Supercar maker McLaren chief Mike Flewitt on why he may float on the stock market but will never build an SUV

“The US has been hit very hard by Covid-19, political debate around the elections and social unrest. That has knocked confidence,” Flewitt said. “I think we have a bit of journey to get back to 2019 levels.

“If I’m optimistic it’s 2022, worst case 2023 perhaps. This will have knocked us back a couple of years”

It’s often said that luxury goods, like supercars, sell well whatever the economic weather because their clients are so wealthy. But Flewitt says that’s not the case.

“Our clients have often made their money in business and this is a difficult, uncertain, time for them. There is a lot of caution,” he said. “You just do not know what is going to happen and sentiment and confidence play as big a part as ultimate wealth.”

Last year was strong for McLaren, with an 11% increase in revenues to £1.2 billion revenues delivering around £130 million profit, he said.

“This is a setback but it’s only a setback. It will go forward,” he said.

“There are still enough ultra high net worth individuals and so it could spring back very quickly indeed.

"There’s a desire for these cars, the money exists to buy them. All of that is there but we’re in a stressed position in the world.

"We don’t know what the end of Covid is. Is it that they discover a vaccine tomorrow and it will all be over or is there a longer journey?”

Cuts and refinancing

Having furloughed staff, McLaren Automotive has since cut around 670 jobs – about 25% of the company.

“It was really hard, but we took the view that we had to get costs to a manageable position so we are operating at breakeven. Then, if the market comes back, great. If not, we’re still solvent.”

All those on furlough were either rehired or let go from 1 August, he said, with everyone across the company taking pay cuts.

McLaren also tapped the National Bank of Bahrain for £150 million to get it through the crisis.

“When the market comes back, we will have a better, leaner structure than before with a better, leaner cost base,” he said.

A stock market flotation

He said McLaren could float on the London Stock Exchange to offer an exit route for shareholders, which include majority investors Mumtalakat, the Bahrain sovereign wealth fund, and Mansour Ojeh, the wealthy French-Saudi owner of the TAG racing team. “We need to get back to 2019 levels but then we could consider it.

“Our shareholders are investors because they love the business but also because it’s a good financial investment. A float could be a partial offering for them to realise those gains.”

City bankers have argued that raising finance to get through the financial crisis has been easier for plcs with a wider base of shareholders and access to capital markets.

Flewitt is not so sure if his life would have been any better: “I don’t know if would have been easier. There’s a lot of value in our business so it was always going to be able to raise the money whether through a debt route or an equity route.

“I think the private structure works for our shareholders today. I think I could see us going public at some time in our future. There’s a lot to do to rebuild the business over the next year or two first – we need to come out of this and get back to the kind of figures we had at the end of 2019 and then building on successfully from that.

“Let confidence return in the world and then maybe a good way of realising value is to consider a public offering of some sort.”

Product launches and development

Despite the crisis, McLaren had pushed ahead with the launch of its new supercar, the 765LT, which sells at a basic price of £280,000 going up to around £400,000 for a carbon fibre body.

Acceleration is phenomenal, as you'd expect, but it's the braking that has got the aficionados excited. As you screech into a sharp, slow turn from doing 180MPH down the straight, you can see what they're talking about. Imagine the best rollercoaster in the universe, then times it by 10.

Says Flewitt: “It was great that we could launch this beautiful car at a time like this. It’s been a sign of confidence improving for us and great from an external point of view."

Production of around 300 models for 2020 had sold out and orders for 2021 had already exceeded its production capacity. The company plans to make 765 of the cars in total, following the established supercar model of restricting supply to keep up the rarity (and resale) value.

It did, however, push back the launch of a new hybrid supercar by six months. The plug-in model will now launch in the first quarter of next year.

The government’s handling of Covid

Asked what he thought of the government’s handling of the crisis and criticisms of its various shifts in policy, Flewitt said: “I can’t criticise. There is no precedent, no rule book. They have adapted their strategy as the crisis evolved.”

He added that while mistakes had been made by most countries, there was little point criticising. “If, with hindsight, you could have done better, so what? Is it useful to spend a lot of time debating if we could have done better?”

