How Aston Martin's owner is growing a profit-rich luxury car business

Lawrence Stroll and his British luxury performance brand, Aston Martin (AML.L), are planting a big flag in New York City — part of the billionaire's continued quest to cater to the wealthy and produce eye-raising profit margins.

The automaker opened its Q New York boutique, its first flagship store, on 450 Park Avenue in New York City, a stone’s throw away from the iconic Plaza Hotel. The new location — with floor-to-ceiling “champagne” tinged windows, Italian marble floors, and clubhouse style walnut trimmed lounge — brings the British brand’s bespoke service, Q by Aston Martin, to North America for the very first time.

Aston Martin’s chairman knows a thing or two about owning businesses that attract the wealthy among us. The Canadian, who made his billions licensing brands like Polo Ralph Lauren, Tommy Hilfiger, and Michael Kors for territories around the globe, bought a controlling interest in Aston Martin in 2020. (His vision also included a rebranding his Racing Point F1 team to Aston Martin Racing in 2021.)

Though Stroll is passionate about high-end cars and racing, he wasn’t going to buy a then-struggling Aston out of kindness. He expected, and expects, to produce big profit margins.

“I've already mentioned previously that every car under my stewardship will only start with a minimum of 40% contribution margin. That was significantly not the case when I took over,” Stroll said in a roundtable discussion with reporters from the Q New York boutique.

In accounting parlance, contribution margin differs from regular gross margin in that it excludes fixed costs and focuses on variable costs like materials, variable overhead, and sales commissions. In theory, it is supposed to give a better view of a business — and how much it actually earns from sales.

But before those lofty goals could be reached, Stroll said he had to clean up some issues. "When I started three years ago, there was [too much] inventory on the market, and we stopped production for almost a whole year. I said, 'We got to clear this inventory.'" That "was a very expensive proposition to do, hugely expensive, you have no gross margin coming in and all the expenses going up," he added referring to the then-current lineup of DB11, Vantage, and DBS road cars.

"So the first thing, those same cars [that] were selling at a slight discount when I arrived are now selling at 25% to 35% higher prices," Stroll said, after drastically cutting production.

Stroll said that was step one of the plan. The next step started with the DBX SUV and the special edition variant — the DBX 707. It was the first new car produced under Stroll’s stewardship, and it hit the 40% contribution margin that Stroll was targeting.

"We've achieved our 40% contribution margin. Now [new cars] will go from 40% contribution margins up to 65-75% contribution margin depending (on) volumes," he said.

Aston Martin intends to offer more on its updated financial metrics at its capital markets day scheduled for June 26. Stroll said the company will update its EBITDA targets ($2 billion by 2024-2025) as well as its production volumes (9,000-10,000 vehicles).

Said Stroll: "I'd rather make 100 cars less at 45% contribution margin than 1000 cars or more at 25% contribution margin because guess what? It comes out to the same amount of dollars at the end of the day."

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Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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