Red Bull’s 12-year alliance with engine supplier Renault is to end. The four-times world champions will have Honda power for the 2019 F1 season.
Why have Red Bull thrown their lot in with the Japanese manufacturer whose power units drove McLaren to a costly divorce less than 12 months ago? Dieter Rencken analyses the move.
Back in 2015, when the love-hate relationship between Red Bull Racing and engine supplier Renault was at an all-time low, Dietrich Mateschitz, the boss of the lifestyle energy drink company, suggested he would pull the once-dominant team out of Formula 1 unless they procured a winning engine.
He also accused the French company of ‘destroying’ the satisfaction the team derived from the sport. “How many more things have to happen before we lose all enjoyment?” the Austrian asked rhetorically.
In the process Renault dropped Red Bull’s junior outfit Scuderia Toro Rosso in favour of supplying its own team, having reacquired the Lotus outfit it sold six years earlier. This forced the Italian team into accepting year-old Ferrari engines, while Red Bull badged its (Renault) power units engines ‘TAG Heuer’ in honour of its engine cover sponsor, which had defected from McLaren.
Although any subsequent criticism was muted, it was clear Red Bull and Renault were locked into a loveless marriage, made all the more difficult by the engine supplier (understandably) concentrating on its own interests. For example, recent engine upgrades favoured the Renault installation more than Red Bull, simply as the former’s BP fuel reacted better to the changes than did Mobil’s product in the Red Bull.
Red Bull had switched to Mobil after Total withdrew from F1, leaving both Renault and Red Bull to procure fuel and oil deals. Renault struck a ‘first-fill’ deal with BP, the benefit to the oil company being that the majority of Renault products (and those of alliance partners Nissan and Mitsubishi) would leave their factories with BP in the tank and sump. That is gold dust to oil companies, particularly where dealer service centres follow suit.
As Red Bull manufactures drinks rather than cars, it has no such benefits to offer; the closest being ‘first-fill’ with title partner Aston Martin, also a partner in the Valkyrie hypercar joint venture. Given that Aston Martin moves 5,000 units per annum versus the 10 million-plus of the Renault/Nissan/Mitsubishi alliance, that’s small beer; thus Red Bull struck a commercial deal – estimated at £12m annually – with Exxon-Mobil, which includes technical support.
However, validating different specification fuels and lubricants is time-consuming and costs millions, and thus understandably BP enjoys first call at Renault. It’s unlikely that priorities would be any different at Mercedes or Ferrari, but this is a moot point: their engine customers pay to use the same products. Thus Red Bull is the architect of its own fuel disadvantage, but banks a tidy sum in return…
Equally, when it comes to architecture, installation and ‘tweaks’, the engine company is clearly more likely to consider the needs of its own team before those of its customers, who is also unlikely to be party to ‘inside’ developments. When teams fight for hundredths of a second, such matters are absolutely crucial, and with their current Renault contract expiring this year, Red Bull needed to consider its options.
Red Bull realised that as long as it remained a customer – whether with Ferrari, Mercedes, or Renault (or any notional engine supplier with an owner team) – it would not obtain engine parity, and would thus be unlikely to replicate the soaring heights the team reached as Renault’s works engine partner between 2010 and 2013, when the partnership walked both titles for four straight years.
Can it be coincidence that the winning streak commenced immediately after Renault withdrew from F1 as team owner to concentrate on engine supply, and ceased just as Renault’s board began mulling a full return to F1?
Thus Red Bull Racing faced two stark choices if it wished to break out of the customer engine conundrum: build its own engine, or cut a deal with an engine supplier not prioritising its own team.
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The former option was considered and rejected as too expensive, as Dr Helmut Marko, Red Bull’s F1 consultant, told this writer in January 2016 – ironically on the eve of the announcement of the Aston Martin-Red Bull Technologies Valkyrie hypercar joint venture.
