “I have no exit path other than this. This needs to land with Fiat, and whatever the price is, it is.” I think Fiat basically got a steal on this because it needed to stay in Italy and it needed to go to a strong, thriving car company—

Car company and family in the Agnelli family. Well, all of this just underscores the most critical point here. I think this is probably the moment in history where the false legend that Enzo only cared about racing and wasn't a real entrepreneur emerges from.

If you look at the fact pattern, it makes sense here. He wanted to spend his last days racing. He did this not-great deal with Fiat. The only reason this happened is because he truly thought he was about to die. He really did just want to spend his last days on Earth running the racing team, and he wanted to ensure continuity for the company and a role for his son Piero going forward. That's what happened here.

The state of Ferrari is kind of grim at this point, too. The factory needed investment. The racing program was unbelievably expensive. They're starting to face very real competition from Lamborghini. Automobili Lamborghini was founded in 1963 specifically to challenge Ferrari, which we'll come back to. And there were manufacturing headaches because of Italian labor unrest. Asking someone to take on Ferrari's operations was a tall order, in addition to needing to sell.

Yes, I'm glad you brought up Lamborghini. Lamborghini had just launched the Miura at this point in time, which was a truly excellent car. A better Ferrari than a Ferrari at the time. So there were real headwinds in the business.

This is really why Fiat and Gianni Agnelli had to be the buyer to steward Ferrari through this period. Now, as we said earlier, fate had plans other than death for Enzo. Right after the sale, in 1970, Enzo does go into organ failure and is hospitalized. He's away from the business for many months, which makes it incredibly fortuitous that he had already done the deal with Fiat. So there was management to keep the company running while Enzo was away.

Miraculously, though, he recovers. And in the spring of 1971, Enzo, the grand old man, is back in Maranello at the head of Ferrari. But it's a Ferrari that he barely recognizes from when he left. Fiat has come in, and this is where he intersects with another young man who would go on to carry the legacy and spirit of Ferrari for really the next 40 years and into the next generation, and build Ferrari into what it is today.

With a break in between.

Okay, so David, Luca di Montezemolo—at least the first act of Luca, anyway.

Of Luca's story, yes. So in 1971, when Enzo gets back to the office in Maranello after his hospitalization, he tunes in to a fateful talk radio show where he discovers a young man who will bring a breath of fresh air into his life. Luca. Luca di Montezemolo, to many of you listening, is already a living legend. As much as anyone in Ferrari history besides Enzo, Luca di Montezemolo is Ferrari.

As I mentioned, I was very lucky to get to speak with him for a few hours in research for this episode. I also got to watch this great movie about him that has just been made. It's called Seeing Red. It's with Chris Harris, the Top Gear presenter.

Yeah. How did you get that? Because that's not out yet.

Yeah, it's not distributed outside of Italy yet, but I got a link to watch it. It's directed and produced by Manish Pandey, who wrote and produced Senna, the Senna movie. It's really excellent. When it's available in whatever geography you live in, it's very much worth watching.

So Luca was born in 1947, the same year that the modern Ferrari commenced operations, in Bologna, Italy.

Very poetic.

But he moved to Rome as a child, where his best friend growing up was Cristiano Rattazzi, who is the son of Susanna Agnelli, Gianni Agnelli's sister. So Luca grows up almost like a member of the Agnelli family. His best friend is one of the Agnelli heirs, and Luca comes to develop a close relationship with Gianni. He would say, “Gianni was like a combination of an older brother and a father for me.”

So in 1970, young Luca moves to New York City to study international law at Columbia Law School. Around the same time, though, he's also pursuing another career as a rally car driver.

Really?

A rally car driver, right? Yes, yes. I don't think I've ever seen a Ferrari rally car.

I don't think these 2 things have ever intersected. These universes are about as far apart as you could possibly get.

But this is how Luca starts in motorsport. So on that one fateful day in 1971, Luca, the rally car driver, is a guest on this popular call-in talk radio show. An audience member calls in to accost Luca and chastise and criticize the entire motorsport industry, much like the Pope in 1957. The caller starts laying into Luca, talking about how motor racing is evil, dangerous, and bad for the environment. This is a sport just for rich people. It has no value in society.

And Luca, impassioned, rises to the occasion and gives this passionate defense of motor racing. He speaks eloquently and poetically. He shuts down this caller and really gives this incredible response. And who happens to be listening to the program? Enzo Ferrari. Unbelievable. You just can't make this stuff up. You really cannot make this up.

And he's kind of this perfect person, because if Enzo is going to take a liking to him here, I don't know what you're about to say, but if he's Enzo's guy and also a pseudo-family member of the Agnelli family, it's kind of this perfect candidate pool of 1.

Yes. So Enzo calls up the radio station, and he's like, “I gotta know who this kid is. I want to get in touch with him. Who is this rally car driver?” Literally, the quote Luca told me is that this is what Enzo told the radio station. Enzo said, “This boy has big balls. I want to talk to him.”

Wow.

So Luca and Enzo meet, and Enzo says to him, “I like you. You know, you've got big balls. I've been away from my business for too long, and I need some help. What I really need is an assistant, but I need a spy who can go throughout the organization and report back to me what is actually going on in my company.”

You don't have to ask Luca twice. He takes the opportunity and goes to work for Enzo as his assistant here in the early '70s. At some point along the way, Enzo also learns of Luca's connection to the Agnelli family, which makes him even more attractive. He's thinking, “Oh, now I can have a spy at Fiat and in the Agnelli family, too.” Great.

The first thing that Enzo assigns him to do is to go figure out what's going on with sales of the road-car business. “Go spend some time with the distribution network, understand who the clients are, understand who the collectors are, who are the dealers.” So Luca does. He comes back and reports. It's not good, as you were alluding to, Ben.

This is a pretty tough time for Ferrari in the '70s. The oil crisis is underway. Any car with an engine size over 2 liters was taxed at an incremental 40% in Italy and throughout much of Europe. The whole sports-car industry is basically in the dumps.

So Luca reports all this back to Enzo, and Enzo says, “Okay, great. You passed your first test. Things aren't good on the road-car side of the business. But at the end of the day, that's Fiat's problem now. My real assignment for you: I want you to go to the next Formula 1 race. Just go. Just observe. Just tell me what you think is going on with the team.”

At this point, in 1973 or 1974, things are really bad for the Ferrari F1 team. They haven't won a Drivers' or Constructors' Championship for 10 years—a historic drought for Ferrari.

So Luca goes, observes a race, and calls Enzo up. He says, “Hey, look, I advise that we just take the cars home and don't race them. We have no chance of winning.”

And Enzo says, “Okay, well, we're not going to take them home, but we need to get competitive again. What are we going to do?”

And Luca says, “The issue is that the sport has changed. This isn't just an engine sport anymore, or about power. We're now in the era of Colin Chapman and Lotus and aerodynamics. Aerodynamics and the chassis are way more important. The Ferrari team is stuck focusing 100% on the engine. We have no chance of winning.”

So Enzo says, “Okay, here's what I'm going to do. I'm going to make you, Luca, the team manager of the Ferrari Formula 1 team, and your mandate is to fix this. I can't fix it. I'm Enzo. I'm the engine guy. You go in. You can be the new blood. You can fix this.”

And this is amazing because this is quite a quick promotion for Luca. This is a guy Enzo found and brought in to be his assistant. He was much more than an assistant, but that was his title. He's not even 30 years old yet, and then suddenly you're managing the Formula 1 team, which historically is the driver that creates all the lust that sells the cars. This needs to start working.

Yes. Luca has this great quote on the nature of the connection between Ferrari's performance on the track and the business selling road cars. He says:

“There is not a direct correlation between Ferrari victories on the track and the number of cars that you can sell. But if for many years you do not win, it means that you do not add wood to the fire of the myth. The myth of Ferrari is based on competition, on cars. In the competition, you can win or you can lose, but you cannot only lose.”

It's so perfect.

So Luca comes in as team manager and revamps the team. He brings in great chassis folks and great aerodynamics folks, and most importantly, he goes out and recruits Niki Lauda to come in as their number 1 driver.

In 1975, with the new team, the new approach, and Luca as manager, Niki Lauda wins the Drivers' Championship for Ferrari, and Ferrari wins the Constructors' Championship, ending the 10-year drought. There is great rejoicing. Luca is now revered across Italy. He's not even 30 years old yet, a young hero who has come in and saved essentially the national team of Italy from this despairing period.

It's amazing. And the funniest thing is imagining, as you describe these conversations, that Luca's off doing stuff and comes back and reports to Enzo. Where is Enzo's house in all this when he's recovering from the illness?

It is around the corner from the Ferrari factory in Maranello. It's this farmhouse. And in this exact period, actually a couple of years before, in 1972—after the illness, but before the Niki Lauda F1 victory—they actually build a full racetrack adjacent to Ferrari's headquarters that goes around Enzo's house.

So Enzo can walk out of his farmhouse and watch them testing the cars on this truly unbelievable custom racetrack only for Ferrari's research and development.

Yes, it's incredible. But he needs Luca, the young guy, to come in and change the culture. Enzo can't do it. He's too bound. He's a prisoner of his own myth and his own legend.

So all of this is great. Truly great. There is rejoicing throughout the country. But there's just 1 problem: Enzo's pretty used to being the guy. So he starts to get a little jealous of this young Luca.

They always have a great relationship. There's not personal animosity here. But a couple of things happen. The next year in F1, there's the truly crazy tragedy of Niki Lauda catching on fire.

Horrific.

He actually caught on fire at the Nürburgring.

He’s severely burned. He should have died. He does not die, and he wants to come back and race. He’s in contention for the championship, but he ends up not winning it that year, even after this great act of bravery in trying to come back.

Enzo, though, remember, is very experienced with these race car drivers and their brushes with death. I think Enzo kind of loses faith in Lauda as a driver after that. He’s like, “Oh no, he fears death now.” Luca still believes in him, though.

There’s some conflict there. Again, it never gets personal. I think they truly do always kind of love and respect each other. But all of this combines. Luca can’t stay at Ferrari, so they ultimately decide it’s better if Luca leaves the F1 team, leaves day-to-day operations at Ferrari, and goes to work for Fiat.

In turn, he remains on the board of Ferrari, but he goes day-to-day to Turin and closer to the Agnelli empire. I think Enzo thinks that he’s going to still have a spy in Fiat with Luca, which maybe he does, maybe he doesn’t. But sadly, this is another tragedy. This is the end of the glory for Ferrari in racing during Enzo’s life.

They had this great moment together, and for the rest of Enzo’s life, there are some ups and downs, but mostly the Ferrari glory on the racetrack is gone and doesn’t return until Luca returns after Enzo’s death.

Much later. And there’s this glorious, amazing return of Luca, and there’s this unbelievable run in Formula 1, and the Ferrari road car business becomes stronger than ever. But basically none of it happens in Enzo’s lifetime.

In fact, the last 10-plus years of his life are a real whimper in the history of Ferrari. The road car business falls on some real ugly times.

Yeah, it’s funny. I had written in my script here about the last days of Enzo Ferrari. They do mostly end with a whimper, not a bang. But there is one little bang. There absolutely is.

His last car is Ferrari’s first official supercar halo car. There were unofficial GTO homologation versions of race cars, and now those things sell at auction for $40 million, $50 million, or more.

One of them sold for $70 million.

Yeah. So those cars existed in Enzo’s past, but there was never a model that was made just to be available for purchase by our best clients—a true, true supercar. Until the F40, which fittingly is the last car that Enzo makes before he dies in 1988.

All right. So tell us about the F40.

Oh, man. Talk about a death machine. The F40 was just this incredible raw beast. If you look at pictures or video of the interior of the F40, this is not a luxurious vehicle. There’s no leather. The door handle is a piece of string. This is the rawest racing machine in its purest form.

It is. Can we throw out everything that is not absolutely required so we can have the lightest-weight vehicle possible? It’s crazy.

No, like raw carbon fiber.

This is the absolute minimum that we could ship. And David, to your point, while this thing is a supercar in the same way that the F50, the LaFerrari, the Enzo, and the F80 are supercars, this is not a luxury supercar.

When you’re sitting in this car, you’re not sitting in here thinking, “I’m a rich person.” You’re sitting in here thinking—

This thing is trying to kill me at every angle.

I’m in some sort of test harness.

Yes. I mean, there are videos online of people crashing Ferrari F40s. Tragic, of course, because they’re amazing machines. But if you get in this car and you do not know exactly what you’re doing, you’re going to crash.

It’s interesting. The F40 punctuated the end of Enzo’s life, or the end of the Enzo era at Ferrari, in this really interesting way, because it is a supercar in the same way that the modern cars are supercars. They’re high-performance machines, but it had every flaw of the Enzo era of Ferrari.

It wasn’t practical. It was purely about being a race car and made every compromise possible to get there.

Yep.

Ferrari will never make another one like it again. We should say also what F40 means. It was the 40th anniversary of the commencement of operations of the modern Ferrari—from 1947 to 1987, when the F40 came out.

Then, the next year, at age 90, the grand old man does finally pass away. Enzo Ferrari dies in the summer of 1988. Poetically, just after his death, Ferrari finishes 1–2 in the next Formula 1 Grand Prix after Enzo’s death and wins at Monza.

