How Mercedes could actually benefit from F1's budget cap

Formula 1's budget cap was introduced to make the championship more sustainable and keep the big teams under control, but Mercedes believes the financial constraints can actually help it improve.

How Mercedes could actually benefit from F1's budget cap

Along with sustainability a key aim of Formula 1’s budget cap is to rein in the performance of the top teams by levelling the playing field.

And yet in typical glass-full style Mercedes boss Toto Wolff sees the cap not as a hurdle for the Brackley team, but an opportunity to become even stronger.

F1 has long been about spending power. It’s no coincidence that the teams that have dominated have had the biggest budgets, and until now, there has been no official limit to what they’ve been allowed to pump in.

The 2021 FIA financial regulations, headlined by a budget cap of $145m, have changed all that. Many areas are excluded from that number, but it still represents a huge change of approach for Mercedes, Red Bull and Ferrari.

All three have been busy shuffling staff into non-F1 projects, which explains why Ferrari has committed to a sportscar programme, and why Mercedes has been busy seeking customers for its Applied Science division.

Given that extra cash is a benefit in all areas it’s obvious that reducing spend will impact competitiveness. However, there’s another key outcome – the disruption caused by the necessary reorganisation and downsizing.

Mercedes Pit stop practice with the car of Valtteri Bottas, Mercedes F1 W11

Mercedes Pit stop practice with the car of Valtteri Bottas, Mercedes F1 W11

Photo by: Steve Etherington / Motorsport Images

Erstwhile midfield teams hope they can benefit from problems for F1's big-spending teams. In its previous guises Aston Martin made a virtue of being lean, mean and efficient, and the budget cap had landed in just right the spot, and thus the team hasn’t had to dramatically adjust its way of working. It’s a similar situation at Alpine.

“It's all about getting the car to go quicker, but also efficiency,” says Alpine executive director Marcin Budkowski. “We are working a lot on the efficiency of the team, working better, working smarter with the resources we have.

“Luckily, we've never been the best funded team. We've always been known as an efficient team, and we are probably in a better position than the top teams for the cost cap, so we obviously want to capitalise on this in the future.”

The regulations show to what level of detail the discussions extended when they were being finalised – there is mention of subjects like how to allocate maternity leave, sick pay and the salaries of mechanics whose main role is preparing historic or demo cars. Teams now have to dig into every pound, euro or dollar they spend that falls under the cap.

The process of going back to basics, tracking and justifying from scratch all spending in each department of a company, is known as zero-based budgeting.

“My experience in my personal business life was that sometimes going through a zero-budgeting approach shows you how much you have actually left on the table,” says Wolff.

Toto Wolff, Executive Director (Business), Mercedes AMG

Toto Wolff, Executive Director (Business), Mercedes AMG

Photo by: Steve Etherington / Motorsport Images

“And how much you have carried over from year to year, that was cost of what could have been avoided by simply streamlining processes and the organisation overall.

“Performing in the F1 world is not only down to money. You can have the most money, but not perform how you should. And we have seen examples of that in the past.”

One of the key advantages of spending power is in R&D, and the ability to put groups of people onto special projects that might not pay dividends on track for a year or two. 

Aero testing restrictions have to some extent already levelled the playing field in that teams are no longer able to run 24/7 in more than one windtunnel, as was the case a few years ago.

However, the wealthier teams could still bring more bodywork iterations to the track more often, because they had the production resources. Meanwhile on the mechanical side there have been no restrictions, allowing the big teams to pursue innovations.

Now all teams have to have the discipline to spend where they believe it will count – they can no longer afford to pursue multiple solutions to the same problem, and then to eventually discard those that don’t work. They have to be smarter, and make calls on what direction to go before too much time and effort has been spent.

“We have never wasted [resources],” says Wolff. “Because for us prioritising has always been key to how we function, rather than to trying to do A, or A and B. We have always approached with A and/or B, because you simply put more emphasis on what you think will bring you more performance.

“But the cost cap has brought that to a new level, because we were not operating before within a regulatory cost constraint. And that means you need to understand your processes.

Mercedes AMG F1 W12

Mercedes AMG F1 W12

Photo by: Mercedes-Benz

“Every single item is costed down, or evaluated [as to] what the costs are. And you need to trim how you operate. But we believe that this is a performance advantage, because it has obliged us to rethink what we do, and how we do it.

“And it will mean that there's even more emphasis and focus on the areas that, we believe, bring the best performance.”

Crucial to all this is that the budget cap has landed in the very year that teams have to race and develop their 2021 cars while honing brand new concepts for 2022.

Until 31st December they could work without financial restriction on both, at least on the mechanical side, as aero research was banned until 1st January. That helped the bigger teams to get a head start on 2022, simply because they had more people available to look at the long term.

That window of opportunity has closed, and teams now have to split precious funds between racing this season and developing for 2022, just as they have to make a call on how to divide up windtunnel time and CFD usage.

“This is a question you need to find solutions for every single year,” says Wolff. “How do you balance the current car and the development time you want to give it versus next year's car?

“And for 2022 it becomes an even more critical topic, because of the scope of changes. And there will be teams that will very much focus on 2022 from early on, and other teams that will see great opportunity for the 2021 World Championship.

“And for us, it will be crucial to take the right view on how we want to balance development for next year. It is subject to discussions every week.”

