Perspectives on Progress #8

Ben James – Portfolio Director

Key Points

Hybrid deliveries exceed petrol engine supercar deliveries at Ferrari and Redwood Materials expands its Toyota collaboration
Coupang is to buy Farfetch, the leading global platform for the fashion industry, and Epic Games wins its antitrust lawsuit against Google
Shopify is integrating its ‘Sidekick’ AI tool across its platform in a move that could revolutionise entrepreneurship

As with any investment, your capital is at risk.

Ferrari

Driving the future of luxury

Released just before Christmas 2023, ‘Ferrari’ is the movie centred on the life of Italian race car impresario Enzo Ferrari – “the most famous man in Italy after the Pope”. He makes the most coveted cars in the world, known as “ravishing red beasts that roar out of his factory…and into the world’s fastest, most lethally dangerous races, where records, machines and bodies are routinely broken”.

Ferrari, the company, the car, and the brand, still retain that magic and allure today. A mark of its tight control over its luxury brand stewardship is that fewer than 250,000 cars have been produced since production began in 1947. Key to this ongoing success will be its ability to maintain this legacy while adapting to new technologies and customer demands.

As part of Ferrari’s transition from internal combustion engines to hybrid and electric technologies, hybrid deliveries surpassed traditional supercar deliveries for the first time in Q3 2023. By 2030, the company is aiming to sell 40 per cent electric, 40 per cent hybrid and 20 per cent petrol cars, giving customers the freedom to choose how their cars are powered.

Remaining true to the vision of its founder and the spirit of ‘Ferrari’ is no small challenge, but given its cars remain sold out until 2026 with strong demand across all geographies, not to mention the potential brand boost from Lewis Hamilton joining the F1 Ferrari team, the company remains on the road to long-term success.

Coupang

Coupang's luxury leap

In a move that has surprised many in the retail industry, Coupang, the South Korean ecommerce powerhouse, has made an opportunistic and strategic acquisition of Farfetch. Farfetch is the leading global platform for the luxury fashion industry and has been encountering financial difficulty. It seems Coupang is making a calculated bet to move beyond dominating South Korea to challenge major global players.

Coupang's newly launched ‘Rocket Luxury’ service, which offers super premium beauty products within 24 hours, will be complemented by Farfetch's extensive list of luxury brands. With only 12 per cent of personal luxury sales in South Korea occurring online in 2023, compared to the global average of 19 per cent, there is considerable growth potential in this sector.

The acquisition will also provide Coupang with valuable experience, supply chains and local knowledge to penetrate international markets, particularly in China, where Farfetch has previously partnered with JD.com and Alibaba.

This move is not without its challenges. Firstly, the deal needs to be approved, and there is a legal challenge from a group of Farfetch debt investors. If and when the deal is completed, integrating Farfetch's high-end offerings with Coupang's existing platform will require significant effort and restructuring.

But Coupang has an impressive track record of execution, and the rewards could be enormous. If the deal goes ahead and Coupang can execute, it is poised to become a major player in the global luxury ecommerce market.

Shopify

Lütke’s bold AI pivot

Shopify, the ecommerce giant, has made a daring move that could supercharge small to large enterprises globally. It’s decided to sell its low-margin delivery infrastructure business and is instead betting big on AI to revolutionise entrepreneurship. Chief Executive (CEO) Tobi Lütke is leading the charge, declaring AI fundamental to the business and integrating it into every part of Shopify's platform. The crown jewel of this AI push is 'Sidekick', an all-knowing AI tool that answers entrepreneurs' every question and completes their to-do list. This bold pivot is a prime example of how product-focused founder CEOs stay ahead of the curve and why Scottish Mortgage favours founder-run businesses. Will it pay off? Only time will tell, but early signs suggest it might be a game-changer.

Redwood Materials

Redwood charges on

Redwood Materials, founded by Tesla co-founder JB Straubel, was featured in Perspectives on Progress #4 in May 2023. Since then, it’s continued making progress towards creating a closed-loop battery materials supply chain. It raised over $1bn in Series D funding in August (Scottish Mortgage participated as an existing investor), then acquired Europe's leading lithium-ion battery recycler, Redux Recycling, to expand its operations in Europe. Redwood's collaboration with Toyota also expanded. The world’s largest automaker agreed to source valuable metals from Redwood’s recycling activities for its upcoming North Carolina battery manufacturing plant. This will be the first time an automaker is recycling their end-of-life hybrid electric vehicle batteries for use in their future electric vehicles. While significant investment is still required to continue scaling, Redwood is leading the way in creating domestic circular supply chains for critical battery components in the US.

To hear more on Redwood Materials, watch this short stock story film with investment specialist Claire Shaw which you can find here.

Epic Games

Epic Games Levels Up

Private company Epic Games emerged victorious in a high-profile antitrust lawsuit against Google in December. The jury in a San Francisco Federal Court found Google guilty of all 11 antitrust claims, marking a significant win for the Fortnite creator. The case lasted for several weeks, and Epic cast Google's 'Project Hug', which offered incentives to major game developers to keep their games on its Play Store, as anti-competitive. Epic’s victory was unexpected as it came two years after its defeat against Apple in a similar battle. This ruling marks a stunning defeat for Google, which operates one of the world's biggest app stores. It could potentially upend the entire app store economy, giving developers more sway over how their apps are distributed and how they profit off them. Google has said it will appeal the decision.

And hot off the press! Disney and Epic announced they would be collaborating on “an all-new games and entertainment universe that will further expand the reach of beloved Disney stories and experiences.” Disney also invested $1.5 billion in Epic Games. This is another exciting development at Epic.

About the author - Ben James

Portfolio Director

Ben James is a portfolio director serving Scottish Mortgage’s shareholder base. Ben joined the Scottish Mortgage team in 2023 and has worked with Tom Slater as the US equity investment specialist at Baillie Gifford since 2015. A former soldier, he developed a passion for the power of investment to drive progress during his overseas deployments. Ben works closely with the managers, meeting with portfolio companies and conducting in-depth portfolio discussions with shareholders. Alongside this, he creates engaging content that makes the Scottish Mortgage portfolio accessible to all its shareholders.

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