Oh my God.

The Italian Grand Prix. And that is the only race that Ferrari won that season. Either the gods were smiling upon Enzo in death—

Or Bernie Ecclestone’s fix was in.

Yes, the fix was in. Either way, it was poetic. For the next couple of years, though, the slow-motion disaster at Ferrari continues unabated on both sides of the business.

Real quick before that, though, it’s worth highlighting. The Agnelli family ends up getting the 40%. Piero ends up getting the 10%. But an interesting thing to note is that the valuation is extremely different this time around.

Yeah. You found detail on this? I couldn’t find it.

A good friend of the show, Arvind Navaratnam from Worldly Partners, scoured all of the old annual reports that he could find. In the 1988 annual report, it reports the amount of lira required to acquire the remaining 40% of Ferrari.

Oh, I’m so curious. What was it?

If you do the exchange rate at that time, it is $77 million, which valued the company at $192 million in 1988. Much different than the—

What was it?

$6 million or $7 million in 1969.

Yeah. I mean, two things are simultaneously crazy right here. First, how much the valuation increased from the first time. Second, that Fiat and the Agnelli family acquired 40% of Ferrari at a valuation of $192 million. Unbelievable.

Or that they acquired 90% of it for what, $72 million?

Yeah. In aggregate. Yeah. Wow.

Or that as recently as 1988, it was worth only $192 million. I mean, this is a company that’s recently been worth over $90 billion, but today it’s worth $55 billion. In 1988, $192 million!

Well, this really just highlights how different a company Ferrari was when Enzo died and how much Luca di Montezemolo transformed it when he came back and became the chairman.

But for the moment, when Enzo dies, the slow-motion disaster just continues unabated. Fiat’s best solution to fixing the problem of the road car business is to produce more road cars, which is the cardinal sin of luxury strategy management.

Just as one example, during these years before Luca comes back, Ferrari produced 7,000 Testarossas over the 7 years that the Testarossa was in production. Compare that to Lamborghini. Lamborghini only produced 2,000 Countachs during a period twice as long. They made Countachs for 16 years.

By the standards of any normal car company, we’re talking about tiny numbers no matter what. But when you’re talking about something as rare, exclusive, and special as what a Ferrari should be, and then you have a company that you don’t even really consider your competitor over there making a more exclusive product and managing it better, that’s not a good situation.

No, it is not. And another crazy frame on that: if you look at the production of total Ferrari cars—not just one model, but total cars—in 1982, it was 2,200. If you look in 1991, that grew all the way up to 4,500. They just kept ramping, ramping, ramping, and making more cars.

Yeah, not the right fix.

Not the right fix.

So you mentioned 1991. That was the last year of this interregnum period before Luca comes back. It’s so bad. Demand has evaporated so much for Ferraris that, for the first time in history, cars are going unsold. They have to furlough the factory workers and shut down the factory.

Gianni Agnelli finally calls up Luca and says, “It’s time for you to return. We need you to come back. We are, quote, putting Ferrari in your hands.” And Luca di Montezemolo returns to become chairman of Ferrari.

We should note this is going to be important here in a minute. In Italy, chairman of the company is actually the most important and powerful title, and the CEO reports to the chairman.

At this point, when Gianni calls Luca back, he’s been gone from the day-to-day of Ferrari for almost 15 years. After Ferrari, he did a short stint at Fiat, and then he stayed in the Agnelli empire. He became CEO of the beverage company Cinzano, which is another Agnelli family company. And so he had gained CEO experience.

The reason Luca couldn’t come back to take over Ferrari as soon as Enzo died was that he had become the organizer and president of the Italia ’90 World Cup. The World Cup in 1990 was in Italy, and that’s right, Luca organized the whole thing.

There are great stories associated with that. My favorite is that, for the final evening ceremony of the World Cup, he convened the Three Tenors for the first time. The Three Tenors didn’t exist until the World Cup.

The way he convinced Pavarotti to join—because he was the big star and didn’t want to join—was that he gave him an F40. And thus the Three Tenors were born.

That is awesome.

So once the World Cup is over, Gianni’s like, “Okay, enough messing around. You’ve got to come back and fix this.”

The first thing Montezemolo does when he knows he’s going to return to take over Ferrari after Enzo’s death is go and buy a 348, the flagship Ferrari sports car at the time, just to see the state of things. How bad was it really? “I’m going to go buy my own 348 and test it out.”

Luca’s actual quote on this is, “The Ferrari 348 was a shit car. It was the worst car we ever made.”

Everything was missing. It had no personality. It had no technology. It wasn't state of the art in anything. It had no power. It was all missing.

He talks about when he was driving it, he would pull up to stoplights and try to race the other cars off the line and see how it would perform, kind of drag racing at stoplights. He was like, “I was getting beaten off the line by Volkswagen Golfs in a Ferrari.”

Brutal. What do you attribute this to? Ferrari has deteriorated. It's fallen apart in this era. The cars have no personality, but they also have no performance, and they're impractical, and they're overmaking them, and no one wants them. What's wrong? Why have the wheels come off the bus here?

It was Fiat. It was all they knew how to do. They came in like, “The way we can fix this is we'll increase production, we'll cut costs. So let's share some parts with Fiat cars.”

Ferrari road cars went from being the same thing built by the same people as the racing cars—as the F1 cars and the Le Mans cars—in the same factory, to, in this period with Fiat control, they're really not the same thing. It would be too far of a stretch to say they were repurposed Fiats, but they had lost that true connection to race machines.

7. Luca Rebuilds Ferrari

So Luca comes back and says, “We got to fix this.” At the time, the Japanese sports car industry was on the rise, and all the car enthusiasts were saying, “Ferrari's dead. The Italian carmakers are dead. The Japanese have taken over.”

Luca has the test drivers at Ferrari go out and buy a Honda NSX and do his own version of the Pepsi Challenge: “Go out there, drive the NSX as hard as you can around the test track, drive our cars—drive the 348—as hard as you can around the test track.”

They come back and they're like, “Yeah, I mean, there's no competition. The NSX just blows us away.”

Wow.

But how sad is that? It's a Honda. A Honda.

That's completely lost to history today. You don't hear anyone talking about Ferrari as this sort of untouchable apex brand. It's hard to imagine that happening just as recently as the early '90s.

Right. I mean, it's one thing if Lamborghini is beating them. I mean, that's bad. That's really bad. But if Honda is making a better sports car than Ferrari, there's a real, real problem.

So how's Luca going to turn this around? He comes up with 3 priorities: the team, the technology, and the myth.

Number one, the team: the Formula 1 team. We have to fix the Formula 1 team. Going back to his great quote, there's not a direct correlation between victories on the track and cars that you can sell, but the team feeds the myth. “If you don't add wood to the fire of victories on the track, the flame of the myth will die. You cannot only lose.”

The team hadn't won a championship since 1979. Luca goes out and recruits the dream team. I think the greatest set of F1 team members that had ever existed in history: Jean Todt, team principal; Ross Brawn, race engineer; Michael Schumacher, Ferrari's number-one driver.

It takes a couple of years for Luca and the team to turn this around, but this is just absolute domination that they unleash on the field.

By the end of the decade, there would be 5 straight years, from 2000 to 2004, where Michael Schumacher won every single Drivers' Championship—5 years in a row—and Ferrari won every single Constructors' Championship—5 years in a row.

As we talked about on the F1 episode, it was a problem for Formula 1. The sport became too boring because Ferrari always won.

In total, under Montezemolo's tenure, Ferrari wins 19 Drivers' and Constructors' Championships, which is more than Enzo. That's amazing. It's incredible how he turned the team around, just like he did back as Enzo's assistant back in the day.

All right, then: the technology.

The technology. The cars. We can't have a Honda NSX outclassing a Ferrari. Ferraris are about our heritage and our myth, but they are also about looking ahead. We can't be selling 250s repainted for the modern era.

Yeah. And this is really where the feelings about technology change, where Ferrari went from a late adopter of technology, when it's sort of proven, to really pushing the bleeding edge. Today, Ferrari spends a good amount more on R&D as a percentage of its revenue than most other car companies. It's become sort of a signature of the company.

Yep. And this absolutely was a hallmark of Montezemolo's turnaround. Enzo didn't really care that much about technology.

That's interesting. Yeah.

Yeah. So the first thing they do is, “We got to fix the 348,” the flagship sports car. So they revise it. They do some stopgaps. But ultimately, as soon as possible, they kill it and replace it with the 355, which was just a glorious car.

And this just checked every box. Amazingly, it was modestly priced, so it was $127,000—modest by Ferrari's standards, anyway. It was much more user-friendly to drive. It actually made sense, if you weren't a track-car driver, to drive this car. Yeah, it was really the workhorse of the turnaround.

By 1997, it accounted for 70% of sales. The 355, I would put it in the category of a Rolex Submariner: this thing that is a signature of the brand, is perfect product-market fit, is priced perfectly, and just deeply understands why the customer is buying it.

The other thing to note is that before they launched the 355, Luca massively cut production. I mentioned that in 1991, Ferrari had made 4,500 cars, which is just this giant inflation. By 1993, just 2 years later, Luca brought this down to 2,300—so cut it almost in half in those 2 years.

Production would start climbing again. As I mentioned, the 355 was really well received, and they started building up their back-order list again. But interestingly, it would not eclipse that 1991 peak of 4,500 cars again until 2006—a full 15 years later.

8. Ferrari Protects Its Myth

Yeah, we need to not just fix the myth of Ferrari, but we need to protect it. And this was Luca's third and most important priority: the myth.

Luca came from a very different background and life experience than Enzo. Luca is the one who realized that Ferrari is a luxury company. To Enzo, Ferrari was a racing company that sold a connection to that to its clients.

Enzo was a marketing genius, and he came up with the prancing horse and the red and the myth of Enzo. But you couldn't talk to Enzo about how Hermès was managing its business. Enzo had no idea what Jean-Louis Dumas was doing over in Paris. Luca knew exactly what Jean-Louis Dumas was doing over in Paris.

Luca is the one who institutes waitlists. Luca is the one who institutes presentation ceremonies when your car is delivered. Luca is the one who institutes custom luxury leather luggage that comes perfectly fitted to your Ferrari. Luca institutes the luxury strategy at Ferrari.

Where did Luca come up with this strategy? Did he adopt the luxury strategy from somewhere else? Did he invent it from whole cloth?

I think it's just that he comes from such a different background and world experience than Enzo. Enzo didn't know a Birkin from a Coach bag, right?

He grew up in Modena.

He grew up in Modena. And then after Dino's death, he never gets on an airplane again. He doesn't leave this one region of Italy, whereas Luca has lived all over the world. He's run the Italia ’90 World Cup. He's been CEO of an alcoholic beverages company. He knows all the luxury families. He knows all the luxury companies, and he studies what they do.

Yeah, it's interesting. That makes total sense. The other big piece of his strategy is that anytime you see a Ferrari, it needs to scream Ferrari at you. And in a way, that was really exemplified by the 355. It looked like all the cool classic Ferraris and the race cars, but it was much easier to drive. So there should be sort of a unification between the stuff we're selling to people and the race cars.

Yes, this was another key understanding of Luca's. These cars needed to be drivable. In Enzo's day, you could get away with the excuse of, “Yeah, these cars aren't really going to function on the road because they truly are intended to be race cars.” By the 1990s into the 2000s, that's not going to fly anymore. The people who are the clients buying these cars want to be able to drive them on the streets.

Yep. He does a handful of other tactics that I would say set the company up for success in the short term but add risk in the long term. And there's a big need to, because Ferrari was operating in the red when he came in.

They generated real income-statement losses from 1992 to 1994, and by '96, they were back to break-even. By '97, they were profitable. But I would say all the ways to generate profits were not the best long-term solution, and that took them time and a lot of effort to dig out of that hole. One of those ways was licensing the brand for merchandise.

Yes. Now, there's a pro and a con here, but yes, I thought that's where you were going to go with this.

Yeah. So there were some smart things about licensing the brand to put on luxury goods and some sportswear. They even started licensing it for toys. And when you're licensing the brand, that's basically 100% margin. I mean, it drops straight to the bottom line. So when you're in dire straits, it's really good, and it has obvious allure.

But they put the Prancing Horse on some real garbage over time. My favorite is that by 2009—so, you know, this is a full 15 years later—they put the Prancing Horse on an Acer netbook.

Yes! Yes!

Remember netbooks, David?

Oh, yeah. I was wondering if you were going to find this.

Just so destructive to their brand. It's the apex luxury brand of cars, like one of the greatest brands in the entire world, and they licensed it to this underclocked plastic little piece-of-crap computer. That is the microcosm of brand destruction, like the reason to resist the heroin of brand licensing.

Yes.

The Acer laptop was a real low point. But there’s a lot of crap that it’s on.

There’s a lot of crap that it’s on. Now, there is some nuance here. If we were talking about Louis Vuitton, Hermès, Patek Philippe, or Rolex, this would be all bad. There would be no good reason besides easy-profit dollars to do this.

