Toto Wolff, Sir Jim Ratcliffe, Ola Källenius, Mercedes, 2020

Analysis: Is Mercedes’ Ineos deal its first step towards an F1 exit?

RacingLines

Posted on

| Written by

It became clear something was brewing at Mercedes’ F1 team became in May 2019 when we revealed that talks had been held between Liberty Media and team boss Toto Wolff about the possibility of F1 CEO and chairman Chase Carey being replaced by the Austrian once the former’s contract expired at the end of this year.

Although Wolff’s (non) denials were carefully phrased, he fell out of the running when Ferrari threatened to invoke its veto over his appointment – should it have come to that. The matter in any event became moot when we scooped that Stefano Domenicali had got the nod for the top job. However, the fact Wolff had even been in the running raised questions about the exact nature of his 30% shareholding in the Mercedes F1 team.

Although such matters are shrouded by confidential clauses, a source with knowledge of the situation advised at the time (early May 2019) that Wolff and Niki Lauda held 30% and 10% respectively on a time-bound basis, with Mercedes parent Daimler holding the balance of 60%. However, their shares were due to revert to the German car company at the end of 2020 at pre-determined valuations unless an alternate deal was struck.

Lauda’s passing on May 20th meant his shareholding would be held in suspense by Mercedes until a new deal could be thrashed out (or if the F1 team closed, more of which later), effectively giving the company 70% control until the end of 2020. Whenever Wolff was asked about the future his answers invariably contained “complex”, “shares”, “Lauda” and “contract”; with “good relationship with Ola” Källenius, Mercedes chairman, featuring more often than not. Which left nobody any the wiser.

Wolff was linked to Carey’s job last year
Still, a decision needed to be taken, for time was running out. There were pointers that various scenarios were being worked through, not least as a valuation was required to settle with Lauda’s estate, and with Wolff should the Mercedes board vote to exit F1, whether in full (team and engine supplier) or as team only.

“I know there was some speculation in the press,” said Källenius during a media call last Friday, “but we never seriously considered pulling out because [motorsport] is such a strong part of our heritage.”

The key to this sentence lies in the word “seriously”, for it indicates that consideration was up for discussion, as the next sentence proves. However, some media outlets interpreted this as: ‘did not’.

“But we did ask ourselves in the board what are the pillars that make up F1 beyond the emotional connection to the sport, how do we look at this from a rational point of view,” Källenius explained. He listed four of these pillars:

“The first is how is the show? Is the show good? And what about the fan base?

“What we have seen in the latest year, particularly through social media, is an explosion in the reach. And the best news is the younger fans are coming – so the 15 to 30-year-olds – through esports and through social media and through a great show. I don’t know a motorsport spectacle that is better than Formula 1. So that was question number one answered with a ‘yes’.

“Two is that we have made a very clear commitment as Daimler and Mercedes to go into a CO2-neutral future. We have an ambition for 2039, we want to achieve a CO2-neutral position in three product life cycles, within 20 years.

Advert | Become a RaceFans supporter and go ad-free

“I don’t know a motorsport spectacle better than F1” – Kallenius
“There has to be a credible path towards sustainable motorsport as well and I have spoken to Greg Maffei [CEO of F1’s parent, Liberty Media] about this, who very much agrees with it. We put out a manifesto to the team earlier this year of how we are going to take the Mercedes Formula 1 team towards CO2 neutrality, and technology is an important part of that.

“It’s a hybrid formula already today. I can see the electrical piece of it increasing and I can see it as a testing ground for lower carbon and no-carbon fuels that will play some role in the world going carbon neutral eventually. So can you credibly make the sport sustainable? I believe yes, and we are committed to it.

“The third thing was financial sustainability. The [budget] cap helps, we were an advocate for it, and it makes the economic proposition better, so I think we are ticking that box as well.

“And the fourth one is does it always have to be a cost centre and can it be a sports franchise like a football club of an NFL team? We can see now that people are starting to look at this more like sport franchises.”

Clearly F1 ticked all boxes and a decision was taken to remain. Would Mercedes have remained had the boxes not been ticked? Although he mentioned Maffei, Liberty may take a big bow, for its make-over of F1 since acquiring the rights in 2017 have grown the ‘show’ and attracted younger audiences, made F1 environmentally and financially sustainable, and facilitated (US-style) franchise models.

It is debatable whether Mercedes could have identified said four pillars under F1’s former regime, but that is a separate argument. The fact is that the board was able to tick the desired boxes. Still, having taken a decision to remain in F1, the question was how to restructure the team for the future in view of the team’s ‘complex’ shareholder structure, and the board’s desire to move towards a sustainable franchise model.

