News of a huge injection of Chinese cash hasn’t managed to lift the Aston Martin Lagonda (LSE: AML) share price in recent days.
The luxury carmaker continues to plunge as jitters over the company’s future persist. Increasing fear over the global economy — and what this could mean for the expensive sports car market — isn’t doing battered Aston Martin any favours either.
The company’s share price has lost around nine-tenths of its value since the start of 2022. As a long-term investor, should I pile into it as a speculative buy?
Chinese money
First, let’s remind ourselves of that enormous capital boost from China. It makes sense as worries over its balance sheet have weighed on Aston Martin’s share price.
On Friday it was announced that Geely had taken a 7.6% stake in James Bond’s favourite carmaker. It’s a move that followed similar pile-ins by Mercedes Benz and Saudi Arabia’s sovereign wealth fund.
Aston has now raised a hefty £654m following Geely’s decision.
3 big boosts for investors
Geely’s intervention doesn’t only provide the UK share with much-needed liquidity (Aston Martin’s debts stood at a gigantic £1.27bn as of June). The Chinese company also owns various other well-known carmakers.
So it could furnish the British marque with important expertise in the field of product development. In particular, its pedigree in green motoring through its Volvo and all-electric Polestar lines could boost Aston’s chances in the low carbon era.
The Warwickshire company plans to purely sell electric-only and hybrid models by the end of the decade.
What’s more, Geely’s involvement could help Aston to turbocharge its sales in the Chinese marketplace. Strong long-term growth in personal wealth makes the country a major prize for big carmakers.
The company’s latest figures show it sold a record 1,815 vehicles in China. This represented 30% of total wholesale volumes.
Should I buy Aston Martin shares?
This could all boost Aston Martin’s share price in the longer term. So why has the company continued to fall in value?
For one, Aston still has a major liquidity problem despite Geely’s cash injection. It still has a huge net debt that requires sky-high sums to service. It also needs lots of money to continue getting its vehicle development programmes off the ground.
The situation isn’t helped by supply-side problems that are pushing up costs and hitting deliveries of its motors. Trading threatens to get a lot more difficult as the global economy slumps too. It’s a scenario in which luxury carmakers could see orders dry up.
In this landscape, the chances of the business placing more shares to raise cash at the expense of existing shareholders cannot be ruled out.
I’m a big fan of Aston Martin and its products. But from an investment perspective it’s proven to be a car crash. It’s fallen around 98% in value since its London Stock Exchange IPO in 2019. And in my opinion it’s at risk of falling even further. I won’t touch it with a bargepole.