Toto Wolff, Executive Director (Business), Mercedes AMG, and Lewis Hamilton, Mercedes-AMG F1

Toto Wolff, Executive Director (Business), Mercedes AMG, and Lewis Hamilton, Mercedes-AMG F1

Photo by: Steve Etherington / Motorsport Images

A spending limit isn’t just about R&D - it impacts every area of going racing. Mercedes technical director James Allison revealed at the launch of W12 that the team is cost-cutting by simply reducing how many parts it has to produce.

“[There are] developments to try to make it so that the bits underneath can live longer,” he said. “So that we don't have to replace them so often, so that in a budget cap we can operate more efficiently.”

With the dual projects underway 2021 is clearly a difficult season for the top teams. However they will also have to adjust to a budget cap drop from $145m to $140m in 2022, and then to $135m in 2023, which is sure to mean further cuts in head counts.

Can the usual frontrunners adjust to the new world of limited spending and remain a step ahead of the rest? Wolff is confident that his team at least is on the right path.

“The budget cap is extremely important in my opinion,” he says. “Because the costs were escalating over the last 10-15 years, and it became unsustainable.

“And in that way, we are now operating in the same financial framework. And it becomes exciting, because there will not be many differences in terms of spending between the teams.

“We love the challenge. We have taken it on, and it is at times very painful because all your processes need to be adapted in the end to achieve more efficiency.

“We found out during the process that actually efficiency means performance. The group that has worked around the project did a fantastic job. And I believe we're in a good in a good position to extract the most from the limited resource that is available.”

Mercedes AMG F1 W12

Mercedes AMG F1 W12

Photo by: Mercedes-Benz

shares
comments

Related video

Drive to Survive Season 3: Release date, featured teams and more
Previous article

Drive to Survive Season 3: Release date, featured teams and more

Next article

How an unlikely F1 outsider gained acceptance

How an unlikely F1 outsider gained acceptance
Inside the Faenza facility where AlphaTauri’s F1 pragmatic vision is realised Plus

Inside the Faenza facility where AlphaTauri’s F1 pragmatic vision is realised

AlphaTauri’s mission in F1 is to sell clothes and train young drivers rather than win the championship – but you still need a cutting-edge factory to do that. Team boss Franz Tost takes GP Racing’s OLEG KARPOV on a guided tour of a facility that’s continuing to grow

Connecting two of Ferrari's favourite F1 sons Plus

Connecting two of Ferrari's favourite F1 sons

Gilles Villeneuve's exploits behind the wheel of a Ferrari made him a legend to the tifosi, even 40 years after his death. The team's current Formula 1 star Charles Leclerc enjoys a similar status, and recently got behind the wheel of a very special car from the French-Canadian’s career

Formula 1
Jun 24, 2022
How a 30cm metal wire triggered open warfare in the F1 paddock Plus

How a 30cm metal wire triggered open warfare in the F1 paddock

Porpoising has become the key talking point during the 2022 Formula 1 season, as teams battle to come to terms with it. An FIA technical directive ahead of the Canadian Grand Prix and a second stay appearing on the Mercedes cars only served to create a bigger debate and raise tensions further

Formula 1
Jun 23, 2022
Does Verstappen have any weaknesses left? Plus

Does Verstappen have any weaknesses left?

Having extended his Formula 1 points lead with victory in Canada, Max Verstappen has raised his game further following his 2021 title triumph. Even on the days where Red Bull appears to be second best to Ferrari, Verstappen is getting the most out of the car in each race. So, does he have any weaknesses that his title rivals can exploit?

Formula 1
Jun 22, 2022
How F1's future fuels can shape the automotive sector Plus

How F1's future fuels can shape the automotive sector

In 2026, Formula 1 plans to make the switch to a fully sustainable fuel, as the greater automotive world considers its own alternative propulsion methods. Biogasoline and e-fuels both have merit as 'drop-in' fuels but, equally, both have their shortcomings...

Formula 1
Jun 21, 2022
The breakthrough behind Sainz’s best weekend of F1 2022 so far Plus

The breakthrough behind Sainz’s best weekend of F1 2022 so far

OPINION: Carlos Sainz came close to winning in Monaco but needed that race’s specific circumstances for his shot at a maiden Formula 1 victory to appear. Last weekend in Canada, he led the line for Ferrari in Charles Leclerc’s absence from the front. And there’s a key reason why Sainz has turned his 2022 form around

Formula 1
Jun 21, 2022
Canadian Grand Prix Driver Ratings 2022 Plus

Canadian Grand Prix Driver Ratings 2022

Plenty of high scores but just a single perfect 10 from the first Montreal race in three years, as Max Verstappen fended off late pressure from Carlos Sainz. Here’s Autosport’s assessment on the Formula 1 drivers from the Canadian Grand Prix

Formula 1
Jun 20, 2022
Why “faster” Ferrari couldn’t beat Red Bull in Canadian GP Plus

Why “faster” Ferrari couldn’t beat Red Bull in Canadian GP

On paper the Canadian Grand Prix will go down as Max Verstappen’s latest triumph, fending off late pressure from Carlos Sainz to extend his Formula 1 world championship lead. But as safety car periods, virtual and real, shook up the race Ferrari demonstrated it can take the fight to Red Bull after recent failures

Formula 1
Jun 20, 2022