Advert | Become a RaceFans supporter and go ad-free

Mercedes Ineos branding, Royal Automobile Club, 2020
Ineos was revealed as a new sponsor in February
The first building blocks dropped into place in February 2020 – before Covid bit – when the team announced a multi-year principal partnership with Ineos, the deal being an extension of a relationship between the chemical giant’s yachting and cycling teams and Mercedes Applied Science, the consultancy division of the F1 team.

A further building block slotted in place on 8th December when Ineos confirmed the purchase of Daimler’s Smart factory in Hambach, Alsace. Not only will Ineos (owned by one of Britain’s richest men, Monaco-based Sir Jim Ratcliffe) manufacture its Grenadier 4×4 Land Rover Defender lookalike in France rather than in Wales as planned, but contract-build Smart for Daimler until the end of the current model cycle.

It was only a matter of time before the final block fell in place: Ineos as a shareholder in the F1 team, announced last Friday.

So what if the company’s environmental record flies in the face of Daimler’s commitment to carbon neutrality; so what if Grenadier uses ‘foreign’ engines supplied by mortal enemy BMW provided the primary criterion is met: Ineos is willing to sink mega-bucks into the F1 team, thus Daimler’s financial burden.

Thus, it was no great surprise when Källenius on Friday confirmed that the F1 team would in future enjoy a three-way, equal ownership split between Daimler, Wolff and Ineos. Effectively Wolff adds 3.33% to his existing holding to take him to one-third ownership while Mercedes reduces from 60% (albeit effectively 70%) to the same, with Ineos taking up the balance.

At the same time Wolff confirmed his intention to remain as team principal for another three years with the option of moving into an alternate executive role thereafter. Not a word about Lewis Hamilton’s contractual situation – he is yet to confirm his plans for the 2021 F1 season – although the seven-times champion did allow that he was “super proud” that Wolff was staying on.

Seven-times champion Hamilton is expected to re-sign
“On the super, super plus side, I’m really proud and grateful to see Toto’s signing,” Hamilton said during the annual FIA awards media conference on Friday. “He’s such an important leading figure within this team, and the success that we have achieved would not have been possible without him.

“He is such a great figurehead, and I think that the team is just better for it, to have that longevity, and it’s great to see that commitment from Mercedes.

“But the added bonus of having Ineos who came in this year and have been a part of our success this year, it’s great to see they’re going to be a part of this team and help with the stability of this team moving forward in growing to be better.”

Note the lauding of what was not only a team sponsor but is now an equity partner by a man who professes to be “doing everything he can” to reduce his carbon footprint, who turned vegan and invested in a bio-burger chain to reduce bovine gas emissions yet is happy to accept a third of his massive annual pay cheque from a entity which Greenpeace accuses of having logged up 176 permit violations between 2014 and 2017!

The Scotsman last year claimed emissions from Ineos sites in Scotland made it the country’s “worst air polluter”. The newspaper reported: “Petroineos, in Grangemouth, itself accounted for 1.6 million tons of harmful emissions, while four other associated companies – Grangemouth CHP, Ineos Chemicals, Ineos Infrastructure and Ineos FPS Ltd – combined to generate a further 1.95 million tons of greenhouse gases.” Any comment, Ola?

The wider question is, though, why, after years of subsidising the team, Daimler chose to divest of half its holding in the F1 team just when F1 is poised to reduce costs (via budget caps) and improve the ‘show’ (from 2022 under the ‘new era’ cars). Indeed, it seems perverse to dilute the potential profit, and does not confirm the company’s commitment to F1 as Källenius and Wolff claimed, but in fact halves it.

Fernando Alonso, Renault, Yas Marina, 2020
Renault is to become Alpine next year
More concerning though, is a discernible trend of major automotive brands reducing their involvements with F1: In September Renault announced that it would rebrand its F1 team as Alpine from 2021, with Honda a month later confirming what had been widely feared for a year: the Japanese company would exit F1 at the end of 2021.

True, Renault is bullishly positioning Alpine as its performance brand, but the sole model, the A110, last year battled to break the 5,000-unit sale mark and is unlikely to improve on that this year given the global situation. Let us assume that F1 doubles the appeal of the brand – and that is a massive ask – any increase in profitability would not cover the running costs of the team.

Another brand that was closely allied to F1 was Japanese luxury marque Infiniti – first as Red Bull title sponsor and latterly as an associate partner via the Renault-Nissan alliance. Now comes news that it, too, will exit, further reducing the number of motor brands linked to F1. Meanwhile Audi and BMW last month called time on their Formula E campaigns, with the former now heading for the Dakar rally, not F1.