The mass market car industry’s future

Flewitt spent most of his career in the mainstream car sector, rising from his start on the shopfloor at Ford to end up running its entire European manufacturing operation, making 9000 cars a day. From running a large chunk of the "volume" carmaker, he left to join the niche player McLaren in 2012, so he has seen both ends of the market.

“In the Western world there’s no growth in volume [carmaking] any more. The market’s pretty saturated. We will be ever searching for safer, cleaner cars and there’s a belief that one day autonomous cars will present the ultimate answer to that journey.

“In a way, then, you're moving away from motoring into just transportation. Getting from A to B.

"At that point, the market will fragment; there will be some people for whom that’s what they want, but there will be some who enjoy driving, will still want a car – whether they own it, lease it, share it or have it through fractional ownership.”

“The best companies will find their way through this journey, through the new powertrains, the new ownership structures, the new technology – partial or full autonomy – but it’s going to be a painful journey and an expensive journey as well.”

Electric vehicles

Flewitt cautioned, however, that while electric vehicles (EVs) get a majority of airtime in the talk around car shows, they only represent around 2-3% of sales.

“The buying public aren’t buying EVs as much as the excitement and chatter around it because frankly, they don’t offer, yet, from a cost perspective or useability or range or charging a competitive solution with a conventional car.”

He said that would come in time but politicians needed to lead, with subsidies and taxes to promote them. “But they mustn’t do it so they break the automotive industry doing it. They have to take the industry and customers with them. That’s a very complex journey over the next 20 years.”

Elon Musk

Asked about Tesla’s staggering stock market value ("market cap" in the jargon) he said he was, frankly, baffled.

“Elon Musk? I think he’s a brilliant marketer. I think he’s done a great job of popularising EV. Tesla has become the generic identity for EV like the Hoover for vacuum cleaners.

“But I don’t get the market cap. I studied economics, I’m a businessman, but the company doesn’t generate any cash, it’s got a market cap of around $400 billion. How do you ever earn that? You ought to be able to earn back the value. I can’t see how that works.

“Take the opposite, Ford. It has a very low share price and market cap but is actually generating significant free cash. It just doesn’t stack up and shows how share price is driven by sentiment.”

He adds of Tesla: "I admire what they’ve done, EV would not be where it is without them. They’ve stimulated interest, made it relatively accessible from a price perspective, but I do think other companies are going to come along with very competitive EVs.”

His favourite EVs are the Porsche Taycan sports car or the i3 commuter car from BMW.

A McLaren EV?

“Hybrid comes first – next year – I think it will be late in this decade before we do an EV supercar.”

“Frankly, it is something we are always thinking about, where a development’s going.”

Pointing at a 765LT in the pit lane, he adds: “But you know, I love cars like this. There are moments when you think: I wish the whole bloody thing [the EV debate] would stand still so we can just make better versions of this, but that isn’t the real world. The real world is that we do need greener energy solutions and hybrid is a part of that journey.”

He added that EV was also only a partial solution because of the pollution effects of producing the batteries needed. “This is a journey over 50 years until we find a genuinely green energy source.”

McLaren would not be designing batteries, only buying them in from third party suppliers.

On working with Ron Dennis

It was Ron Dennis, the famously tough chief of the McLaren Formula One team during its glory days, who hired Flewitt to expand the group’s road car business. After a struggle with shareholders, Dennis retired in 2017.

“He was tough to work for,” Flewitt says gingerly. “Let’s say we get on very very well now we don’t work together.”

“We’re both fairly strong minded individuals so we did have the odd debate about things. But I’ve huge admiration for the man. He took McLaren from 1980 to 2017 and transformed the company to where it is now, so I’ve huge admiration for that.

“But great men aren’t always the easiest to work for!”

Any plans for an SUV?

During the afternoon, he had been admiring the engineering of a giant Bentley SUV in the carpark, but he has no plans to follow Lamborghini or Ferrari to do a McLaren version.

“No!" he shouts in mock outrage. "No, because we don’t want to, but also No, because this is where all our expertise lies; all the engineers, all the technology we developed, all the processes, are about making supercars. So we’ll stick with what we’re good at.

"We have to do what we’re good at, and keep doing it. Enhance our market position. We’re competitors with Ferrari and Lamborghini today and I want us to be head and shoulders the best in the world. That’s the prize.”