11/08/2021
FEATURE BY MAX NOBLE
Like the Moon dragging sea waters in tides they cannot fight, there are times dear reader when I follow-up an article because a coda is required to finish the piece neatly.
Sweet echoes of the original need to bounce as delicate musings one last time around the cathedral walls of the esteemed Pitpass Towers allowing the fearsome felines to hum in unison to the tip-tapping of keyboards.
Palace Pitpass is a merry realm spread across the world, held together by the dancing electrons tirelessly gluing us one to another via the internet.
This coda is an extended musing on the entire cost cap, international company structure, and slow-motion train wreck that is FIA rule making. Springing from the concepts, bouncing through the corridors of my mind after the "Magic Squares" article, I entreat you to settle back, and let these variations on a theme wash across your mind for a few minutes of light night musing...
There is no company simply called "Mercedes". The ultimate parent company is Daimler AG, which is frequently referred to as the Daimler Group. This group enfolds many companies, which over the decades have been liberally scattered across many aspects of transport, engineering, defence, and aerospace.
Daimler Group, and Mercedes-Benz (the road company) are both headquartered in Stuttgart in Baden-Württemberg, a fine rolling region of Southern Germany. Mercedes-AMG is headquartered a few miles further down the road in Affalterbach.
Those are just the headliners. Daimler also owns Fuso, Western Star, Freightliner, Smart, and Setra, plus a multitude of others across the transport universe. Then they have financing, and leasing companies within the empire, plus a most excellent museum experience set slightly back from the Neckar River in the centre of Stuttgart.
Daimler-Benz Aerospace used to exist as a wholly owned segment of Daimler AG, but then merged with Aerospatiale-Matra of France (a blast from the F1 past - Ed), and CASA of Spain to form EADS, which then changed its name to Airbus. Daimler Group then sold down its holding, with Airbus now having a web of international owners.
The Mercedes-AMG Petronas F1 team is headquartered in Brackley, UK, and is one-third owned by Mercedes-Benz, Toto Wolff, and the UK chemical company Ineos in equal measure.
Ineos? A huge chemical multinational founded by Sir Jim Ratcliffe. It comprises more than twenty stand-alone company entities with their own boards, and operating models. This includes a joint venture with PetroChina, headquartered in the Dongcheng district of Beijing, and an automotive adventure in the soon to be released Ineos Grenadier, which is a remix of the Land Rover Defender concept, that was to be built in Wales, but will now be built in Hambach, France, with engines supplied by BMW.
Cross-eyed yet?
So we have companies within companies, across Germany, France, the UK, the USA, Spain, and China, plus a cameo role for Wales, all interrelated to the Mercedes-AMG F1 team. Between them they address automotive, power trains, chemical coatings, fuels, lubricants, financing, and more.
Then we have them all busy across international borders, selling products, researching, and developing products, using one another's products, forming joint ventures, signing memoranda of understanding, and making full use of tax breaks, R&D dollar for dollar matching with governments, government incentives for relocation, employment, and partnerships with universities. Charity write-offs, marketing exercises, employee incentive plans, and adventures. Oh, and every accountants annual favourite, the "one-off restructuring cost."
Keep that beating heart of yours under control! The wild world of corporate law and accounting can be a wild ride dear reader, so please, with determination, keep reading!
Mercedes-AMG High Performance Powertrains is the former Ilmor engineering company, founded by Mario Illien, and Paul Morgan in 1983. This is now owned, independently to the Mercedes-AMG F1 team, by Daimler Group.
The amazing split-turbo technology in the Mercedes powertrain had its genesis in R&D performed by the Daimler truck division, which has a long tradition of producing turbos for truck engines. This technology was then further developed by Mercedes, prior to being moved into the powertrain company, which now works on it. With me so far?
So, having set this simple corporate landscape, let us set a hypothetical for our intrepid FIA forensic accountant to investigate for the cost cap.
Imagine, please, this scenario leading into the 2022 season...
Toto (for it is he, the ring jester above them all) to engine room, "Scotty! We need more power!"
Scotty (head of Powertrains) replies, "But Cap'n you'll burn the engines!"
To which Toto's riposte is: "Well then get moving on researching, designing, developing, testing, and producing a new one that is going to stomp on French, Austrian, and Italian butt next season!"
"On it Sir! Usual mix of accountants, tax experts, and lawyers available to support the team?"
"Of course. Toto out."
So Scotty forms his team focused on developing the next great engine.
First he's short of engineers for turbo research. Quickly Scotty calls the local university, and they have a couple of PhD students working on ceramic bearings who would love a secondment. They join the team. Then a quick call to Daimler Trucks, and yes, they have some next generation materials research they are happy to share to give the PhD folk a kick-start. In fact, they are also happy to use their super computer time to run simulations, and they already have test beds back in Germany that can be used to run prototypes.