Ferrari is a different thing. Yes, it is an apex luxury brand, unquestionably, in the same way as all of those companies. But unlike those companies, it also has a couple hundred million rabid fans that it needs to serve. And also, unlike those other companies, there’s not actually a tension there. Ferrari clients and Ferrari collectors aren’t upset by the fact that Ferrari has a couple hundred million commoner fans out there. In fact, they’re happy about it.

Right. Ferrari is both a luxury brand and a giant international sports team. They always talk about the Tifosi—the hundreds of millions of people who are just fans of the brand and the spirit and the team.

Yep. Yeah. Hermès doesn’t have a couple hundred million teenage girls around the globe that have posters of Birkins on their walls that they have to please.

Right. Ferrari is Hermès and Manchester United smashed together. And that makes it super different. So I guess, to your point, that does validate licensing their brand for merchandise strategy. It’s much more worth it.

Hey, look, it doesn’t validate the Acer netbook, but there is some actual justification to the activity. So, manufacturing: should we talk about how that changes under Luca’s tenure?

Yeah. So I know a lot about manufacturing today. Did Luca really bring Ferrari’s current manufacturing to life?

I think so, or at least he started it. It was really important to him that the factories be first-rate, so he brought in great architects to redesign the factories. This is when, if you look at video or photos of Ferrari factories today, they have trees in them. He brought in the trees.

They’re absolutely beautiful. We’ll link to some factory tours in the show notes. I think my favorite thing about Ferrari is the manufacturing process, both because of how cool it is from a nerdy perspective, but also because of the business model that it enables for them.

After 1994, Ferrari does not have a stock of cars. They’re not just sitting there at dealerships. They’re not just sitting there at the factory. They don’t manufacture them and then find buyers. It’s the other way around. For every single car, they only start manufacturing it after you order and customize it.

It’s important to know that, by this point in history, every Ferrari is unique. There’s so much customization that starts happening that every one that rolls off the line is actually its own custom car. Maybe just a little detail here or there is different, but you will not find two that are identical.

So Ferrari factories are vertically integrated to the nth degree. Most car manufacturers these days are systems integrators. Kind of lame. They’re just buying from a network of thousands of companies that make common parts that basically go in all of our cars under contract to the big brands.

The brands do some specification, and then they take whatever it is—some long time frame, 5 to 10 years—to actually build out the full supply chain, source the thousands of parts from all the suppliers, and then integrate them into a car.

Not Ferrari. They have trucks that roll up to the factory with raw ingots of aluminum, and they are casting entire engines themselves right there in Maranello. Everything happens on one plot of land. They build engine molds out of sand, they have 700-degree Celsius furnaces, and they operate an entire foundry right there on-site. They do the same thing for body-panel work, stitching the seats, and more.

Yes, it really reminds me of Rolex in this regard. And there’s another dimension that’s different from just about every other car manufacturer out there. Most other car companies—even the Porsches, Audis, and Lamborghinis—make a lot of their models based on shared platforms.

We’ll get into this more toward the end of the episode, but the Lamborghini Urus, the Lamborghini SUV, is on the same platform as the Porsche Cayenne, which is the same platform as the Volkswagen Touareg. When you buy a Lamborghini Urus, you are buying a car that is essentially a Volkswagen Touareg.

Or an Audi Q8? Is that right? One of the Qs.

Yeah, no, Ferrari shares a platform with no other car. But you’re right.

When you’re a big family of brands like this, you are looking for economies of scale and ways to share more across your line. And you’re right—not Ferrari. It’s the complete opposite.

Some of this was starting to creep in during the last years of Enzo and the interregnum period, when Fiat was taking control. There were some Fiat parts and switches that were making their way into Ferraris, and Luca stops all of this. It’s, “No, no, no. The only things that go into Ferraris are Ferraris.”

It’s what makes us different. And because everything is so customizable, like we were talking about, every single one that rolls off the line is unique. They have left their manufacturing process to be very flexible and manual.

They can make any car on any line. There are humans doing manual work at every station except for one, and that one is where they affix the windshield, because, for safety reasons, you don’t want to have people doing that.

It is crazy and unheard of across the car industry to be able to make any car on any manufacturing line. Now, you might say, “That’s really inefficient.” And it is. They don’t invest in making an automated production line that can easily make lots of cars.

Efficiency is not the point for Ferrari. Right.

They would make for a terrible scaled car company. Ferrari can operate on a much shorter timescale between design and actually getting a car out to customers since there’s less overhead in getting started.

And it’s a double-edged sword. You would never want to do 100,000 cars a year with the Ferrari model. In fact, you barely want to be doing 14,000. But the pro is that they can be really iterative and really responsive to new ideas.

They could change their engine-casting spec without involving a supplier and asking them to do a rebuild of something. They can also get learnings from their F1 team quickly into cars since it’s right across the street.

I think this is one of the interesting nerdy business-model characteristics of the pros that come from a manufacturing process that doesn’t invest in overhead and doesn’t allow for the cheapest incremental, marginal car to roll off the line. It’s more about, “How do we maintain the most flexibility at any given point?” because we’re selling expensive cars and we’ve got the margin to absorb it.

Well, really, this is how bespoke handmade craftsmanship applies to a modern automobile company. It’s the same dynamic as the other luxury companies, as Hermès. You think Hermès is investing in efficiencies in their factories? Hell no.

Right. And part of what you are buying, if you are interested in buying a Ferrari—especially, let’s say you came into this and you didn’t want a Ferrari, but you leave this episode thinking, “Actually, I do kind of want a Ferrari”—part of what you are buying is the lore that I just shared.

You like the fact that this is a pseudo-handmade, bespoke, inefficient manufacturing process to make it. There are robots, but it’s wrapped up in the value proposition.

There is a team of artisans and experts, aided by technology, that is making my Ferrari.

Yes, that’s exactly right.

Yeah, it’s super cool. So that’s manufacturing. We’ve talked about Luca’s embracing of the luxury strategy for Ferrari. Let’s talk about markets and growth. Yes. And international. Yes.

So when we’re talking about caps on the number of cars they create, it’s not that you can’t produce any more units without diluting your brand. It’s that you can’t sell any more units into your current market without diluting your brand.

New markets are perfectly allowed as long as it doesn’t change the perception in the current markets that, “Oh no, there are suddenly lots of Ferraris zooming around the streets.” And geographic segmentation can be a great luxury strategy.

He starts selling in China meaningfully for the first time, and the timing couldn’t have been better, since in Europe it was becoming less fashionable to display your wealth.

Very fashionable! Extremely fashionable.

And this is a strategy that they then continued to run. Anytime a new geography came up in global wealth or disposable income, or was okay with becoming flashier, suddenly there’s a whole new area where you can sell your Ferraris without changing perception in existing markets.

Yes. And there’s another subtle point here that applies very specifically to Ferrari. They make so few cars and sell so few cars to a given geography that it really is a special experience every time you even see one on the road.

It’s really important not to dilute that. Owning a Ferrari is a truly rare and special experience, but even just seeing one, even just being next to one, should be a rare experience. The minute that stops being rare, part of the myth dies.

The funniest thing is, since a large number of Ferraris are owned by people with 10, 20, or 30 Ferraris, they can actually soak up a lot of the units into garages that you never see anyway.

So if you’re Ferrari and you’re trying to manage scarcity, you sort of have an incentive to continue selling to the same person over and over and over, because it is a way to generate a sale without having the problem of a Ferrari out on the streets feeling commonplace.

Now, there is one other related thing that Ferrari takes on during this time, which is that a lot of Ferrari clients, particularly American clients, really want a family Ferrari.

They've got more use cases in their life for automobiles than Ferraris give them the opportunity to use them for.

You mean to tell me that a 45-year-old man who really, really wants to be out on the track, or sort of envisions himself out on the track, actually has most of his time where he can't be on the track, but he wants to feel awesome and fast and risk his life and associate with a brand kind of like Ferrari? But gosh, that's actually just not the reality of his life these days.

Right. He might need to drive his kids to school, or he might need to be driven by your chauffeur to an important business meeting. Really, you would like a 4-door Ferrari for that.

Ugh, David, stop.

Ugh, I know. Disgusting. No, I'm saying, well, it is disgusting. And that is why during this era, Ferrari takes on the Maserati brand under its wing. So the Maserati brothers that we referenced earlier in the episode, that company, after its ownership had gone through a whole series of changes and the brand had had its ups and downs over the years, ends up in the hands of Fiat.

In the late 1990s, Fiat says, "Why don't we give Maserati management over to Ferrari?" Then we can have this connection between the Ferraris and the Maseratis, and we can have models that are Maseratis that are not Ferraris. These are not Ferraris, but there is a connection. We're happy to sell you a Quattroporte if you want it, or a GranTurismo if you want it. And that's what they do.

This is when the Maserati Quattroporte launches in America, and to great demand. Unfortunately, in the beginning, it was not a very good car. It took them a few years to iron the kinks out, at least on the reliability front. But it's a brilliant brand strategy. It's almost like Rolex and Tudor. A Tudor is never going to be a Rolex, but you can have a great use case for a Tudor.

I was going to make that connection. I was thinking about it. But I don't think Maseratis are made in Maranello, right?

No, they're not.

So Ferrari gets the sort of market intelligence of what happens when we launch a Maserati in a market, and the learnings from customers. But it's not like there's manufacturing synergies or on-campus learnings from prototyping new things. I think they're pretty separate, and they're sort of R&D. So they showed great restraint in never launching a Fiat-Ferrari car or standardizing on platforms the way that the Volkswagen Group does.

Yeah, I think remarkably Ferrari has had the soul of a standalone company, even though it was, for a very long period of time, 90% owned by Fiat.

Yep. And Luca is a huge part of that, as is Piero, too. His having the 10% ownership stake in place on the board keeps that continuity with Enzo and the Ferrari family, even through a 10% minority ownership stake in the company.

Speaking of Ferrari also being part of the Fiat and Agnelli empire, something pretty big is about to change here as we enter the early 2000s, which is that Gianni Agnelli passes away. All of a sudden, the Fiat empire is now in crisis.

In 2003, Gianni Agnelli dies. Tragically, the logical heirs to the Agnelli empire in the next generation had also already died young. So when Gianni dies in 2003, his brother Umberto Agnelli takes over, but he only lives for another year and then passes away in 2004. When this happens, the empire is in chaos.

Meanwhile, the Fiat business is really struggling. Sales have been falling off a cliff. The company has a mountain of debt, and the share price is trending towards scraping the bottom here. The last surviving Agnelli of Gianni and Umberto's generation is Susanna Agnelli, mother of Luca's best friend growing up. She calls Luca after Umberto dies and asks him to take over as Fiat chairman and replace Gianni and Umberto, in addition to Ferrari.

So Luca will stay at Ferrari, but he will now come and serve the Agnellis as a steward and a bridge to the next generation while they get the house in order and hopefully try to save Fiat along the way.

So he's chairman of the parent company.

He's now chairman of Fiat and Ferrari, which they own 90% of. Yes. And at the same time, the chosen next heir in the generation below in the Agnelli family is a man named John Elkann, who you might have heard of today. He's a celebrated investor and head of Exor, the publicly traded holding company, which is the Agnelli family holding company.

He's 27 years old at this point in time, though. He's a kid. He's like Luca back in the day when Enzo tapped him to take over Ferrari. So Luca and John Elkann have to work together to try to save Fiat.

The first thing they do is turn to Sergio Marchionne, who is a turnaround expert and financial engineer extraordinaire who had been CEO of SGS, which is a Swiss consumer products testing company that is also part of the Agnelli family investment empire. He's completely turned around SGS and saved the company there. They tap him to come in and help them do the same thing with Fiat.

So he joins as CEO in 2004, with Luca as chairman and John Elkann as the Agnelli family representative.

It's interesting to note here that the Agnelli family empire is larger than just Fiat.

Yes. And this is how they really differ from, like, Ford and the Ford family. The Ford family was always focused on the Ford Motor Company. The Agnelli family—Fiat was the crown jewel, but they invested in and built many businesses over the years throughout the generations.

They really diversified beyond just one company.

Yeah. So the 3 of them together miraculously turn around Fiat and save it from the abyss through the combination of a couple of things. First, they launch the smash-hit new Fiat 500, the mass-market platform, the city car for Europe.

There was some precedent for this earlier. Volkswagen had relaunched the Beetle in 1997, and so that was some of the inspiration. But the Fiat 500 truly was an amazing success.

Yeah, you've seen this car many times.

Yes. And especially in Europe, it was popular in the U.S., but if you live in Europe, you saw the Fiat 500 all over cities throughout Europe. It sells 1 million units in 5 years. It wins the 2008 European Car of the Year award. It's truly, truly a special car that saves the company.

I gotta say, it's so funny that we feel the need here on the Ferrari episode to extol the virtues of the Fiat 500, but it ends up becoming very important and path-dependent to Ferrari's trajectory from here and why a few things happen at Ferrari.

And it was designed by a man named Frank Stephenson, who had been Luca's in-house design guy at Ferrari when Luca was just at Ferrari. So there's a Ferrari connection and lineage there that gets pushed up to the Fiat 500.

