Almost all analysis of the collectible car market takes a bottom-up approach, which is understandable: the market naturally trades one unit at a time. The vast amount of available data lacks structure and accessibility, limiting analysis to the micro level.
However, as the narrative has shifted firmly to the end of the ICE era, investor confidence has grown, and collectible cars are increasingly valued as finite assets. Two factors have become more important in determining and understanding price movements: capital availability (liquidity conditions) and relative scarcity.
To evaluate opportunities, therefore, one must also analyse the market from the top down. By mapping the whole collectible car universe, one can consider this market in its global context while retaining individual constituent detail. This framework is designed to provide both macro context to understand long-term trends, and micro context to help identify overlooked long opportunities and consider take-profit levels.
What is market cap?
Market capitalisation is a financial term for the total size or value of a given part of the market. For the most modern and valuable cars, it can be estimated by taking the number of units produced and multiplying it by the average value. For historic cars, an estimate of the surviving population can be multiplied by the average value.
While the output is macro, it is necessary to model with a reasonable degree of specificity, as any individual nameplate may comprise several variants which trade for dramatically different values. For example, to reliably calculate the market cap of the Bugatti Veyron, one must identify how many of the 450 cars are the original 16.4, Super Sport, Grand Sport or Grand Sport Vitesse. In other words, the Veyron’s market cap is the sum of the market cap of every Veyron variant.
By modelling market cap at the individual variant level, we maximise accuracy and make it possible to split and compare the data in numerous ways.
Turning subjectivity into objectivity
Fundamentally similar cars can trade at very different prices for market technical reasons (i.e. their respective supply and demand curves). Relationships can be highly non-linear, with rare cars worth multiples of mass-produced models, and hence direct price comparisons are of limited use.
This can be neatly displayed by the Ferrari F40 and F50, consecutive halo models which have recently been trading ~$6m (~150%) apart. As there are almost four F40s for each F50 in existence, the F40 has a market cap of $5bn, still significantly higher than the F50 at $3.3bn. This indicates that the relative value of an F50 is justified by its rarity, and that the F40 is not undervalued, even if it is the least expensive Ferrari halo model.
Analysing price movements
The view from above is not only insightful on a static basis, but also in understanding the importance of different price movements. As a simplified example, the rally in Enzo prices from $5m to $10m (+100%) created $2bn in paper wealth ($5m x 400). A constant Enzo-458 price ratio would imply a rally from say $200k to $400k.
Because there are estimated to be ~21,000 458 variants in existence, a $200k rally creates $4.2bn in paper wealth. Put simply, a $200k movement in 458 prices has more than double the market impact of a $5m movement in Enzo prices.
The comparison could be framed another way: an equal $2bn increase in 458 market cap would imply prices rallying from $200k to ~$295k (+48%). One should therefore infer greater macro significance to a given proportional rally in 458 prices, especially considering the highly liquid nature of the market and the broader distribution of gains among participants.
Global markets context
Market cap is an extremely important metric across financial markets for both macro and micro analysis, as quoted prices can rarely be compared directly across assets (they represent different quantities and units).
Calculating market cap alleviates the inherent bias of averaging prices, which heavily skews towards the highest value, but not necessarily most important, assets.
The most popular equity indices are weighted by market cap, so the index value gives a representative gauge of the market it is trying to follow. The S&P 500, which is weighted by market cap, is 175x more popular than the Dow Jones Industrial Average price index (estimated $20tn v $115bn tracked). To demonstrate how wildly different they are, the largest weight in the Dow Jones is given to Goldman Sachs at ~11% because it has an individual share price greater than $1,000. The largest weight in the S&P 500 is given to Nvidia at ~8% because its market cap is more than $5tn (18x GS). The Dow Jones is concentrated in high price assets and differs substantially from the actual composition of US equity markets.
Market cap can also be analysed to learn from and understand the effects of new supply being produced. New limited-edition cars represent important clearing events which demonstrate the underlying depth of demand in a way the secondary market never can. For example, the allocation of 799 Ferrari F80s around $5m (~$4bn revenue/market cap) could be considered a catalyst for the rally in the brand’s existing hypercars this year. The price alone was not as important as the fact that Ferrari could sell 799 there simultaneously.
Linked to this is the importance of free float, which is how much of the market is readily available to trade. Anti-flipping clauses are analogous to corporate share sale restrictions which, as demonstrated by SpaceX, can generate significant volatility in the initial months of trading. For example, Porsche US’s mandatory one-year lease of the 911 S/T kept the free float artificially low before unlocking a wave of supply for the secondary market to digest. This is a market technical issue, demonstrating the importance of total market size and liquidity, that is independent of fundamentals.
The automotive market is usually presented as a labyrinth to explore from the bottom up. Rarely is it collated and presented from above.
I have built CollectorCar.Market, a website designed to help enthusiasts and market participants visualise, explore and understand the collectible car universe from the top down, in market cap terms.
Whether you are a collector identifying opportunities, or an enthusiast engaging in the perpetual debate about which cars are most attractive, I hope CollectorCar.Market provides an insightful and interesting framework to visualise the market at a macro level.