Another quick call and Ineos confirm one of their American companies is working on synthetic oil with incredible high temperature characteristics, and they would be delighted to combine research by doing lubrications, and cooling CFD model, and then some lab work at their shared facility with UCLA. The Ineos lady also reminds Scotty to call the paints division, as she heard during a lead team video-call the other week that they have a new coating mimicking shark skin and as a result it improves surface flow, thus decreasing drag. Sounds like something to put on the race cars. Scotty promises to follow that up too.
Daimler Trucks meanwhile, is also using some local University students as research assistants, and has secured local government dollar-for-dollar budget matching for leading edge research. As the work is "blue sky" they also intend to apply for tax concessions for the cost of running the facility. Further aiding the situation the local state government recently dropped business taxes for them to remain, rather than relocating to Portugal. So the research department is running at a fantastic rate of return for them right now!
Scotty puts them in touch with the PetroChina research department over in Beijing so they can start considering fuel burn optimisation within the new generation turbo units.
Fast forward six months, and the global team is very pleased with itself. The final prototypes, built by another Daimler AG company, based out of Poland because of the great local tax rates, and low wage bills, are humming away during yet another successful race distance simulation on the test bench back in the UK. All the initial test bed work was done in Germany, based on the modelling performed at UCLA, but this final level of pre-production testing is performed at Mercedes-AMG High Performance Powertrains headquarters in Brixworth.
At the end of a highly positive engineering lead team meeting Scotty thanks all the staff, and confirms that the first production items are ready for fabrication. Initial casting will be done at the factory in Poland. The molecular surface treatment will be applied in Hamburg. The fluids will be provided by Ineos from their advanced synthetics research lab in Fort Worth Texas, while PetroChina will be using a teaming agreement with BP to produce the new fuel at their Humber facility in the UK.
All these items will then be delivered to Brixworth, where final machining, testing, and assembly will be completed. Mercedes-AMG High Performance Powertrains will then assemble the entire power plant, and deliver it to the Mercedes F1 Team, plus their other racing partners.
Tired, but filled with feelings of accomplishment, Scotty turns to the accountants, and lawyers who have to this point been playing Candy Crush and World of Warcraft down the far end of the conference room.
"Bean-counter Team! Time for you to swing into action. Here at Brixworth we have used the lab for a couple of days, and the assembly room for only the past two weeks. The only salary costs we need to attach to this are mine, call it an hour a day for oversight, and Dallas over there that checked the CNC calibrations each morning, call that two hours a day for two weeks. Then the raw materials were charged to us by Daimler Trucks at cost for unprocessed ceramic ingredients, so just check the market price of aluminosilicates and we can run with that. Oh, and check our local R&D tax offsets status. Plus any credits we get for using the uni students. You know what you're doing right? Oh, and leave your own costs in corporate overhead, no need to go and confuse things!"
Sliding their iPhones back into their Gucci and Maxwell Scott briefcases the accounting, and legal team smile agreement, before heading to the local pub to break out their laptops and crunch the numbers. (Fuelled by a refreshing pint or two of IPA, no doubt - Ed)
A week later they proudly show their work to Scotty. Each new turbo unit can be costed to the Mercedes F1 Team at $450.00 each. However, depending on the treatment of cost recovery, local tax off-sets, and corporate overhead dispersement this figure can be made valid at any number that works between $1.00 (they cannot do negative in this setting) and $300,000.00 It. All. Adds. Up.
Across the Daimler AG, and Ineos empires the entire activity, which at its peak involved well over two hundred full-time staff, has been so sweetly off-set against local tax concessions, university secondments, government dollar-matching R&D grants, and teaming arrangements with companies in developing nations, that it is a work of sheer beauty.
In a very special spreadsheet which is held on a physically secured high-end laptop, which is not connected to the internet for cyber-security reasons, the figures tend to suggest that they actually turned a profit on the entire escapade. It did however cost the various local, and national governments of Poland, Germany, Portugal, the USA, France, the UK, and China many millions. Thankfully as none of them report their finances into Mercedes-AMG High Performance Powertrains, or the Mercedes F1 Team, these figures are of no matter to the cost cap.
Abruptly the smiles and back-patting party is crashed! The Real Inspector Hound, aka, FIA Forensic Accountant, steps smartly to centre stage, holding said final production turbo unit aloft, and with a dramatic flourish waves it at the audience, and growls the question, "Can any of you tell me what this cost!?"
To which the chuckling audience (for it is the team members of Mercedes F1 Team), gleefully shout back, for they are in on the game, "Look behind you!"
The intrepid Inspector swirls around three times, only to find that he is not in Kansas anymore. As the audience vanishes in a twinkling of cost codes, the entire stage set is replaced by page, after page, after page, of taxation figures towering over the now trembling Inspector not unlike Pink Floyd's Wall near the end of the original fabled concerts...
So, dear reader, as you can see it's best to keep these things simple. Cash on delivery anyone...?
Max Noble
Learn more about Max and check out his previous features, here