Now, the other thing that happens—and this is all Sergio's doing—is that he totally restructured the operations at Fiat. He was an efficiency and cost-cutting specialist. And at a company like Fiat, that is really, really important.

The other thing he did is that Fiat had an ill-fated partnership with GM. Sergio gets them out of the partnership and engineers GM paying $2 billion to Fiat in order to end the partnership. And I think without that $2 billion, the company almost certainly would have died.

Wow. He really is a magician. So Sergio, Luca, and John Elkann come into Fiat in 2004. Within 2 years, they have returned the company to profitability. They've got a handle on the debt. In 2007, the Fiat 500 comes out. It's a massive success. In 2008, the financial crisis hits. All of the U.S. car companies are in really bad shape.

Man, it's crazy that Fiat just barely got its house in order in time. Otherwise, they could have been down with the rest of the global economy.

Well, Sergio says, "We can play offense here." So he engineers a partnership with Chrysler, which had been quasi-nationalized, taken over by the U.S. government at this point in time.

Right. They were in the worst of the positions of Ford, GM, and Chrysler.

The Big 3 automakers in the U.S., yes. So they engineer a partnership in 2008.

That's what Sergio does with Chrysler, and then fully acquires the company in 2014.

And that creates FCA, Fiat Chrysler Automobiles.

FCA. And basically for free, Fiat paid either zero or almost zero in equity value for Chrysler. Wow. It truly is amazing what they did and saved the company, too. I mean, Chrysler, Dodge, Jeep, and all of its brands are a thing today and part of Stellantis today because of what Fiat and Sergio did during the financial crisis.

And Stellantis is the name for the merger between Fiat Chrysler Automobiles and Peugeot.

Peugeot. The French company. Yeah. One of those French car companies that we're not going to make an episode about.

As everything is stabilizing at Fiat and returning to success in 2010, Luca steps down from the Fiat chairmanship and returns solely, full-time to Ferrari. John Elkann assumes the Fiat chairmanship. He's now ready to be the steward and heir of the Agnelli family and work with Sergio in running the Fiat empire.

But there is one cost to taking over Chrysler: Fiat had to assume Chrysler's debt, including about $5.5 billion that it owed the U.S. and Canadian governments for the bailout. So when this happens, the combined debt load for FCA, Fiat Chrysler Automobiles, balloons up to over $11 billion.

Fiat announces to Wall Street as part of the merger, though—Sergio does—"Hey, we've got a plan. We are going to reduce that from over $11 billion to $1 billion or less over the next 4 years, by 2018."

So they are forecasting a lot of cash flow: This business is going to be great and super-profitable. We're going to eliminate $10 billion of debt.

They are forecasting a lot of debt reduction. Some of that will come from cash flow, and some of that might come from other places. Sergio needs a lot of cash to meet his promise to Wall Street and pay down the debt. Where's an easy place to find it? He's going to IPO Ferrari and use the proceeds to help pay down the Fiat Chrysler debt.

Now, we should note, if you couldn't already foresee it, there was a huge conflict and power struggle brewing between Luca and Sergio. These two guys were both incredible auto-company operators, but cut from totally different cloths. Luca is the ultimate car guy. He's a great businessman, and he's a great executor of the luxury strategy for Ferrari. But in his mind, in his heart, the cars always have to come first. The great business decisions come out of the great car decisions.

Sergio, on the other hand, is not a car guy. He came from a consumer-products testing company. He is a financial engineer and an empire builder. And actually, the great tragedy of this act at Ferrari is that it could have been a beautiful partnership—

And was.

And was, truly was. They saved Fiat together. But ultimately, Luca and Sergio are not going to be able to coexist and share power within the same structure.

For a while, Luca going back to just Ferrari makes it work. It felt like it was the solution that made sense. His passion was Ferrari. His history was there. He could go back to running it and be very happy, and Sergio could leave it alone and continue running the Fiat empire.

But once Sergio needs the cash to pay down the Chrysler debt and turns to Ferrari, they're on a collision course, because IPOing Ferrari is completely anathema to Luca's way of being. Becoming a public company means you have to deliver consistent, predictable growth, which means hitting a drumbeat of shipping more cars, making more models, adding more clients, and raising prices.

It's not like Luca doesn't want to do these things in a vacuum, but he wants to do them very thoughtfully and over an extended period of time, not on a Wall Street calendar.

And to have flexibility. Not opposed to any of those things, just the way that you and I aren't opposed to doing things with Acquired, but we don't want to be locked in and committed. You want some organicness to how you run the business. You want the products to be these living, breathing things. You want to be able to rapidly change your mind in the face of new market conditions.

Yep. I mean, hell, one of Luca's very first actions when he came back to Ferrari after Enzo's death was to cut production by half.

Right, right. Can you imagine doing that as a publicly traded company?

Yeah. Announcing it to Wall Street like, "Oh, hey, we think the right thing to do next year is to cut our production by half. Hope you're with us."

Now, interestingly, at first, yes, they're publicly traded, but don't they only float 10% of Fiat's 90%?

Yeah, well, so here's what happens. Thanks to the Chrysler acquisition, it's not an option not to pay down the debt. The company—Fiat, the empire—has to get the money. So the choice is kind of made for them. They have to side with Sergio.

Because they have to go public, and he's kind of the guy to run it as a public company.

I mean, taking Ferrari public is part of the plan of how this whole thing is going to work.

Yeah. Do you think Luca was not a public-company CEO?

I think Luca probably had zero interest in taking Ferrari public, and I think he had even less than zero interest in using proceeds from the Ferrari IPO and the other financial engineering that we're about to talk about to save Chrysler and Fiat. Luca did not care about any of that.

Whereas on the other side, Sergio is kind of exactly the guy you would want to manage the Street, to look for all the ways that the Ferrari business is "unoptimized," to realize the full value of the asset. He's the sort of leader that investors salivate over.

Yes. So in September 2014, Sergio unceremoniously fires Luca as chairman of Ferrari. The pretext is that the Ferrari F1 team has performed poorly in recent years, but—

Which was true.

It was true, but, for God's sakes, just a few years earlier, Luca had engineered the greatest dynasty in Formula 1 history with Schumacher, Brawn, and Todt. Everybody knows what's really going on here.

Also, part of the reason that the Ferrari Formula 1 team wasn't performing well at this point in time was that Formula 1 had switched to hybrid powertrains, and Fiat never developed hybrid technology. So Ferrari didn't have anywhere to turn to get a head start, like some of the other manufacturers that could turn to hybrid technology. It was going to take a while for Ferrari no matter what.

At the end of the day, though, it's sad. This is not how Luca's time at Ferrari should have ended. So Bernie Ecclestone, the Bernie F1 impresario who Luca did very much not always see eye to eye with, gives a quote to the press when Luca is fired that sums it up better than I can.

Bernie says, "Luca leaving is for me the same as Mr. Enzo dying. He has become Ferrari. You see him, Luca, you see Ferrari; you don't see anything else. You don't see Luca."

The context that you need to know for this quote, which makes it even more impactful, is that if you listen to our F1 episode, you know there was the FOCA breakaway attempt—the group of teams that, just a few years before this, had tried to bust Bernie's hold on F1 and break away and start a rival formula-racing league—that was led by Luca. Luca was Bernie's arch-adversary just a few years earlier.

And so for Bernie to be this cordial—

Here's Bernie paying tribute to him like this. Yeah.

So with Luca gone, the path is cleared to IPO Ferrari. In 2015, Fiat and Sergio float, as you said, Ben, 10% of their 90% ownership stake in Ferrari on the New York Stock Exchange, valuing Ferrari at an initial total market cap of $9.8 billion, which raises just under $1 billion in cash that Fiat uses to pay down the debt.

So 2015: Ferrari publicly traded, worth $10 billion. That is up from the $192 million figure that we had talked about back in 1988.

Right. But still nowhere near the heights that it would reach in the years to come.

But that is Luca's legacy, that delta.

That totally is. That is turning Ferrari into a real business there. So, a billion dollars in cash proceeds from the equity sale in the IPO—

That helps. That contributes to the total $10 billion that you need to reduce your debt by.

To go from $11 billion down to $1 billion. It helps, but it's not a lot.

Well, Sergio had another bit of financial-engineering coup up his sleeve.

This one is ridiculous.

As part of the spinoff of Ferrari and the whole transaction, they effectively transfer another $3.2 billion in Fiat Chrysler debt to Ferrari. So in total, Fiat Chrysler, out of this transaction, gets almost $4 billion in debt reduction.

That'll make a dent.

That'll make a real dent.

The interesting thing is, it was perfectly fine to do this because Ferrari turns into a great, great business that is perfectly capable of paying down all that debt that was just transferred to it.

Yes, absolutely. We're sort of telling the story from Luca's side here. From Sergio's side, this all makes total sense. There was very little risk involved in this transaction.

Right. It's actually quite genius. It helped Fiat Chrysler become a real going concern, a successful company, one that exists today. And Ferrari is a great little engine to pay down debt.

Yeah, and not just a little engine. The value unlock that happens at Ferrari here, to use investor speak, is unprecedented. The company IPOs at a $9.8 billion market cap in 2015. Within a few years, it's trading at $90 billion, flirting with a $100 billion market cap.

Yeah, as of a few years ago, they hit $90 billion.

Yeah, way, way, way higher than Stellantis' market cap. If you're the Agnelli family, this was a great financial transaction for you.

It is interesting when you often hear investors talk about unlocking value by spinning something off and getting rid of the conglomerate discount and isolating centers of value.

That totally happened here. Ferrari was not appreciated by investors when it was nestled inside Fiat for the real gem that it was. As a publicly traded company on its own, reporting its own financials, people piled in.

It sure attracted a lot of investor demand. And still does.

Yep.

So much about this story—you can't script what happens next. All is going according to plan. The Fiat empire has never been better. Fiat is saved. Chrysler is saved. Value is unlocked at Ferrari. And then in 2018, just 3 years later, the same year that Sergio had promised Wall Street that he would pay down all of the debt at Fiat Chrysler, he dies suddenly and unexpectedly.

This story—oh my God. Again and again and again, those closest to Enzo himself, Ferrari the company—tragedy.

Tragedy. Sergio unexpectedly dies of cardiac arrest following complications from shoulder surgery. Nobody expected that he was going to die. So once again, the whole empire is thrown into chaos. It's in a much better and more stable place than when Gianni died. But still, within Ferrari, there ends up being a parade of CEOs over the next couple of years.

Caretaker CEOs. Yes.

Culminating in 2021, when the current CEO of Ferrari, Benedetto Vigna, is hired. And he's a new choice for the company.

Complete outsider.

A tech guy.

A former, I believe, physicist, or at least a physics undergrad who ended up going into semiconductors. If my memory serves, he holds the patent for the accelerometer, or at least one of the patents for the accelerometer in the original iPhone.

Yes. In the iPhone and basically all mobile phones today, the accelerometers that are used there—that's Benedetto.

A semiconductor guy!

Which actually makes a lot of sense for the direction that Ferrari and technology are heading. So the question is, what happens at the company after the IPO? On the one hand, a lot of the things that you would expect. Ferrari does increase production. They go even further into the luxury retail goods market.

In particular, in this luxury retail goods market, it's interesting. They sort of bifurcate the strategy. The first thing they do is clean up all the old crappy merchandising, and they narrow it to brand licensing in very specific categories with very specific partners: Luxottica for glasses, Montblanc for pens, Richard Mille for watches, and Puma for shoes.

There's this cohesive sense of, "We're going to make stuff for the Tifosi, but there's a luxury associated with our brand that we have to stay true to." Then they go into a lifestyle category of their own, with first-party products. David, what is this?

This is essentially Ferrari runway fashion.

That's one pillar of it, anyway. But it's this acknowledgment of, "Hey, there's a lot of people who want to participate in the Ferrari brand who are very affluent, and they don't want to go buy any of these things from our partners. They want products from us that aren't cars."

Traditionally, most of our customers—I don't know, 90%—are men, and men in their 50s. I think the average age is 52 of a Ferrari buyer. I believe 35% of the people who are buying the lifestyle merchandise they're creating are women. They're really opening up the aperture of what Ferrari represents. Can we give people more tokens to adorn themselves in Ferrari, and not just cars?

Yep.

It's an interesting strategy. I'm not sure I would do it. I get why they're doing it. I'm not sure I would do it.

All that to say, certainly there are initiatives that come about as a result of Ferrari now being a public company and needing to show predictable growth and new avenues of growth to Wall Street.

Including theme parks.

Including theme parks. Yes.

They've opened 2 very different-style theme parks, one in Spain and one in Abu Dhabi, right next to the F1 racetrack there. From what I can tell, it's going well. I think they've totally outsourced them to third-party partners, the same way that you would treat a licensing deal. But I'd like to go to one at some point.

When I first read that this is what they'd done in the last 10 years, it was a little bit of a head-scratcher, but I get it: people want to experience the brand in a more visceral way. These products are so full of emotion and passion that merely seeing one drive by you once every few months on the street is not exactly the way to cultivate fandom.

