MERCEDES-AMG PETRONAS FORMULA 1

MERCEDES-AMG PETRONAS FORMULA 1

Silver Arrows on target to break records POWERED BY INSIDE INDUSTRY

MERCEDES-AMG PETRONAS FORMULA 1 TEAM

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Competing at the pinnacle of motorsport, the Mercedes-AMG Petronas Formula 1 Team has set a new benchmark for success during the sport’s current hybrid era. Winners of six consecutive Drivers’ and Constructors’ World Championships, Mercedes is on course to secure an unprecedented seventh straight title double in 2020. Jack Salter questioned CFO Russell Braithwaite about Mercedes’ transformation into a dominant F1 force and the team’s recent venture with its new Applied Science division.

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Russell, it has now been ten years since Mercedes returned to Formula 1 as a works team. Is it fair to say the journey so far has exceeded all expectations?

The first years were pretty barren. In those early days there were definitely some difficult times, but of course more recently we’ve much improved and I think we’ve now exceeded the original expectations.

When Toto Wolff (current Team Principal and CEO) came on board, I know that the ambition back then was to win multiple championships, so that’s definitely mission accomplished. Having said that, we calibrate our expectations every year and raise the bar. We’re always looking for new targets to achieve.

Mercedes has won every championship title since 2014 – the year which saw the sport enter the hybrid era. What have been the main reasons behind the team’s unprecedented success and transformation into a dominant force?

I only joined the F1 team in 2018, but I’ve worked for Daimler and Mercedes since 2002 so I’ve seen the success from a different vantage point. Having listened to people in the team, the hybrid power unit itself was clearly a critical factor, but that only works in combination with lots of other core components such as the people we have here, the team overall, the strategy, the drivers, and I think equally importantly the leadership team.

I also think that the close collaboration with Mercedes AMG High Performance Powertrains in Brixworth has played its part, so the ability to get the power unit to work optimally with our chassis.

Due to this success, would you say that the Formula 1 team has made an important contribution to the Mercedes-Benz brand as a whole?

Absolutely, I think Formula 1 is a really credible and authentic platform for the brand. The success has been enormous, it’s been a beacon for us and very useful for opening up the brand to a wider customer base, especially younger people in recent times.

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MERCEDES-AMG PETRONAS FORMULA 1 TEAM

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PROFILE

Whilst I was working on the automotive side of Mercedes in the sales and marketing area, we were often able to see the positive influence of the F1 team both on the sales environment and also on the company overall.

It’s also true to say that it brings a lot of advertising marketing value. The F1 team brings in about $5 billion of value through all its commercial sponsors combined, and specifically to Mercedes it’s around $1.5 billion, so there’s monetary value there as well. It’s also an important platform for delivering messages from the brand.

2021 will see the first-ever set of financial regulations introduced into Formula 1, with a new $145 million budget cap being imposed on all teams. Will this require Mercedes to change its business model at all?

It absolutely will. We’ve been operating above that level, but we’ve had a desire for a long time to alter the business model anyway in terms of becoming more financially sustainable. So the budget cap allows us to be more certain in terms of future costs and cash flow, and it gives us a lot of comfort because we know we have to keep costs within this cap to stay compliant and that helps us prepare as well.

What the cost cap has also done from my point of view as CFO is it’s given me a lot of support from the overall organisation to drive this culture of efficiency.

From both a sporting and a business perspective, do you believe the introduction of the budget cap will help create a more level playing field for F1 teams to compete in?

From our point of view, the cap will definitely make the competition more even. We think that’s very good for the sport overall and therefore it’s good for us. If there are more varied race results then that’s also good for consumers and the fans.

I think it will stop this war based on the amount of resources you’ve got, which is historically what has happened. It focuses us 4

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on spending efficiently and wisely, and it brings a new dimension to what’s being managed. It means that the whole grid should be more viable, and the entities involved should have a greater franchise value.

What I would say is that the policing of this cap is going to be critical – for it to work properly it must be policed properly.

Toto Wolff has previously spoken of his ambition to make the Mercedes F1 team cost-neutral. Do you believe the budget cap will help make this ambition a reality?

Yes it will, Toto has had this ambition for some time now and I think the budget cap will definitely help us deliver on that. I think the more we see the success and opportunities in our new Applied Science division, the more we’ll see that combine with the budget cap to hopefully take us even further than neutrality.

Please tell us more about the Applied Science Division of Mercedes-AMG Petronas F1. How has Applied Science helped leverage the best motorsport technologies?

Applied Science was basically started in March 2019. It’s generating about £30 million of revenue today and we want this to be £100 million by about 2025.

We want to use our technical know-how, agility and F1 precision to deliver solutions to customers. What’s important is that we still have the objective to both win races in the F1 environment and deliver in this applied science environment. They’re not mutually exclusive and we want to do both.

How successful has the Applied Science Division been so far in achieving its aims?

I would say very successful, the performance has been excellent so far. Since the Covid-19 environment arrived, we’ve designed and produced CPAP breathing aids and PPE face shields, so that’s a good example of a project that’s very relevant right now. We’ve also worked on a special surgery hood for use in operating theatres during Covid-19 to adequately protect surgical staff.

We’ve done a lot of work to support the Racing Point F1 Team, we’ve worked with INEOS TEAM UK on their America’s Cup challenge, and a number of other projects with INEOS including the INEOS Grenadiers cycling team and some other areas that we’ve explored with them.

