How McLaren aims to match Ferrari, Lamborghini on profitability

McLaren Automotive is looking for a partner that will supply technology, platforms — and hopefully cash — to help it develop a new SUV or similar “shared performance” model, CEO Michael Leiters told Automotive News Europe on the sidelines of the Goodwood Festival of Speed in southern England in July.

Leiters was hired from Ferrari in 2022 to put the struggling company back on track after the COVID-19 pandemic rattled its finances. The British supercar maker lost 872 million pounds ($1.1 billion) in 2023, according to company figures. As well as launching new supercars, including the entry Artura plug-in hybrid and the 750S supercar, McLaren untangled its complicated share structure with the help of its majority shareholder, the Bahraini sovereign wealth fund, Mumtalakat.

In March the fund took full control of McLaren, including the racing arm. Now Leiters must return the automotive arm to profitability and persuade an automotive partner that McLaren can become as profitable as rivals Ferrari and Lamborghini. He discussed this and more with Automotive News Europe Correspondent Nick Gibbs.

Bahraini sovereign wealth fund Mumtalakat has taken full control of McLaren. In the past you have said that was the key to unlocking investments. Has that happened?

We need to make the company profitable and cash generating, then we will have certain commitments [from Mumtalakat] regarding funding to invest.

In the first quarter your gross profit improved. Will McLaren be profitable this year? Next year?

We will show shortly that it is possible to have a cash-generative business even though investments in our future increase. This additional investment probably will need cash flow later. But we are on our way to becoming profitable and much more efficient cash-wise than in the past.

What does Mumtalakat gain from taking full control?

Before we had a very complicated equity structure, leading to a very complicated governance. As part of the cleanup process Mumtalakat has taken 100 percent of the equity. But you can imagine that a sovereign wealth fund doesn't aim to own 100 percent of an automotive company. They want to be an important investor in our company, but it would be good to have a financial/technology partner to unlock the full potential.

What targets have been set before you offer another company a potential stake?

We must be on our way to profitability. We have two plans for that. One is a stand-alone plan to stay independent without any technology partner and focus on supercars as our core element. This is a profitable plan. But to unlock the full potential, we think we should extend our product lineup to something more lifestyle oriented. That could be an SUV or a 2+2 (four-seat, two-door model). This is a heavy investment, and it's not only about the investment. It's also easier to get that with a partner that already has a platform or technologies. This is even more profitable.

Ferrari, Lamborghini and Bentley have shown how profitable the ultraluxury sector can be. What is their secret?

The most important thing is you must have a strong brand and a strong product. You must manage both very well and there have been some drawbacks in the past [at McLaren].

Such as?

Our product plan right now is much less focused on volume than it was in the past to get higher average pricing, more revenue with less volume. To create scarcity and exclusivity around the product.

What is your average selling price?

We are around 240,000 pounds (about $304,500).

How do you increase that?

Product. You could increase the pricing, but without the product substance that doesn't make sense. So, the product must be even better than it is today to generate more valuable. Second point, which is very important, is that last year we sold more lower-priced models [Arturas]. This year, we are selling more of the 750S at around 250,000 to 260,000 pounds, which helps increase the mix.  And then you will see the impact from cars from our “ultimate” model line, which are immense when it comes to the profitability of the company. There is a lot of space above the 750S. The [single-seat] Solus GT is 2.8 million pounds. Ten years ago, the P1 [another low-volume supercar from the ultimate model line] cost about 1 million pounds.

Why keep the Artura if it's dragging down average selling prices?

Because there are customers who appreciate that product. We have to manage the Artura's life cycle in the right way. Therefore, we are making an upgrade on the model year 2025 and bringing out a Spider [open-top variant]. Then we need a life cycle injection on the 750S. And then there will be a new model. We have some levers to work with.

Why haven't you been profitable over the last three or four years?

I think supplying to demand is crucial. If you look at the volumes, they were too high in 2017-19. This had an impact on residual values. A McLaren is an emotional purchase. You don't need it. You are wealthy, but you are not stupid. So, residual values are very important. We will not oversupply anymore. We have a target on our volumes that is much more restrictive than we had in the past. We are seeing that residual values are coming up significantly relative to our competitors.

What is your volume ceiling?

There isn't a ceiling. In 2019 we were touching on 5,000. Q1 was our best quarter in more than five years, but that will mean a volume of about 3,500.

Is it a problem for that in the U.S., your largest market, customers want to buy off the dealer lot, meaning you must have stock?

The lower in the segment the more important that gets, but you can manage that. Right now, we have 100 percent customer orders for the 750S. Other than some demos we have no retailer cars in the United States right now. We don't want to create the wrong perception that cars are waiting for the customer.

Is there a risk those customers will go to another car company?

I think almost everybody has the same business model. You shouldn't wait two years for your car, but waiting a little bit for such an important and valuable product is something nice.

This feels like a circular conversation with ultraluxury CEOs. The new CEO often says the predecessor was too focused on volume. Why do CEOs succumb to the desire to push cars out of the door?

It's short-term oriented. Do that and you will have the cash in your pocket. If you're a public company, you get a lot of pressure to deliver certain results. We don't want to be a public company. Wholesale [sales to dealers] is relatively easy, but it's wrong. Retailers are not there as a garage. They want to make money. So, they want to retail cars and will do whatever is needed. If they have to give a discount, they will. That's bad for luxury goods. Long term you destroy residual values and that reduced the demand.

Who is your ideal partner?

We only want a long-term, two-way partnership. I want to have a partner with a true interest in McLaren and our technologies, for example, our expertise in aerodynamics or carbon fiber. I'm open to share that with them in another segment. Certain elements are important. First, I want to extend the lineup. So, if they had a platform or technologies that allows us to go into a more lifestyle-oriented, shared-performance segment, we would be very, very happy. For anything outside our core, we would be open to discussing synergies. For example, I would be happy to use an infotainment system platform from somebody else and do my bespoke HMI. But I want to do my own vehicle dynamics, my own lightweighting, my own aerodynamics Whatever we will do, it will remain a true McLaren product.

Do you mind where the partner is based? Would you be open to a partner from China?

There is no real limit. There are a lot of trade-related discussions around China now. Putting any potential partnership discussions aside, this [talk of higher tariffs] is really concerning and not good for our industry or for the world. What the Chinese industry has done in the last five years is really impressive.

Your Chinese sales were down in the first quarter. What is the  issue there?

Not just for us. We have a special situation there because we only sell the Artura there now. That is the reason why we have a relatively low percentage of China in our volumes. In addition, the overall situation in China is very difficult. Consumer confidence is around 80 percent, which is not good. But I strongly believe in China. It will take some time, but we will invest in that market.