Yep. So that's one side of the ledger. On the other hand, a lot less than you'd expect actually changes. In fact, Ferrari becomes even more independent. If you take as an axiom that the most important part of the soul of Ferrari is a Ferrari being a Ferrari, and not being a rebranded Fiat 500 or Volkswagen Touareg, Ferrari today is even farther away from Fiat than it was before the IPO. It really kind of reestablished Ferrari as its own separate entity.

Yeah. So today, it's still 10% owned by Piero Ferrari. A little over 20% is owned by the Agnelli family with their holding company, Exor. But that 20% was 90% before the IPO and 81% right after the IPO. So they have really sold down that stake over time.

68% of it is now owned by public shareholders. I mean, that is an independent company. However, the voting shares are a different story. Together, Exor and Piero have the right to vote about 49% of the voting shares. So it doesn't take much for them to control the vote on any given decision as long as they vote together. They just need to sway 1% or 2% of the public float to vote with them as a bloc.

Yes, that's true. I think the really interesting thing to look at is how the Ferrari model range has evolved in the years since the IPO.

Yes. I'm so glad you took it here. Ferrari effectively makes 4 types of cars that consumers can buy. 85% of units shipped fall into what they call the range. These cars are a few hundred thousand dollars each, of course, before any personalization or customization.

So this is the collection of sports cars and GT, or grand touring, cars that have always been the core of Ferrari. You've got your mid-engine V8s and V6s. You've got your front-engine V12s. And you've got your hybrids, which have been a relatively new addition.

Yep. These are your Amalfi, your Roma, your Testarossa, your 12Cilindri—these sorts of models. So that's 85%. And actually, sometimes it flexes up even higher if they are not shipping a supercar at the moment.

The supercars that we had talked about—the F40, the F50, the Enzo, the LaFerrari, and now the F80—are not being made all the time. They just make them for 24 months, once a decade.

Special occasions, shall we say. So at the end of the Luca era, that was the product lineup: the core range and the occasional halo supercar. That was it.

Now 10% are what they call the Special Series. These will run you between $500,000 and $1 million, again, before customization. David, what are these?

These are like the special versions of the range cars, the high-performance ones. If you take BMW, you've got your regular BMWs, and then you've got your M Series. Or Mercedes: you've got the regular Mercedes, and then you've got the AMG.

Ferrari people would scoff at you for making that comparison.

Part of me is dying by making this analogy for Ferrari, but it's telling, right, that this was added. This never existed before. And now there's essentially the M Series or the AMG Series of the Ferrari range.

Yeah. And they're a little more racy than the typical models. They're not track-only. I mean, this isn't like the XX Program, the Ferrari Challenge, or any of these cars that they make for racing in very specific competitions. But these are racier versions, higher-end versions in more limited production of the range cars, more or less.

Yep. And there's a lot of demand for them.

Yes. And the way I just described that, someone at Ferrari is very mad. Fans of the brand are going to jump all over me for all the nuance that I missed there. But anyway, that's the Special Series.

Then the remainder are the Icona series. That'll run you about $2.3 million for the current one, this V12 Daytona SP3. And of course, there's the supercar, which, depending on the year, is only 1% to 5% of the units that they ship. But it's extremely important to their profits, given that those supercars run $3.5 million to $5 million. And we'll come back to just how important it is to their profits.

Yes. Basically, what they've done is they've added a second series to each aspect of the core lineup before the IPO. They've kind of doubled the model range.

The Icona exists for a very particular reason, and I will explain that in a minute when we get to financials.

Oh, okay. I think I know where you're going, but we'll see.

The stated reason is that they pay homage to Ferraris from history. The Daytona was this very famous one.

Or the Monza, et cetera.

But I'll hold my tongue for now on exactly how they backed into it.

Great. I think I know where you're going, but we'll see.

It is also worth noting that clients who were invited to the supercar or the Icona class own at least 10 new Ferraris, maybe 20-plus Ferraris in a garage. These people are tens of millions of dollars deep into buying Ferraris.

Yes, these are the Birkins and the Kellys. You don't just walk in off the street and buy one. You need to buy a lot of scarves, et cetera, before you get invited to buy an Icona or a supercar.

Yes, I mentioned earlier that every car that they make is unique as a part of their manufacturing process. They take that to the most extreme. There are models that are literally called one-offs.

They will make you—and not just let you change the seat color—they will make you a custom car with a custom body style for very, very, very special VIP customers.

And they never disclose them.

Yep. Okay, Ben, one model that you didn't talk about is the FUV.

Yes. And you are not speaking with a lisp there. That is the Ferrari Utility Vehicle.

The Purosangue. The pure-blooded.

Yes. So this is a delicious tidbit of Ferrari-ism. The market really wants an SUV. 60% of Porsches sold at this point are SUVs. They're expensive and beautiful soccer mom and soccer dad cars. And when you go upmarket from Porsche, even to Lamborghini, which looks a lot like Ferrari from a production volume standpoint, they only make 11,000 cars a year also.

And importantly, it is part of the VW, Volkswagen Group, along with Audi.

Yes. Astonishingly, over 60% of Lamborghinis now sold are their SUV. The classic idea of a guy driving a Lambo around the street—60% of that brand's cars are soccer mom and soccer dad mobiles.

It's the exact same thing that happened with Porsche. Porsche was the 911 company, and now they're the Cayenne and Macan company.

If I ever get a distastefully large amount of crypto winnings, I'm going to go buy a Lambo, but it's going to be an Urus, just for the irony.

I hope in bright green.

Yes, yes. Okay, so people really want one from Ferrari. So what does Ferrari do? They don't call it an SUV; they call it an FUV. They debut a low-slung, 4-door, almost SUV called the Purosangue. And as you mentioned, it translates to Pureblood or Thoroughbred. And it's almost as if they're saying, yes, this is still a Ferrari. In fact, we're almost even overcompensating with the name and saying, we really insist it is as thoroughbred of a Ferrari as you could possibly own by naming it that.

And it has a naturally aspirated V12 engine.

Yep. I mean, it is a real Ferrari under the hood. The really disciplined thing that they did, though, they capped total production at 20%. This ensures that when you see a Ferrari on the road, it will stay your classic idea of what a Ferrari is. It really protects the brand, and it sacrifices a lot of short-term profits. And I got to say, I have immense reverence for the company for this sort of discipline.

And it keeps this core pillar of Ferrari that just seeing one should be a special event. They are not going to go sell 60,000 Purosangues. They're selling about 2,500 to 3,000 of them per year globally. You are not going to see one on the streets tomorrow, or the day after that, or the day after that.

Yes. I saw one this week, David, at an event that we were at, valet parked outside, and I thought, oh, I've actually never seen one of those before. Which is exactly how it should be every time you see a Ferrari.

The other thing about their model range is they have become very diligent about their waitlist, too. They're essentially sold out these days for the next 2 years. Most car companies could not tell you what their sales will look like next quarter. But as of today, Ferrari knows exactly what their sales will be and to whom through the end of 2027, at least—maybe into early 2028. And if you want one sooner, you're going to have to buy a used one.

Yep. All right, Ben. So how much do these models cost? And what were you teasing earlier with your thoughts on the Icona series?

Okay, so the average selling price of a Ferrari is about $500,000, up from $350,000 in 2022. So they have taken price up a lot in the last few years. Now, the models technically start at $280,000, such as the Roma Spider, but A, that's on a 2-year waitlist, and B, that's before you do any customization. And customization adds anywhere from 20% to 100% of the price of the car.

Even more importantly, in explaining that $500,000 number, that is an average. And averages hide the most interesting data. You have to pull it apart and look at the distribution. So as we consider the range, the Special Series, the Icona, and then finally the supercar, let's look at the distribution. Ferrari is incredibly top-heavy as a business, and I mean this in 2 ways. One is the obvious way: the most engaged customers obviously contribute an outsized amount to Ferrari's revenues. If you're a guy buying 20, you're a hugely, hugely important part of Ferrari's business.

But two, more interestingly, the most expensive models provide a huge amount of the profits for the entire company. So let's look at just the F80, their current supercar. And by the way, all of these were sold out before the car was even announced to the public. That is how sold out it is. There are reasonable estimates that the F80's average selling price is about $4 million. They're making 799. So that is $3.2 billion of Ferraris just in that car.

Wow. $3.2 billion of Ferraris in 799 examples.

Yes. Now that's retail. So let's assume a 10% retail margin that goes to the dealership. So $2.9 billion of F80 revenue to Ferrari. Let's assume those deliveries happen over the course of 2.5 years, which means that, give or take, $1.25 billion of revenue in the first 12 months is going to Ferrari from that supercar. That's 15% of revenues for the year just from that one car model.

But that is not the whole story. Ferrari has disclosed that the Icona and the supercar models have higher margins than the rest of the line.

Of course they do.

And I've seen lots of very credible estimates. They're way higher. I've seen 80%; I've seen 90% gross margins for the supercar. And this is intuitive. You can imagine when Ferrari throws an extra $10,000 of something nice in the supercar, they mark it up a lot more since the buyers are wildly price insensitive. So I think that it's not crazy to assume that while that car will contribute 15% to revenues in the first 12 months, it's more like 30% of Ferrari's annual profits just from that one supercar in its first year. It could be even higher than 30%.

Wow. Yeah. So it's critically important to the business.

The business is in the supercars. I mean, this isn't quite true, but it is funny to think about this framing. The Ferraris you see driving around occasionally, those are just peanuts for their business. And it's really all about the ones that are locked away in the garages that you don't see that actually make the money.

Right. If you think about the F40 and where Enzo was in his life and where the company was when they released that, I think they had no idea the business model they unlocked with this limited-run supercar.

Yeah, that's totally true. And where I imagine you were going with the Icona series is, boy, wouldn't it be nice if we had a whole another series with maybe not quite as good dynamics as that, but pretty good dynamics?

And gosh, it's a real shame we only have supercars once a decade. Wish we had something that was still pretty expensive and still pretty desirable and still close to as good of margins to smooth out that pesky seasonality.

Those down years when we don't have the supercars.

Yeah, that's exactly right. So that is what you were looking at with the Icona.

Yep. Yep. That makes sense to me.

The other thing that you should know, listeners, when you're thinking about Ferrari, because we've said a lot of model names here, and that is odd, right? Most car companies, over the course of 30 years, have very few car models. They run them for a long time. When we did our Rolex episode, you heard us talk about the Submariner from, I don't know, 1965, and the Submariner from today. It's one sort of continuous evolving line that maybe your grandpa had, and your dad had one, and you have one. Ferrari is the exact opposite.

Over the next 5 years, they intend to launch 4 new models per year on average. That's 20 new model names in the next 5 years. And they discontinue models very quickly after launching them. So every 4 to 5 years or so, they replace them to really enforce that each one of these things is very unique and very exclusive. Now, why doesn't everyone do that? Well, most people have to invest a huge amount up front in tooling, but Ferrari doesn't. They can spin up a bespoke, brand-new car that never existed because they have their own really nimble manufacturing process.

Right. They have such a different manufacturing process than any other major or super-boutique auto manufacturer. And this is the thing that the super-boutique hypercar companies like the Paganis or the Koenigseggs have.

I don't know, Pagani is probably 1/50th the manufacturer of Ferrari or something like that.

Well, right. And those companies don't have all the tooling and manufacturing prowess that Ferrari does. So they can only make their models once a decade, or maybe not quite that long, but they can't turn around and make new models and keep the momentum going year after year in the same way that Ferrari can.

4 new models every year. And the really impressive thing about Ferrari is the cars are just different enough where they deserve different names. But a lot of the R&D and the components are carried over. When you look at the internals from some of these cars to the next generation, which carry a different name and have a different body style, they are different, but you can see the manufacturing learnings. I don't want to say they reuse components, but they're heavily inspired by a lot of the fixed-cost work that was done before.

Yep. Very interesting. Okay. So you mentioned dealerships a minute ago and their margin. How do dealerships work in Ferrari?

Yeah. So in the past, dealerships worked a lot more like the traditional model, where dealers would have clients and they would get to allocate cars. Now the allocation is done centrally by Ferrari, and the dealerships really serve more as distribution operations and service. And I've been thinking about it less as a dealer network and more as a franchised service and delivery infrastructure, with Ferrari owning the actual customer relationship.

Yeah, it’s like you get to own the local franchise in your city that takes care of this stuff. But they’re Ferrari customers and not really your customers.

And Ferrari now centrally controls the waitlist.

Yes. Dealers do, however, play a huge role in the secondary market, and Ferrari knows it’s in their interest to have a thriving secondary market since, given how few new cars there are, the entry-level Ferrari is really a used Ferrari. And so it’s the way to sort of cultivate the next generation of owners. They incentivize dealers to buy and sell by giving them 100% of the economics on a secondary-market transaction rather than being involved in that in any way. So dealers often exist as a way to source used Ferraris for buyers.

And the secondary market for Ferraris is enormous. There’s a crazy stat out there: over 90% of all Ferraris ever made, going all the way back to 1947 and the 166 Barchetta, are still on the road. That’s right. Nobody scraps a Ferrari like an ordinary car. It depreciates down to zero because it will eventually be scrapped. Ferraris only go off the road if they’re involved in a terrible crash and can’t be restored.

There have been 330,000 Ferraris ever made, and almost 300,000 of them are drivable.