“We looked at it, but very quickly found out it wasn’t for Red Bull,” he said. “[The timing was] when we had the first tests in 2014. We were looking at it, investigating it.” In short it was too complicated and too expensive – his estimate was “250-300 people just to develop such an engine”.
As an aside, many consider it baffling that Red Bull employs 700+ people to build chassis for a single race team, yet considered it too costly to employ half that number to design, build and develop an engine that the company could share across two teams – while, saliently, controlling its own power unit destiny?
Whatever, Red Bull bombed the idea, which left Plan B: a full works deal. That led Marko to the only available option: Honda. As the McLaren-Honda partnership unravelled acrimoniously, so he wooed Honda as supplier to Toro Rosso. The rest is history: a deal was done, McLaren took over the Renault engines Toro Rosso had signed for until the end of 2018, and the Italian team went the other way.
Despite Honda’s well-known reliability and performance shortfalls the deal had considerable merit. Stung by McLaren’s unrelenting criticism, Honda had committed to ‘westernising’ its approach, and increasingly employed a considerable number of seasoned F1 personnel rather than operating the engine division as a Japan-based research laboratory for domestic engineers. In addition, a mass shake-up of management was on the cards.
Unsaid, but alluded to, was that the deal would permit Red Bull to evaluate Honda’s potential with a view to the Big H becoming engine supplier to both Red Bull teams – with the British-based operation, of course, enjoying priority – which would simultaneously deliver technical and operational synergies between the two teams, enabling them to gradually move towards a Ferrari/Haas-type relationship, with all the associated benefits.
Once Toro Rosso, which had but five months to re-engineer its chassis, proved a
Honda’s reliability (by recording the third-highest number of laps during pre-season testing while McLaren languished at the bottom of the table), then demonstrated its performance potential (by Pierre Gasly’s superb fourth place in Bahrain) the deal was all but done.
True, there were blips such as China, but in general the feedback from Toro Rosso was extremely encouraging.
Come Canada, the decision was virtually made for Red Bull after Honda introduced mega updates that delivered exactly as promised – unlike a succession of updates promised by Renault over the years, or, for that matter, by Honda during their three years with McLaren. Fresh winds had obviously swept through Honda’s R&D base in Tochigi, Japan – just as McLaren split with the team…
FIA engine regulation guidelines call for teams to nominate engine suppliers by 15 May, yet Renault extended that by a fortnight. According to Renault F1 Team Managing Director Cyril Abiteboul the later deadline was necessary for planning purposes – Renault needed to commit to long lead-time items, and potentially losing Red Bull would affect order quantities by a third.
Still, Renault (unrealistically) held out for a reprieve. Why so? With Red Bull (said to be) paying around €25m (£22m) annually for its two-car supply – well up on the guideline price of €18m (£15.6m) because the team had backed itself into a corner with Renault last time – its bottom line loss to the French company is around €10m (£8.7m) after costs of materials and manpower required to service the contract.
This had gone straight into R&D, and would need to be covered internally – a big hit to a budget-conscious company, one run by Carlos Ghosn, aka ‘Le Costcutter’.
Then there is the question of grid politics: Renault realises that for the foreseeable future its primary hope of winning grands prix lies in the back of the Red Bulls. Its own team, rebuilding after the decimating Lotus years, is currently around a second off front-running pace. Thus it would rather have Red Bull as grid ally than as formidable competitor powered by a rival manufacturer.
Furthermore, there is the question of development via two teams rather than one: during its current F1 engagement Honda historically supplied a single team, which hampered development progress; with two closely aligned outfits its rate and pace of development with increase almost exponentially, making it more of a threat. Renault would, though, drop from three teams to two, with no chance of an increase in the medium term.
Thus losing Red Bull to Honda has a triple-whammy effect: commercial, sporting and technical. There is also a fourth, oft-overlooked, factor: Retaining Red Bull would have provided Renault with a benchmark: where teams run identical engines and tyres, deficits are down to chassis – no hiding from that – and thus Abiteboul would be able to apply pressure internally. Given all these factors, any wonder he stretched deadlines to retain Red Bull?
