Ferrari's Massive Risk Gives Investors Rare Opportunity

Ferrari (NYSE: RACE) is taking on a big risk launching the Luce, the company's first fully electric vehicle (EV). One part of the broader risk is that there might not be a market for ultra-high-end EVs, which was a reason rival Lamborghini canceled its first planned full EV. It was also a sizable risk for the brand to develop an EV when it drifts away from its heritage of racing-inspired designs and powerful, loud combustion engines.

If Ferrari's goal was to get everyone talking about the Luce, it was a resounding success. If Ferrari's goal was to convince everyone the Luce was a true Ferrari product design, the initial feedback was overwhelmingly negative. Ferrari's stock initially traded lower after the unveiling, but for savvy investors, Ferrari's risk presents an opportunity.

What are people saying?

That Ferrari's Luce was unveiled with a shocking design probably shouldn't surprise anyone, considering that the new four-door, five-seat "family car" was designed largely by auto industry outsiders Jony Ive and Marc Newsom. The backlash was intense and wasn't limited to social media, as even the Italian deputy prime minister, Matteo Salvini, weighed in, along with former Ferrari CEO Luca Cordero di Montezemolo.

Ferrari Luce. Image source: Ferrari.

Social media did what it does: create a plethora of unflattering memes and comments that compared the Luce with anything from a toaster to a vacuum, or famously failed designs in the past that rank as some of history's ugliest vehicles. Salvini questioned what Ferrari founder Enzo Ferrari would make of the Luce, and Montezemolo went as far as to suggest the Luce should be stripped of the automaker's famous prancing horse logo.

Things to consider

All is not lost, Ferrari enthusiasts and investors, and there are many things to consider. Enthusiasts, fans, and traditionalists hate change, and typically, negative opinions are much louder than positive ones. Let's also remember that the vast majority of loud opinions on social media aren't from potential Ferrari consumers.

It's important to keep in mind that when the Luce was unveiled, it was eyes-only -- not a single person got to test-drive it. That's a shame, because Ferrari went into the unveiling with essentially one arm tied behind its back, with critics and journalists unable to get behind the wheel and feel what a 1,050-horsepower vehicle with four independent motors can do on the road.

The Luce may not look like a Ferrari. Still, it should perform just as impressively with that amount of power, which propels the Luce from 0 to 100 km/h within 2.5 seconds, and an active suspension derived from the F80, a nearly $4 million supercar.

History is also filled with examples of initial reactions that didn't hold up over time. Even Ferrari has its own example with the Purosangue. The move was shocking at the time, considering Ferrari had actively refused to join the luxury crossover and SUV trend, preferring to stick with only sports cars. Eventually, Ferrari gave in -- mostly, as it refused to label the vehicle an SUV despite being its first-ever four-door four-seater -- and the Purosangue flipped initial criticism on its head and became a significant commercial and financial success, as well as a growth driver, with initial orders pouring in four times faster than Ferrari anticipated.

What it all means

Ultimately, while the backlash for Ferrari's Luce has been loud, investors would be wise to let the dust settle and remember what Ferrari still is. Ferrari is still a recession-resistant stock, as its core consumer base isn't as affected by financial downturns. Ferrari is still highly exclusive, and its products are not simple to purchase. Let's be honest: Ferrari will probably still sell out of the Luce from loyalists alone. Ferrari still boasts EBIT margins that have consistently improved over the past decade and hover around 39%, and the Luce in all likelihood won't cripple the company's highly lauded margins.

RACE PE Ratio data by YCharts

Ferrari is taking a risk with the Luce, no doubt, and a design flop certainly wouldn't be positive for its pristine brand image. But Ferrari as an investment has been about as rock solid as you can get, especially in the automotive industry known for thin margins, and bridges the gap between automakers and ultra-luxury products. Given the risk the Luce introduces and recent months of declining stock prices, Ferrari is giving investors a rare opportunity to scoop up shares at a lower valuation.

The Italian carmaker is still a fantastic investment, and that isn't likely to change anytime soon.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ferrari. The Motley Fool has a disclosure policy.