Yes, still on the road, still owned, still operated. It’s truly incredible.

It is incredible. Now, if you’re Ferrari, it would be nice to participate in this whole secondary market somehow, in sort of a tertiary way.

Yeah. Tell us about Ferrari Classiche.

So let’s say you buy a used Ferrari or you’re getting yours ready for sale. It sure would be nice if there were a certificate from Ferrari saying that they looked it over, looked at every part, and confirmed that it’s genuine. Well, good news: there’s a program for you called Ferrari Classiche, and for just $6,000 to $10,000, you can get it looked over and get just such a certificate.

Now, it’s interesting here. Ferrari is militant about what meets the bar for Ferrari Classiche certification. It has to all truly be original, with official Ferrari parts and specifications. A lot of these cars have been out there for a long time. Things happen, right? It means if you want to get it certified and have it officially blessed by Ferrari, you’re going to have to pay Ferrari or your local dealer to restore it and return all the parts to official Ferrari parts.

And you really only ever get it serviced at a Ferrari-authorized service center. You’re not getting your oil changes at your local oil-change place. If you’re a Ferrari owner, you definitely intend to sell it at some point. Either you’re going to trade it for another Ferrari, or you’re going to sell it so you can buy another one or add to your collection. Even if you’re going to die with it and pass it on, you still want it to be this appreciating asset, or an asset that holds its value. So you are going to get it maintained with meticulous records from Ferrari and from Ferrari service centers. It’s a nice little closed ecosystem that they have created.

Yes, indeed.

Okay, so why do they do all of this? And why do they launch 4 new models every year, rapidly discontinue models, and have all these clubs and events and track days and Classiche and a robustly tracked secondary market? There’s all this infrastructure. Well, friend of the show Brian Lum from Baillie Gifford had a great insight on this. This is a great mental model: if you’re going to create a brand that the whole world lusts after durably, you need to create a lot of infrastructure for fans to engage with, to sort of hang their Ferrari fandom on.

And so you need to have ever more rare models so that every member of the Ferrari owners and future owners has a place to go. In luxury, you never want a customer to feel like they’ve done it all. You want a place for them to graduate to—maybe that second Ferrari, or going from your first used Ferrari to your first new Ferrari, or getting invited to buy an Icona or participate in a race, or buy the car that just came out with that brand-new name that honors the model from 30 years ago.

A lot of brands who want to be like Ferrari don’t make the investments to have that amount of infrastructure and models and programs. The illusion is, “Oh, well, we’ll just ship very few units and we’ll have simplicity.” But in fact, the opposite is true. You need to have all this uniqueness and mobility for every client to build a brand like this.

Yes. And this ultimately creates the Ferrari pyramid.

Yes. There always needs to be a place for you to sort of graduate up to in your Ferrari fandom. And there’s all this stuff around it, too. There’s a whole forest around the pyramid of different events that you interact with and community elements. It is just very, very impressive and very high-cost to operate Ferrari day to day.

Whereas I think a lot of product companies make a product, ship it, and then, yes, there’s some servicing, but maybe there’s a lightweight customer touchpoint. Operating the forest and pyramid and ecosystem that is the Ferrari universe is a high-cost, everyday thing.

Yep. And “pyramid” is such a great analogy, right? Because if you want to grow the pyramid, grow the business, and you want to do so sustainably—or as sustainably as possible, as it is to grow a luxury brand—you need to grow in dimensions. You need to grow the base, widen out the base, and grow the height, the vertical.

So you need to be adding the Icona series and the Special series, et cetera, et cetera, if you also want to be expanding out the base. Everybody needs to have their place in the pyramid.

That’s right. And adding layers beneath. I mean, you could argue the entire tifosi, all 400 million Ferrari sports fans, are sort of the base that you enter and then graduate up from. Here’s an example of the most absolutely insane top-of-pyramid experience: the most extreme clients can buy a former F1 car.

Yes!

Like an actual F1 car that was raced in prior seasons.

I was wondering if you were going to bring this up.

But of course, you can’t just go drive an F1 car. And let’s say you even store it in your garage. How are you going to drive it out of your garage? So what they do is they store it for you in Maranello.

It’s like a library wine.

And they staff it with an engineering team and a set of mechanics and a whole events team. Then they build programs and say, “Hey, do you want to come race at our private racetrack on this day? Do you want to come race your car? We’ll get your team ready to drive it around.”

And maybe if you want to race it somewhere else, they’ll fly the whole team and the car there. So you just roll up, and then you can drive your F1 car around that special track. The cost—the investment that I think most people don’t realize to staff the full infrastructure—is crazy.

It’s astounding. And that has always been the core of what Ferrari is and why it is unique, going all the way back to 1947 and Enzo, like we’ve been talking about all episode. It is the combination of 3 things under 1 roof: a world-class racing team, a world-class racing car and racing-car heritage construction company, and the suite of services and people needed to operate that, available for hire to private clients. No other car company has that.

Yep, that’s exactly right. And most traditional car companies actually can’t do stuff like this. Their scale prevents them. So they can’t have only limited-edition cars, and they can’t have a super-wide range that gets completely rebooted every couple of years. They’re missing an important piece of the pyramid.

It’s very easy to own all of the cars from a big company because most big companies make very few cars. The thing that makes you successful at scale prevents you from being able to execute Ferrari’s strategy. Okay, so there is 1 car we have not talked about yet before we catch up to the present day.

Well, it doesn’t exist yet—as of recording.

It’s true. We are 6 weeks away from the unveiling of the Ferrari Luce. What is the Luce, David?

Ferrari’s first electric vehicle, designed in collaboration with LoveFrom from Jony Ive and Marc Newson, based in San Francisco.

And they unveiled this thing in a very unique way for Ferrari, clearly targeting a different demographic. They unveiled just the internals—just the buttons and dials and tactile feel of everything, and the steering wheel—at the top of the Transamerica Pyramid in San Francisco. They have not revealed the outside of the car yet.

Nope.

They wanted the tip of the spear of excitement to be, “Look at what Sir Jony Ive would make with his hands in a workshop 20 years after he designed the iPhone. What would he do today with all that learning? And what would he do if it were a Ferrari?”

It’s the exact opposite of the previous universe that they lived in, which is, “Let’s show the body. Let’s show the shape of the car. Let’s appeal to the motorheads. Let’s talk about the internal—the engine.” What we are talking about here is the buttons and the clickiness of the buttons. I am so fascinated to watch what the rest of this car will look like in 6 weeks, when they unveil it.

Yeah, this was incredibly daring because so many of the longtime Ferrari clients—the hardcore collectors, the petrolheads, the people who love the old-school, small-displacement V12s and worship at the altar of Enzo Ferrari—this is anathema to them.

Okay, so let’s do a Bull/Bear analysis just on what the Luce could be. I want to start with this: is the job to be done by an electric vehicle compatible in any way with why people buy Ferraris?

There’s essentially zero interest in electric supercars. I mean, truly, you look around the industry. When Ferrari and others started preparing for it 10 years ago, everyone sort of thought that new internal-combustion cars would be banned soon, at least in Europe.

There were EU regulations saying that ICE cars would have to be phased out by 2030 or 2035, at some point in time.

But Ferrari has put all this work into building this car.

They built a whole new factory, the E-building.

That’s right.

And they're going to go ahead with the launch. Lamborghini actually canceled theirs and has switched it to a plug-in hybrid electric vehicle instead. I think the point I keep kicking around is, much like the quartz crisis in the world of watches, speed is no longer relevant.

The F80 goes 0 to 60 in 2.2 seconds. This is the supercar, this is the $3 million to $5 million car. The Tesla Model S Plaid does it in 1.99 seconds. So the reason that people buy Ferraris, just like watches, has shifted to be about expressing yourself and having a unique driving experience. In a sense, electric cars are incongruent with the reason that you buy a Ferrari, unless Ferrari can do something really cool and unique.

Yep. And that is clearly what they're trying to do.

Yes. So the bull case is we haven't seen this outside yet, but the internal components have been absolutely awesome. I looked over at my wife and thought, I just want to touch every one of those tactile buttons and dials and play with it. Ferrari could be expanding their audience here. I don't think it's a layer in the pyramid. I think it's a new pyramid. They're going to appeal to a set of people that would have no interest in owning a traditional Ferrari.

Like me, I have no interest in owning a traditional Ferrari, but gosh, I was like, would they ever take me as a client? Depending on what this car looks like, I could be very interested.

Yes. And I think that is the daring element of it. They're creating something that, by nature, has to exist in a parallel universe to their core client base.

Yeah. They have always appealed to the gearheads. The engineering innovations have always appealed to a set of people, but this is a whole different universe of engineering. Here's one that I think is really cool: it's quad-motor, one on each wheel, plus additional motors on each wheel that independently do steering and suspension.

And the effect that it has, apparently—I haven't driven one—is that it takes a super-heavy battery-powered car and makes it feel really lightweight and balanced. There are all these almost like illusions that they can do with technology to make the car just different from every other electric car that you've driven. And for Ferrari being a company that stimulates emotion, conveys passion, and provides a unique experience, they may have figured out how to do that in an electric car. We may look at all the other electric cars and say, “Yeah, they're fast, but gosh, they just don't feel the way that this car feels.” And we'll have to see.

Yep. All right. Well, while we wait here for the Luce to come out in 6 weeks or so, give us Ferrari by the numbers today.

All right. So last year they delivered 13,640 cars. As we mentioned, 330,000 cars have ever been produced. Here's another way to frame that stat that is my favorite. This has been true all the way up until this year. This quote: “Porsche delivers more cars each year than Ferrari has ever.”

So for all the hand-wringing out there about increased production, et cetera, Ferrari still is in a class of its own.

Small batch. Last year, approximately 81% of new Ferraris were sold to existing clients and 48% were purchased by customers who already owned multiple Ferraris.

Adding to the collections.

Yes, you should have the picture by now. Most Ferraris sit in garages because they sit among many other Ferraris, and occasionally some are driven on racetracks. So largely, this is gonna sound hilarious, but for a company that is all about the driving experience, Ferraris mostly are not driven.

Yes, there's a deep irony here.

I would bet they have the lowest hours of use per car of any manufacturer in the world that produces at least—I don't know, draw a hard cutoff at—5,000 cars a year. Which makes for an interesting luxury good because there is zero way to subtly show off that you have a Ferrari. It's either silent because you have one in your garage and you're sitting there thinking, “How can I bring up that I have a Ferrari?” Or if you show up in it, it is really loud. It is, “I have a Ferrari.” There is no quiet luxury in the universe of Ferrari.

I actually think there's more nuance to that than it would appear on the surface. And this is a good time to bring up a couple of points. The first is car collector and Ferrari collector culture. By and large, at least with the current and older generation, car guys are very different than Hermès collectors or Louis Vuitton fans or something.

There's a nerdiness.

There's a real nerdiness and a real community to it. Cars and Coffee meetups are a real thing, and you just go to them and connect with other people there, and they accept anybody.

It's a way for adult males to make friends.

Yes. So there is this other way to show off your Ferraris as part of a community where you can celebrate and appreciate them together with the community. And it's very open and welcoming—this culture. If you're interested, even if you don't own any of these cars or have the means to, it's okay. You're still welcome in this community.

It is different. In the watch world, when someone says, “Oh, what watch are you wearing?” there's a little bit more ick to it. I ask people all the time because after the Rolex episode, I'm just infinitely fascinated by what's on your wrist, and I like hearing the stories. But if you're not careful, it can sound like, “How expensive is your watch?” Car culture doesn't feel like that in the way that watch culture does or luxury handbags do.

It's paradoxical in that these are the most expensive luxury objects out there, way more expensive than a watch. And rarer. And yet it's somehow less exclusive, at least in the community aspect of it. That's one point. The other point is that, yes, Ferraris are loud and yes, Ferraris are designed to convey passion and an experience of being maximally alive and battling against death if you so choose. But they're not flashy, or at least traditionally they weren't flashy, in the same way as, say, a Lamborghini. If you want to be a crypto bro, you buy a Lamborghini.

Yeah, well, Lamborghinis are the most garish side of Ferrari, minus the racing heritage.

Yes, that's a good way to put it. Certainly, plenty of Ferraris can be garish, but there is both a legitimate history and culture that you're buying into, right? Many of the models are actually quite restrained, at least in styling.

Okay, relatively, yes. The last point on this is Ferrari has taken price up a lot in recent years. And so if you were, let's say, a 70-year-old dude and had a couple of old Ferraris that you collected and liked bringing to shows, they weren't that expensive until recently. They were always more expensive than other luxury cars. They were definitely ultra-luxury cars. But if you just look at how much the price has gone up in recent years, it stimulated the secondary market too.

I was talking to someone who bought a car in the mid-'90s from the bottom of the range, and he was lamenting the fact that he sold it 3 years ago, 4 years ago, and it's doubled in price since then. That phenomenon has happened all over the Ferrari universe, which adds to the mild ick of seeing one, which I don't think you used to experience as much.

Yep. That's a great point.

Okay. So back to the numbers. They did $8.2 billion in revenue in 2025. In terms of profits, they did $3.2 billion in EBITDA. So they've got a 38.8% EBITDA margin. Pretty good business.