Alfa Romeo recently extended its title branding deal with Sauber, but for a single year. The word in the paddock is they will withdraw totally once F1 goes ‘new era’ form 2022. Porsche, once mooted to enter F1, is returning to endurance racing. Even McLaren last week announced the sale of up to 30% in its F1 team.

Spot the trend? Could the next step be a total F1 sell-out by Daimler to Wolff and Ineos? Consider that the three-way deal excludes the Mercedes-Benz High Performance Powertrains facility in Brixworth, being confined only to the F1 team based in Brackley. Further, Wolff is not listed as a director of HPP – Lauda was, though – and there are seemingly no plans to change that status quo.

Toto Wolff, Mercedes, Imola, 2020
Wolff increased his stake in the team and will remain as principal
However, Wolff retains overall responsibility for the motorsport elements of Brixworth, which undertakes Formula E and group engineering activities on behalf of the wider Daimler group in addition to providing F1 power units to 40% of the F1 grid in 2021. It does, though, seems a strange structure, and maybe for good reason.

The sale of one-third of the Mercedes team to a chemical giant has a whiff of Smart production to it: off-load the hard stuff while the going is good, then gradually sell off the balance of the brand (or team). It is, after all, easier to sell 33.3% to two suitors than 100%. Already Smart has exited the North American market, with future Chinese market vehicles to be built by Geely, owner of Volvo; this week Autocar reported that Smart’s UK market share had halved in 12 months.

The three-way deal makes enormous sense for Wolff, who gains additional shares (and possibly the option of more), for Ineos, which gains a world championship-winning team spearheaded by a global personality with whom to launch a ‘sportwashing’ programme, and, last but not least, for Mercedes – which can phase out of F1 gradually. Indeed, that phase-out started last week.

Join the RaceFans Supporters Drive!

RaceFans Supporter Drive If you've enjoyed RaceFans' motor sport coverage during 2020, please take a moment to find out more about our Supporter Drive.

We're aiming to welcome 3,000 new Supporters to help fund RaceFans so we can continue to produce quality, original, independent motorsport coverage. Here's what we're asking for and why - and how you can sign up:

RacingLines

Browse all RacingLines columns

Author information

Dieter Rencken
Dieter Rencken has held full FIA Formula 1 media accreditation since 2000, during which period he has reported from over 300 grands prix, plus...

Got a potential story, tip or enquiry? Find out more about RaceFans and contact us here.

25 comments on “Analysis: Is Mercedes’ Ineos deal its first step towards an F1 exit?”

  1. That all seems to make a lot of sense. Once again an article that shows Dieter knows what he is writing about!

  2. Very interesting as usual. Thanks Dieter and have a great Christmas!!

  3. Never understood that Alfa Romeo/Sauber deal, so what will happen when they exit…revert to Sauber? Anyway, the real question here is: Will the Mercedes cars be black or silver next year?

    1. I think they must be searching for a future partner @gp-facts. Who knows what engine will be in the cars from 2022 onward. And what name the team will bear.

      Maybe BWT can pick up the bill – although they would probably prefer to be with a team that gets more attention.

    2. Dave (@davewillisporter)
      23rd December 2020, 14:11

      Black until Lewis leaves – that’s probably what they’re arguing over!

  4. We keep hearing about how bad it would be if Manufacturers left F1.

    I would be sad to see names like ferrari leave, but it might actually be a blessing in disguise.

    If manufacturers left en masse, then F1 would be free to find a single (or double) engine supplier(s). It would not have to be road relevant – so it could be a cheap old V8, or maybe a simple V6/hybrid without too many extra expensive heat recovery elements.

    F1 would then become much cheaper. There would be no engine arms race.

    F1 needs a revolution, it’s too expensive and only a few teams are able to win on merit. Loosing the big manufacturers could be the shake up it needs. It could still have the best drivers, and could evolve into a more competitive, cheaper and entertaining era.

    1. The pattern of multiple manufacturers leaving the sport is repeated every so often, usually as a response to wider changes in the global economy and motoring industry. The last major withdrawal event was in the wake of the 2008/9 financial crash, where Honda, Toyota and BMW all pulled out in short order, with Renault giving up their works team a couple of years later (although it’s fair to point out that Mercedes joined as a works manufacturer within the same period).

      Normally these things come in cycles, with manufacturers increasing their involvement again as times improve – but we’ve had no new entrants in the turbo/hybrid era besides Honda, and they’re leaving again at the end of next year. Renault also upgraded their involvement to works status but, likewise, are scaling back. The issue now is that any further withdrawals would leave the sport in a precarious state as far as competition is concerned. Other brands (Aston Martin, Alfa Romeo) are happy to be associated with F1 as a branding exercise but not to actually provide any kit.