Let us now, though, examine the same question through Red Bull’s prism: The company is owned by two entrepreneurs – Mateschitz, and Chaleo Yoovidhya, the Thai who owned the drink’s original recipe – each of whom own 49%, although the former controls the company by mutual agreement, and thus holds the purse strings. (The remaining two per cent is held by Yoovidhya’s son, Chalerm.)
It was Mateschitz’s decision to enter F1 as part of his ‘edgy’ marketing strategy. Although Marko and team principal Christian Horner operate the team on a day-to-day basis – as does Franz Tost at Toto Rosso – Mateschitz is involved with every major aspect, and takes the final decisions. According to sources, he is the ultimate micro-manager.
Now consider that Red Bull is a privately-held company, and that for every outward-flowing two cents, one cent less flows into Mateschitz’s notional back pocket. True, there are expenses and tax structures, but fundamentally all profits are shared between the partners, and outgoings directly impact on the bottom line. Thus any engine deal affects profitability proportionately – particularly where Red Bull pays for engines.
Consider also the potential Honda package: free ‘works’ engines, commercial support worth up to £80m across two teams, and a closer tie-up with an Asian company already bearing historic allegiance to Red Bull in MotoGP – in short a marketer’s dream, even without the financial “swing” estimated at £100m annually – around half of which is Mateschitz’s share. Which way would you vote, multi-billionaire or not?
From a Red Bull/Mateschitz perspective there are only ups and no downsides; the same applies equally to Toro Rosso, and hence that deal was cut first: With Renault power Red Bull Racing is unlikely to win championships, yet neither would it conceivably drop below third in the overall classification; equally Toro Rosso hovers about its natural fifth-seventh environment, whether with Renault or Honda power.
Free engines and commercial support, though, provide a budgetary shot in the arm of around 30 per cent on Toro Rosso annual budget of about £100m – expressed differently, Red Bull can reduce its support by £30m – while at Red Bull Racing the numbers are even starker on account of its larger financial base: £100m or around 40% on £215m spend, including full commercial support.
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Given F1’s current revenue structure, free engines and Honda income more than compensate for any losses in Formula One Management revenues that either team may incur. Last year Red Bull received $88m (£68m) from FOM in performance payments based on third place in 2016.
Had it placed fifth (unlikely given its superior chassis and drivers over Force India and Williams), with Honda power the corresponding payout would have amounted to $69m (£53), a delta of $19m (£14.6m). Toro Rosso’s 2017 FOM pay-out was $59m (£45m) for seventh; a worst-scenario tenth place would have paid $49m (£38m). See the benefits of switch from paid Renaults to freebie Hondas plus commercial support?
(Note: These numbers exclude the constructors championship and preferential bonuses paid to Red Bull racing by FOM under current agreements, that in 2017 amounted to $74m (£57m), paid whether it scored a single point or not.)
Thus for Red Bull a switch to Honda through to the end of 2020 makes perfect sense. It coincides with the expiry date on current commercial, technical and sporting covenants, and sets the company up with a strong ‘works’ partner thereafter should the partnership pan out. If not, Aston Martin may emerge as its post-2020 engine supplier, while rumours of an entry from VW Group – with whom Red Bull enjoys strong ties – refuse to die.
Does all this mean Red Bull has taken the money ahead of results? Not at all: it examined all angles, including impact on performance, and taken commercial decisions that best position both team through to 2020 and beyond, while scoring an estimated 100 million quid (or even more). What’s wrong with that?
Once Renault realised it had lost Red Bull it moved into damage limitation mode ahead of its home grand prix. This scuppered Red Bull’s planned announcement at the Red Bull Ring, scene of the Austrian Grand Prix, a week later.
In the interim, though, Red Bull kept Renault hanging, which will have impacted on the team both ‘Red Bullers’ aim to beat next year…
Follow Dieter on Twitter: @RacingLines
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