Pretty good for a car company.

It's not a car company. That is the answer here.

Of course.

So how are they so profitable? This is the exact comparison I was going to make. Well, let's look at their cost to make each car versus how much they can sell each car for. And we'll start by looking at other car companies to get a sense of what their gross margins are. Ford, 7%. That is 7% gross margin, not EBITDA, not net income, not cash flow margin. That is their gross margin when they create one unit of a car.

A new F-150, et cetera.

Yeah. They make 7% before they sell it, before they have to pay their overhead and their R&D and their G&A and any of their fixed costs. Yeah. GM, 10%. BMW, 14%. Wow. Volkswagen, 14%. Mercedes-Benz, 16% to 22%. Porsche, freaking Porsche, 15% to 25%. Toyota, that same range, 18% to 21%. Toyota is exceptionally well run. Isn't that amazing that Toyota generates on the order of 3 times as much gross margin per car that rolls off the line compared to Ford?

Yeah, that is incredible.

Ferrari has 50% gross margins. That is a luxury brand.

And as you were pointing out earlier, that's average.

Yes.

The supercars and the iconic cars are way above 50% gross margins.

I get the sense the range is like 30-ish percent, maybe 35%, and then the supercars are in the 80% to 90% gross margin range. So it is worth pointing out here: this average 50% gross margin, you might say, “Oh, it's a luxury brand,” which is the assertion I'm making. They do have to make a bunch of complex, expensive, giant hunks of metal, deal with safety, engineer the absolute crap out of them, and truly innovate.

So when you look at companies that don't have to do that, LVMH is 66% and Hermès is 71%. So there exists a category where you don't have to do all of that hard engineering work, where it's a good business just selling handbags.

Yeah. And this is where the technology element of Ferrari comes in that doesn't apply to many of the other luxury companies.

Yep. But still, Ferrari is able to sell their cars for twice what it costs them to make. Whereas if BMW spent $100 to make a car, they only get to sell it for $115.

So perhaps more interesting, though, than all of this—than the gross profit percent—is the gross profit in absolute dollars. The average gross profit per car exceeded $170,000. That is more than the entire retail price of your average luxury sedan. And even Porsche would need to sell 6 cars to equal the profit dollars that come from a single average Ferrari.

Wow. That is truly astonishing.

There are so many different ways to slice this. It's fun.

What other companies or products can you think of that have a per-unit gross margin contribution of $170,000?

Well, this gets into how we opened the episode: In terms of how people spend money in life, it's housing, food, and transportation. And if you are selling them something in the transportation category, one of their largest possible spends, and you're selling them the most expensive version of it, you've sort of spiked. You have to—real estate is the only other thing you can really meaningfully start to compare this to.

Yep.

All right. A little segment breakdown time. They've got 3 segments that they report. There's cars and spare parts. That's 84% of their revenue. 11.5%, though, is sponsorship, commercial, and brand.

The Formula 1 team.

Yeah, I was going to say the commercial and brand. This is where their lifestyle stuff is—the fashion. But really, the interesting bit here is sponsorship. Formula 1 for them is a profit-generating center that is also the single best marketing dollars they could ever spend.

Yes. Thank you, Liberty Media, and their stewardship of Formula 1. Overnight, in the last 10 years, Formula 1 went from just a marketing spend for Ferrari to the best marketing activity they do and a real, meaningful profit center.

Yep. The HP deal alone, the title sponsor of the team, is rumored to be $100 million a year.

And the latest Forbes valuations of F1 teams—I think Ferrari, they value the team at $6.5 billion. Is that right?

Sounds right.

They don't produce the most profit, but they are the most valuable team because they're Ferrari, and everyone pays a little extra premium for Ferrari and everything.

Right. So, of the current market cap, that's probably close to 10% of the current market cap is just the value of the team.

Oh, that's crazy. You're right. Yep.

And again, you can't really extricate one from the other. No, these are one thing. Ferrari is Formula 1. Formula 1 is Ferrari, but it's now a meaningful value and profit driver.

Yep. Lastly, 4.5% of their revenue is financial services and some other random stuff, including selling engines to other Formula 1 teams. Right. So this is the money that the Cadillac team is paying to Ferrari to put an engine in their car.

All right. Multiples. For anyone who is not an investor, this is when you look at the current business: How many years of the current business would you have to pay to buy the whole company from them? And there's a bunch of different ways to slice it. We're going to look at the price-to-earnings ratio, or P/E. Ferrari trades at about 35× their earnings. And until the luxury slump, where LVMH and Hermès and all these other companies got hit too in the last couple years, it was trading around 50× for the last few years.

Now, for reference, most automakers trade at 8–10×. Hermès trades at 35–60×—again, a big swing the last few years—and LVMH is sort of around 25×. So essentially, the market agrees with management that this is a luxury company, not a car company.

And one of the very, very best luxury companies—not just a luxury company, but an apex luxury company—valued on a multiple on par with the 2 very best luxury brands in the entire world.

Yes. The implication here with a very high price-to-earnings multiple is that investors believe that the profit streams are a lot more durable and certain compared to traditional automakers. Effectively, there's a high degree of certainty that all these profits will continue.

The only other option when you're looking at why a P/E ratio is so high is if you expect it's going to grow, right? But that is super duper not what is happening here. That's when you would have a high P/E multiple for a startup that's growing 300% year over year. Revenue growth is actually experiencing a massive slowdown at Ferrari.

If there's a bear case at all for Ferrari investors—and we've painted quite the bull case this whole episode—it's that Ferrari has reached the edge of their extreme pricing power and their ability to keep ratcheting that up at the number of units that they're selling. Management said in their October 2025 Investor Day that the era of double-digit revenue growth is over. Over. And over the next 5 years, they expect revenue to grow just 5% each year.

That actually, for the long term, is probably healthy for the company and the brand. They've expanded the pyramid so much in recent years that a period of slower growth probably is the right thing to do in terms of luxury strategy and management here. But yeah, the stock really took a hit after that Investor Day last fall.

It's funny: It took a hit, and people still think Ferrari's current revenue streams are so durable that they're willing to pay the next 35 years' worth of profits to buy the business today. And that is after getting crushed. The market cap went from $90 billion to $55 billion, and investors probably got a little bit excited about those 11% and 17% growth rates. And now that they're hearing 5%, that's why you're seeing this contraction—but a contraction to a 35× price-to-earnings multiple.

Yep. Well, one more thing before we get to analysis, powers, and quintessence: China. You mentioned it earlier, but what's going on for Ferrari in China?

So what's going on in the auto industry in China? It's probably the place to start. China's car market is being completely upended by inexpensive, high-quality domestic EVs from BYD, Xiaomi, and others. This is having a huge impact on brands that expanded into China in the last decade, as we talked a lot about on our Porsche episode.

But China is only 7% of Ferrari's sales, down from 10% at its peak. Porsche, on the other hand, had China at 33% of their deliveries a few years ago, which has collapsed all the way to 15% and continues to fall. So the question, then, is: Is Ferrari any less desirable today in China than it was 5 years ago? And does it fill a different enough job to be done than the domestic supercars for them to weather that storm?

Hmm. Interesting. I don't know enough to say, but I would suspect it's probably about as healthy as you can be.

Yeah, I think my answers on this are: There are domestic supercars in China. They're still not Ferrari-level in terms of desirability, certainly not in brand heritage. They don't have the myth. A sentiment change where people in China only want to buy domestic supercars—that's a risk to them.

But I think the thing that you're buying, the signal you're trying to send when you buy a Ferrari, is not really at risk. The job to be done by an EV—I keep coming back to this—is completely different from the job to be done by owning a Ferrari.

Yep, that's it. I'm glad we brought this up again here because I think this is also an important point of perspective to add to the Luce and why I really think it is bold, daring, and important that they're doing it.

It's easy for us sitting here in the US to have the perspective, "Why are they continuing this EV thing? Clearly, they should just stay with combustion engines."

I'm not. It's the only one I want to buy.

Well, yes, good point. Okay. It's easy for US-based collectors and petrolheads to be upset about this and not understand it. Certainly in China, but also in Europe, Chinese EVs are invading everywhere.

In America, EVs are in a bit of a slump. But in much of the rest of the world, Chinese EVs are dominating and clearly showing what the future should be. So is Ferrari going to say, "Yeah, we're just going to abdicate all of that and let the next supercar brands be built around EVs and probably be built in China"? Or are they going to step up and take their own swing?

Yeah, it's a swing. All right. Should we move into analysis?

Yes. And let's start with our traditional segment, 7 Powers, borrowed from Hamilton Helmer's great book and framework. What power does a company have? What are the things that give it a durable, sustainable, comparative profit advantage over its nearest competitors?

The 7 Powers are scale economies, network economies, counterpositioning, switching costs, branding, cornered resource, and process power. What have you got for Ferrari? Ferrari.

All right. Well, should we just start with brand?

It's funny. Okay. I'm glad you started there because I think it's actually an interesting discussion. Go for it.

How much would you pay for a Ferrari that was badged as a Ford?

Well, there's probably a pretty good data point on this, which is the Ford GT. And I don't know what they sold it for at MSRP, but I suspect it was less than a Ferrari.

Yeah. This is so hard because a Roma is not that much more expensive than the highest-end Corvette that you could buy. But an F80 is $5 million, and there are no cars from normal car companies that are anywhere near that. So the question is, who is their direct competitor? Their direct competitor is probably Lamborghini.

Yeah, that's the closest. Yeah.

If you really want to go as apples to apples as possible, it's Lamborghini. Yep. So Lamborghini, as we mentioned, makes about 11,000 cars a year compared to Ferrari's 14,000. Lamborghini has meaningfully increased volume. If you look back at the Ferrari IPO year, back then the average selling price was about even. It was about $300,000, whether you're buying a Lamborghini or a Ferrari.

Today, Ferrari's average selling price, as we mentioned, is $500,000, whereas Lamborghini's is about $340,000. So Ferrari has really flexed its pricing power over Lamborghini, especially as Lamborghini has made more and more cars to catch up to Ferrari's volume.

And 60% of Lamborghinis are Uruses.

Yes, there's that, too. But the point that's useful for our Powers exercise here is: how much more would you pay for a Ferrari than a Lamborghini?

Well, it's right there in the data.

Right. It's about a third more.

Yep. I was going to take the counterpoint. On the one hand, yeah, brand is, of course, the strongest power that Ferrari has, as with any luxury company. On the other hand, I think it's not quite as powerful in terms of driving profit margins for Ferrari as it is for, say, LVMH or Hermès. Because a Ferrari product—a Ferrari car—

Is really differentiated.

Still has to be a Ferrari. Ferrari can't just stamp the prancing horse on a car and call it a Ferrari. A Ferrari has to elicit emotion from you. It has to be cutting-edge, and it has to be incredibly powerful. So there's more cost that has to go into it.

Yes, there's a phrase they use called “racing thrills.”

Yeah.

It's engineered over decades to provide a very specific racing thrill when you drive it, which is not something that you can throw another badge on. So I think if you were asking management, they would insist this is a fruitless discussion because there is no way to rebadge something and call it a Ferrari. That's not possible. It's intellectually impossible.

It's tautological. A Ferrari is a Ferrari.

Yes. But in reality, when they raise prices, people are willing to pay those higher prices because there's a shared myth we all have—a belief in what the brand represents and means to us, and the emotions that it gives us by owning and driving it—that are quantifiable and worth something.

Yep. How does this compare to how you felt about watches at the end of the Rolex episode?

Watches don't provide racing emotions. So what matters, because all the performance is effectively identical at the high end, is who you are saying that you are to the world when you look down at your wrist, and when someone else sees your wrist.

A watch says something about you, but it doesn't provide an experience for you.

That's correct. And there's this interesting, perfect comparison here: Porsche is Rolex. I mean, they make an absolute crap ton of them. Rolex is a million a year, and Porsche—I don't have the numbers in front of me, but it's 300—

320,000 or so a year.

Exactly.

And it's an incredible brand, just like Rolex is an incredible brand.

And I see them driving around my neighborhood all the time, and I think they are amazing, polished pieces of engineering. I respect them for the engineering. In the same way that I'm wearing a Rolex Explorer on my wrist, I could easily see buying a Porsche. It feels reasonably like me. Could I see going out and buying a Patek Philippe? Not really—the same way that I say not really about Ferrari.

If you're going to make the crude analogy that Porsche is Rolex, I think you can make the analogy that Ferrari is Patek Philippe. It's much smaller production and an order of magnitude more expensive. The big difference here is that Ferrari is much flashier than Patek as a brand, and they also have the Tifosi, which adds this whole different element to it.

So, to directly answer your question, I think branding shows up more in luxury watches than it does in luxury cars because of the almost complete lack of experienceable intrinsic product characteristics. It's just hard to experience the product in a Porsche, but it's easy to experience the product differences in a car.

Yep, totally agree.

So you rely more on brand in watches.

Yep. Okay, let's step through some of these others because I think some of them are quite interesting. Keeping with the Patek Philippe–Ferrari comparison, I do think Ferrari has this really interesting sweet spot of scale economies that I don't think we've ever seen before.