      The current engine formula has failed in its objective to attract new manufacturers into the sport. It’s worth remembering that the original proposals for four-cylinder hybrid engines were changed to placate the existing teams. Perhaps, with hindsight, that was a mistake.

    2. F1 needs a revolution, it’s too expensive and only a few teams are able to win on merit.

      Indeed why the cost cap is being introduced.

  5. This is pretty much expected when Ola Källenius was announced as the new Daimler chairman. Very interesting to read more in-depth background info on this though.

  6. Dave (@davewillisporter)
    23rd December 2020, 14:08

    “Sportswashing” should read “eco-washing” It’s a trend many petro-chemical companies are following now including a bizzare campaign by Exxon I think, one of them anyway entitled “What are you going to do about environmental sustainability / climate change?? You can imagine the Twitter responses that got!
    Beyond a certain point, money and morality are uneasy bedfellows as demonstrated by large corporation after large corporation and billionaire after billionaire.
    The Petronas Mercedes Lewis partnership shows what a company actually can do if it wants to. I remain cynical regarding Ineos and I highly doubt Lewis will be doing any significant marketing as he does with Petronas until they demonstrate something worth his direct association with. At least I hope that’s the case.
    As to Mercedes remaining as a manufacturer, these cycles have happened in the past and no doubt will happen again however, I don’t think Dieter has demonstrated any good reason why they would want to withdraw from F1 unless their performance dips significantly post 2022 and no longer provides the kind of astronomical marketing windfalls provided by running at the front and fighting for wins. The F1 experiment has re-vitalised their brand, introduced it to a younger market and has been worth it’s weight in gold. As a pure engine manufacturer they would face the same problems that Honda had, a lot of investment for not a lot of exposure and no prize revenue or TV money. Mercedes HPP’s advantage pre 2010 over Honda in the hybrid age was limited exposure financially which offset the (lower) investment cost and lack of prize revenue. Given that PUs are (hopefully) going to require less investment going forward, this approach remains viable, especially given the major development area will be the electric aspect but what do Mercedes lose by returning to a PU supplier? Right now, a lot!
    Liquifying some capital investment in the covid car sales age makes a lot of sense, especially if the car still has your brand name and insignia on it and is still winning. Win Win!
    What’s the win win scenario of going back to being a PU supplier?
    The only credible reason I can think is if F1 turns into a more spec series with one or two PU manufacturers other than Ferrari, chassis limitations to reduce variance in performance and a team performance differentiator mostly determined by how good your team is at setting the car up and how good the driver is at driving it.
    Then as franchise owned teams where anyone could win in theory, it would not be such an advantage for a particular team to be called Mercedes.
    Who really knows the future, and Honda and Renault’s problems are not Mercedes’. They have positioned themselves to go either way while still reaping the benefits of heavy involvement. Smart!

    1. Dave (@davewillisporter)
      23rd December 2020, 14:14

      The only credible reason I can think is if F1 turns into a more spec series with one or two PU manufacturers other than Ferrari, chassis limitations to reduce variance in performance and a team performance differentiator mostly determined by how good your team is at setting the car up and how good the driver is at driving it.

      Forgot the crucial line at the end: “which seems to be what Ross Brawn has in mind going forward”
      My bad!

      1. @davewillisporter I’ve said as much earlier this year. F1 likes the cost and competitiveness of Indy cars but they want more flash and glamour euro style. F1 has just went off the rails in my opinion. They wanted cost caps and then ended up introducing the most expensive and complex engines in the history of the sport. It’s so hard to make gains with the current formula that even the other manufacturers are starting to give up. F1 does need a revolution, a revolution of simplicity and efficiency. Racing formulas have to make sense for the long term health of the sport.

        1. Mark Polston, whilst you claim that the current power units are “the most expensive and complex engines in the history of the sport”, inflation corrected, engines during the V10 era were actually more expensive than they are now.

          For context, the “Mecachrome” engine that Williams used in 1998 cost them $16 million to lease back then which, correcting for inflation, equates to about $26 million in 2020. Similarly, the $18 million lease cost for a Cosworth customer V10 engine in 2004 equates to about $25 million today when correcting for inflation.

          With regards current engine prices, Toro Rosso’s financial accounts confirm a price of $17 million in lease costs in 2018 for their power units. Now, even if you argue that is after the 2016 cost caps, the pre-cost cap engine lease prices were reportedly in the order of $20-24 million today – still less than the cost of the V10 engines when correcting for inflation.

          Costs might have appeared low early in the V10 era, but by the late 1990s and early 2000s, there was colossal cost inflation and engines were, comparatively, more expensive then than the current engines are today.