What you see inside this organisation is the agility and ingenuity of these highly-skilled people – they’re really good at taking on problems and figuring out the solutions, drawing on all the resources that we have in the F1 environment.

In terms of resources, you have substantial simulation capabilities such as a dedicated state-of-the-art wind tunnel facility in Silverstone and a large manufacturing base. How beneficial is it for the Applied Science Division to have these resources to draw on?

I’m not an engineer but I of course know about our wind tunnels.

We’ve got amazing simulation capabilities within our performance team, we can do rapid prototyping, we can look at material Inside Industry

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MERCEDES-AMG PETRONAS FORMULA 1 TEAM

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PROFILE

sciences. Basically they have a whole range of resources available to draw on to solve problems and find solutions.

We’ve got elite engineering here in the F1 team. It doesn’t matter what is thrown at them on the racetrack or in the wind tunnel, they’re there to solve problems and they do it very well.

We want to take that experience and know-how and effectively monetise it in the Applied Science environment.

The 2020 Formula 1 season was suspended for almost three months due to the unfolding coronavirus pandemic. In terms of budget, how much of an impact did this have financially on Mercedes?

There’s an interesting story here, and I think it also shows some of the positive dynamics of the team.

The impact was significant, it’s still ongoing so it’s not over yet, but we will lose probably around 30% in prize money, which is a massive amount. On the other hand, we will save some significant costs because there are fewer races and we won’t develop the car in the same way, partly because of regulations and partly because it’s not needed.

Covid-19 did blow us off course, but we stayed true to the organisation and didn’t furlough any staff. We worked very well with our sponsors, which is where the rest of our income comes from. Our sponsors and partners were brilliant, they all weathered this storm with us. We looked at different ways to deliver things for them; the primary route of course is to be racing, which we eventually did, but we also looked into other things like virtual hospitality.

So the impact was massive, but what I would say is the team pulled together and there was a lot of strength in adversity. I wouldn’t say it’s over yet but we’ve navigated the course well so far.

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What were the biggest changes to your approach to race weekends for the 2020 season once racing started up again?

There have been some obvious changes such as the way we’ve set the factory up, and we’ve moved a little bit further in the direction of using technology to deliver remote meetings for example.

If you look at the race set-up, we only have minimum crews at the races and obviously we stopped our guest hospitality.

With respect to the car, regulations mean we’ve had to adapt our approach to the 2020 season, but I’d say the team adapted very well.

There are a raft of regulation changes set to be introduced for the 2022 season. How are you balancing your focus on the current season with your preparations for the upcoming regulation changes?

We’re now working on the 2021 season car and how we’re going to optimise that, but we’re also focusing very heavily on how we are going to manage the new financial regulations and make sure we stay compliant, spending only what we’re allowed to spend.

I would say we’re pretty confident about 2021, but it gets more difficult moving into 2022 with the cap reducing by another $5 million to $140 million. Right now, a lot of our attention is on 2022 overall in terms of how we are going to make the organisation work and produce a car that can win races.

There are elements of development that are restricted until January 2021 – for example, we are not allowed to do anything aerodynamic on the 2022 car until then, but in general we are obviously having to prepare for the cost-capped landscape.

The team recently signed the new Concorde Agreement, which sets out the terms under which the teams will compete in F1 until 2025. From a business perspective, how far ahead can you actually plan as a Formula 1 team?

We have an outlined plan that runs through the Concorde Agreement, so obviously to sign that agreement we had to state what we think the landscape looks like. We’re quite clear that the financial regulations are crystal until 2023, so we’ve got some very solid planning on the costs side until then.

In terms of our plans for the years ahead, it’s pretty straightforward. We just want to develop the business between now and 2022 with a team that not only wins races and delivers on the financial regulations, but also develops the applied science side and monetises our technical skills.

Drive to Survive on Netflix has provided viewers with unprecedented behind-the-scenes access to Formula 1. A particularly eventful episode was dedicated to Mercedes at the 2019 German Grand Prix, where uncharacteristically for your team, everything seemed to go wrong on a wet and chaotic race day. What have been the main positive effects of featuring on the documentary for the team?

I was actually in Hockenheim when that episode was being filmed, and it wasn’t the most comfortable experience! It wasn’t our finest hour, but I imagine it was great TV for the viewers.

Netflix were very professional, they got all of the footage, they weren’t invasive and they did their job well. Drive to Survive is very good marketing, it’s very good for F1 and that means it’s good for us as well so we were very pleased to participate.

I think it helps us to reach a new audience, a younger audience, and it helps us to connect to other things that we look at in terms of social media and so on. Netflix was also with us in Sochi this year, and I think those behind-the-scenes insights help to show the human side of our team and how we deal with adversity and failure… which there was clearly plenty of in Germany last season!

Finally, Russell, how important are the topics of diversity and inclusion for Mercedes?

Valtteri Bottas Mercedes F1 Driver

Lewis Hamilton Mercedes F1 Driver

Extremely important. We made a big commitment this season by racing in a black livery to underpin our desire to improve diversity and inclusion within our team and our sport.

We have a long way to go on the journey but are making those important first steps to improving our understanding and taking measured actions. And of course, we’re backing Lewis all the way on the conversations that he’s raising and the steps he’s taking, such as the establishment of the Hamilton Commission. n

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