They can do things Pagani can't, but they can also do things that Toyota can't.

Yes, exactly. They have power because of their scale economies and because they're like Goldilocks: they're just right. They're big enough, but not too big, and they're small enough, but not too small.

Yes. If they were any bigger, they would be handcuffed by their overhead. If they were any smaller, then they couldn't do some of the innovations that they do, design all the programs they design, and do all that sort of thing.

Exactly.

There's absolutely a scale economy to the community. The fact that they have all these racing programs, car meetups, and factory tours—you need to be a certain scale to support all of those operations.

Yep, I totally agree with that. And that's part of being the minimum size. I thought you were going to go to network economies. Ferrari absolutely has network economies—100%—with the Tifosi, the community, the nature of the community, and being so open.

And as you perfectly put it, it's a way for older men to make friends. Whether you're a member of the Tifosi or a Ferrari owner, a big part of what you're doing is making friends.

Yes, it's a network economy. Having a robust, rich community around your product creates almost this free defensibility, because there's just so much more predisposition to want to buy something with a Ferrari logo on it because of the network economy you were just describing, David.

Yeah, I mean, it's astonishing. Calling back to our F1 episode, Ferrari is the most popular F1 team in the world by a large margin.

And it hasn't really won much since Michael Schumacher.

Yeah, and it sells the most expensive cars that the vast, vast majority of its fans will never be able to buy.

Absolutely exclusionary.

I bet a lot of fans of the Mercedes racing team, one way or another, can find a way to buy a Mercedes. Almost none of the fans of Ferrari can find a way to buy a Ferrari.

All right, you just pulled forward my quintessence, so I'm just going to do it now. Great. Ferrari is both inclusive and exclusive. It has the exclusivity of a luxury brand, but the inclusivity of a sports team. I mean, it's this amazing marriage that—this is going to sound so self-serving, but I was just sitting there nodding, reading their financials, because this is exactly Acquired's strategy.

We are unbelievably exclusive about the companies that we're willing to do these editorial deep dives on. We're unbelievably exclusive about our sponsors, and yet we're as inclusive as possible for the community. It should be the best deal on the internet. We want to make tickets cheap whenever we have big live events.

But really, we're just—

Ferrari figured this out first. Yes, it's so smart.

All right, well, we're going to have to change how we talk about Acquired.

If you can marry a luxury brand with a sports team, it is a business cheat code.

Yes, I love it. Oh, that's such a great quintessence.

All right, back to Powers?

Ah, it feels anticlimactic to come back to Powers. Well, let's run through it quickly. All right, so we did scale economies, network economies, branding, and counterpositioning?

Did counterpositioning even exist in the first place? Because this almost never exists when you're an incumbent. But I'm trying to think whether they used counterpositioning in the takeoff phase.

Yeah, I don't really think so. I think they were just doing something different, as we talked about, by having the team, the constructor, and the services all in one house.

Oh, they're counterpositioned against the houses of brands today. They can do things that Lamborghini can't do because of platform sharing.

Yeah. Switching costs: there's no switching costs.

In fact, I think most people who own Ferraris own other cars and want to keep adding other cars.

Yep. Cornered resource: absolutely. The story of Enzo and the history, myth, and legend of Ferrari—and that is not going anywhere, obviously.

And actually, for a while, their F1 team had an advantage because they had their own racetrack that no one else has. I mean, they have their own wind tunnel and everything.

A racetrack, yes.

Do they have process power?

Process power? I don't think they have any obvious or specific process power. Sure, there's institutional knowledge in the factories, and they have their very unique way of building cars that's different from any other auto manufacturer. But I don't think that's quite process power. I think their power lies mostly in the other categories.

Yeah, I agree. So the question becomes: what is the primary reason why imitators have failed to execute Ferrari's strategy as well as Ferrari?

The most obvious is McLaren. They're trying to basically do the same thing. There's Lamborghini, which we've talked about. There's Aston Martin. It's a much smaller production, but there's Bugatti. I mean, why are there no other Ferraris?

I think I would posit that there are no other Ferraris because of the continuity. Even through all the crazy ups and downs and the wild story and journey that we told on this episode, Ferrari has always been Ferrari. The core myth has always remained intact, and the products, as up and down as they have been over the years, have more or less always delivered on what it is that you are buying when you buy a Ferrari.

And that has been unbroken all the way back to 1947. I mean, for God's sakes, they're the only F1 team that has been continuously operating.

For all of F1. That's my answer.

I think that is largely correct. It is interesting for all the people who complain, “Oh, you know, that model was crappy, or this strategy was crap.” It's actually a pretty narrow window where, more or less, they were still being Ferrari, even if you have a particular gripe.

Yep. And certainly, if you compare it to the ups and downs of any other car company, it's quite continuous.

And my answer is different for each one of these. I mean, for example, Lamborghini: how do you build a company like this without racing heritage to tie it to? If you're going to build a luxury brand, you need time and you need heritage where you tie it to an important emotional thing that people lust for connection over. And in cars, it's racing. I'm sorry, it's the obvious thing to tie the emotion of your brand to.

Aston Martin has fallen down because they've been terrible at running a business. McLaren has had various changes in ownership and leadership and strategy. So, different for different reasons, but no one has, over 80 years, been able to run the Ferrari playbook.

Yep. All right. Quintessence: you already gave yours, which I love—the marriage of a luxury brand and a sports team. What could be more quintessentially Acquired than the marriage of a luxury brand and a sports team?

I think, for me, as I was thinking about quintessence, I sort of took the question that you and I posed each other at the start of our research journey here on Ferrari, which is: what are you buying when you buy a Ferrari? And for me, there are 2 things that you're buying. You're buying, one, passion. There's undeniable, purely quintessentially Italian, Enzo-and-Ferrari passion that goes into every one of these cars, from the range to the Icona series, certainly to the supercars, and I think probably even the Purosangue, even the FUVs.

Certainly.

It's funny, Ben, you know this, but I talked with the CEO, Benedetto Vigna, yesterday, and he told me, “We don't sell a car. We sell a dream.”

And I think that's an old Porsche line. But yes, yes, it's true. It's true. And compare that to other cars, and it's just—you know, most cars, there's zero passion in them.

So, one, I think it's passion. And two, I really do think there's something to the ability to feel maximally alive in a Ferrari. And that comes right back to Enzo and his story and all the great tragedy and death that was part of it. Like, buying a Ferrari, you are buying a weapon that you can use to fight against death and scream into the void, should you so choose.

And the one thing I will add to that, back on our Rolex episode, we threw out the idea of a functional alibi—a reason you could claim that you need such a watch. For Ferrari, they have lots of incredible alibis. Most people do not experience the thing that you just described, feeling maximally alive and going right up to the edge, but that is one of several plausible alibis for why you can convince yourself that you are buying this thing.

For me, it's the incredible engineering. I think for some people it's the racing heritage. I also think their cool manufacturing and their craftsmanship—these are all tremendous assets that the brand has that are extremely plausible alibis that you can tell yourself for why you are buying this.

Yep. That's a great point.

Even if what you're really, really doing is social signaling. Or you have too much money and you truly don't know what to do with it, and this seems fun.

Or you view it as an investment.

That's right.

Well, that is a great place to leave our story for today. We have a few fun things here before we wrap up the episode.

I've got a couple bits of trivia for you, David. I don't know if you know them.

All right. I've got a couple.

Is one of yours the Lamborghini story?

Yes. Yes. All right. We've got to tell the actual Lamborghini story here.

Did you know? So, the way that this story is out in the world, there is an issue of Thoroughbred & Classic Cars from January 1991. And it is a quote from Ferruccio Lamborghini that is in this print-only magazine.

So this is the origin of the myth of the founding of Lamborghini, in this magazine. I did not find that. That's incredible. All right. Well, do you want to tell it?

You give your side of the story and then I'll give the quote.

Okay. So the legend out there about the founding of Lamborghini is that Ferruccio Lamborghini was a wealthy Italian tractor magnate and manufacturer.

Yeah.

He was dissatisfied with the clutch in his Ferrari that he owned, and he went to Enzo to complain about it.

And here's the quote:

“The problem with the clutch was never cured, so I decided to talk to Enzo Ferrari. I had to wait for him for a very long time. ‘Ferrari, your cars are rubbish!’ I complained. Il Commendatore was furious. ‘Lamborghini, you may be able to drive a tractor, but you will never be able to handle a Ferrari.’ This was the point where I finally decided to make a perfect car.”

Now, the reality is that was an intentional attempt at myth-building on the part of Ferruccio. That never happened. The real story is that one of his tractor mechanics was repairing one of Ferruccio's Ferraris and found that some of the parts that were used in the Ferraris were quite similar to the parts that they used in the tractors, and said to Ferruccio, “Hey, we could try making cars too. I bet we can be at least as good as this Enzo guy.”

I don't know. Everyone involved in these stories is long dead. It could be some of column A and some of column B.

That's true. That's true. That is the legend of the founding of Lamborghini.

Yes.

I love it.

All right. My second bit of trivia is not a confirmed fact, but it's something that I've been thinking through. I had seen numbers floating around out there of the number of clients that Ferrari knows the name of. They say in their public reporting that they have 90,000 active owners and another 90,000 who currently own Ferraris but haven't bought in the last 5 years. I don't think these are estimates. If there's only 180,000 rows that they need in a CRM—

Yeah, it's completely reasonable that they know every owner of every Ferrari.

I think they have a giant spreadsheet with names mapped to serial numbers and who owns every single car.

Yeah, that's crazy to think about, but completely reasonable.

Because think about it: what are the ways in which they would not have your information? If you bought it new, they've got your information. If you bought it used from a dealer, they've got your information. If you bought it in a private sale at auction, they've got your information. But if not, you probably want to get one of those $6,000 to $10,000 certificates here pretty soon.

Right. The Classiche. Yep, exactly.

Which is going to involve contacting the factory—

Getting their information.

You know, track days. There's all these community programs. I think they know every single owner who owns every single car.

I bet they do. I bet you're right.

Isn't that awesome?

We'll have to ask them next time we chat with them.

That's right. All right.

My second and last one. I am so sure I'm going to get you with this one. The 1949 Le Mans that Luigi Chinetti won was Ferrari's first major victory, an example of the business model: a private client car winning Le Mans, et cetera, et cetera. There was another privately owned Ferrari 166 that was entered by another Ferrari client in that very same race, the 1949 Le Mans. Do you know who that other client was?

Hmm. European or American?

European. French.

Is it a member of the Hermès family?

Good guess, but no. You're not going to get it.

I don't know.

Pierre Louis-Dreyfus of the—

Oh, Julia Louis-Dreyfus.

Yes. Yes. Julia Louis-Dreyfus of the famous Dreyfus family—Elaine from Seinfeld. Her grandfather was one of the first Ferrari clients and raced at Le Mans.

Oh my God. That is awesome.

So awesome.

So, side note, I think that is so crazy that she's of the Louis-Dreyfus family and went on to be an incredibly successful self-made actress coming from a multibillion-dollar European generational wealth. I mean, it's just a crazy smash-together of 2 worlds.

Yep. This is incredible stuff.

It's just a crazy smash-together of 2 worlds.

Totally. All right. Carveouts.

All right. Carveouts. Let's do it.

Go watch the movie Ford v Ferrari. It's enormously fun.

I owe a huge, huge thank-you to Luca Dal Monte, who authored the definitive biography of Enzo Ferrari and was super generous, spending many hours on Zoom with me talking through the nuances of all this history. We are incredibly appreciative of his help. Second, most importantly, to the other Luca, Luca di Montezemolo, truly a living legend who embodies Ferrari as much as anybody alive today. Thank you for taking time with us. To the also legendary Domenico De Sole—

Oh, he's the best.

The former CEO of Gucci and business partner of Tom Ford's, who spent another good chunk of time with me helping me really understand the difference between French and Italian luxury. To Stephen Wilmot, who covers European autos at The Wall Street Journal and wrote a great piece breaking down how the waitlists work at Ferrari. To our friend Doug DeMuro, and to Chip Connor, who is one of the foremost Ferrari collectors in the world and gave us great perspective on the Ferrari collector community.

For me, to Arvind Navaratnam at Worldly Partners for his great, great write-up on Ferrari. To my good friend Matt Shobe, Ferrari enthusiast and former Ferrari owner. To Brian Lum at Baillie Gifford, a really, really thoughtful investor who helped me think through all of Ferrari and really woke me up to the idea of the pyramid of infrastructure. So thank you, Brian. To Neil Konzen, one of the OG folks at Microsoft here in Seattle, who then would have a second career actually working for Ferrari.

That's right.

He moved to Maranello, experienced it from the inside, and worked on the F1 side of the house on their technology. It was really fun to get his perspective on how the company evolved over the decades.

To Mike Miller, good friend of the show and former editor at The Wall Street Journal, who really helped us research and construct this episode. And to Benedetto Vigna, the CEO of Ferrari today. Thanks to Benedetto for taking some last-minute time yesterday to run through some final questions I had before recording. To Eddy Cue, who is actually a Ferrari board member and a good friend of the show. Thank you for helping us contextualize.

In addition to all of his work at Apple, the fruit company.

Yes.