      2. Mark in Florida
        23rd December 2020, 21:21

        @davewillisporter I’ve said as much earlier this year. F1 likes the cost and competitiveness of Indy cars but they want more flash and glamour euro style. F1 has just went off the rails in my opinion. They wanted cost caps and then ended up introducing the most expensive and complex engines in the history of the sport. It’s so hard to make gains with the current formula that even the other manufacturers are starting to give up. F1 does need a revolution, a revolution of simplicity and efficiency. Racing formulas have to make sense for the long term health of the sport.

      3. @davewillisporter, I think a Smart 4/2 EV would be a very suitable drive for Lewis in London and Monaco.

    2. Lewis has already appeared in an INEOS advert that runs in the UK, advertising their brand of hand sanitiser.

      Another example of the company’s attempts to “ethics-wash” the industry that made Jim Ratcliffe a billionaire.

      Ratcliffe is now engaged on spending his billions on a variety of vanity projects before he “retires”.

      Fortunately Ratcliffe is rich enough to fund several seasons of F1, assuming he stays interested that long.

  7. ” Note the lauding of what was not only a team sponsor but is now an equity partner by a man who professes to be “doing everything he can” to reduce his carbon footprint, who turned vegan and invested in a bio-burger chain to reduce bovine gas emissions yet is happy to accept a third of his massive annual pay cheque from a entity which Greenpeace accuses of having logged up 176 permit violations between 2014 and 2017!”

    Ouch!!

    But you look so good in orange, Dieter?!

    1. I’ve noticied Dieter’s always trying to take a pop at Hamilton. I think it was in the qaulifying press conference at Sakhir he questioned if teams needed drivers like Hamilton and was obviously very taken aback when Verstappen said they did.

      1. Correction: I was not taken aback by Max’s response. I requested opinion and received it. That is part of my job. Subjectively I thought Max’s answer was excellent.

        As for my relationship with Lewis, this from last week: https://twitter.com/racinglines/status/1340004030471409667?s=24

  8. Dieter-another excellent article. Thanks.
    First I ever heard of Sir Jim…
    I agree that Mercedes reducing their stake in the team is pointing to a possible exit.

  9. I also believe this is Daimler’s first step to unloading the team. Notice how the increased AMG connection was also emphasized. Although there is a trend of manufacturers you forgot Aston Martin, even if it’s mostly branding. Nice reveal with the fake talk and hypocrisy.

  10. “Note the lauding of what was not only a team sponsor but is now an equity partner by a man who professes to be “doing everything he can” to reduce his carbon footprint, who turned vegan and invested in a bio-burger chain to reduce bovine gas emissions yet is happy to accept a third of his massive annual pay cheque from a entity which Greenpeace accuses of having logged up 176 permit violations between 2014 and 2017”

    Thanks very much for this statement Dieter. Everyone’s an eco-warrior, climate crusader until we reach the dotted lines that has a dollar/euro/pound/yuan sign next to it. Tbh I am surprised there hasn’t been much push back from the brigade! :)

    Merry Christmas @dieterrencken, look forward to more insight in 2021.

  11. In my opinion, Daimler spent monumental amounts to first build their F1 engine operations, then funding McLaren, then buying out Brown GP, then contracting Schumacher, contracting top talent, contracting Hamilton, and then cash stream rolling their F1 team. They achieved great success that’s related to the excellence of their Mercedes brand.

    Unprecedentedly, Formula 1 didn’t finish the hybrid era after 3-4 seasons of domination, but let then dominate for 8 seasons and very possibly 9. Formula 1 won’t forfeit a good spectacle for a very boring one for nothing, so most probably Daimler passed some cash briefcases under the table for that to happen.

    It would be expected they will do well in 2021 as well, but for 2022 there are no guarantees Mercedes will be successful. Renault or Ferrari could easily catch-up, Red Bull with their own engine built from Honda operations less likely, and even if they make the best engine, customer teams will have similar budgets and overall, the era of one team domination they need for their Mercedes brand will be over.

    So it makes sense for then to step down, sell the team with a contract where they could buy it back, and just supply Mercedes engines or sell that as well too.

  12. Because Dieter speculates that Mercedes will exit pretty much every year, one year he will be correct. Brilliant.

  13. Can we please just go back to some sexy cosworth engines. The way I see it is if the world goes green. Formula one then has the environmental capacity to move back to the roaring V12s

Leave a Reply

Your email address will not be published. Required fields are marked *

All comments are moderated. See the Comment Policy and FAQ for more.
If the person you're replying to is a registered user you can notify them of your reply using '@username'.