History was made at Austin’s Circuit of the Americas earlier this month, when Lewis Hamilton drove his Mercedes to second place in the US Grand Prix, finishing ahead of Max Verstappen’s Aston Martin Red Bull Racing car. The result earned Hamilton his sixth Formula 1 (F1) world championship, placing him one title short of Ferrari (US:RACE) icon Michael Schumacher’s record tally.
Hamilton may have won five of those championships in a machine backed by a German manufacturer. But, like a host of F1 teams, the Silver Arrows are based in Brackley, just outside Oxford. His other title came in the seat of a McLaren-Mercedes, which was built in Woking. For a while now, motorsport has been an important and underrated industry in the UK.
In 2012, motorsport contributed £9bn to the UK economy, according to the Motorsport Industry Association, up from £4.6bn in 2000. It also employed at least 41,000 people across around 4,300 companies. Of those businesses, 87 per cent exported their products or services. The US, Germany and France are regarded as the key established export markets for motorsport, while China, Brazil and Russia are viewed as the most attractive emerging economies to sell into.
Identifying investment opportunities in motorsport isn’t easy, though. There is currently a handful of UK-listed companies with material exposure to motorsport. Aston Martin Lagonda (AML) returned to international motor racing in the 2000s, and in addition to its own non-F1 racing team the company is the headline sponsor for the Red Bull F1 team.
The luxury car manufacturer has had a difficult time as a listed business since its initial public offering in October 2018, owing to soft global demand for cars and Brexit uncertainty – its shares trade at less than a third of their £19 listing value at the time of writing. Nevertheless, the company’s racing pedigree is integral to its brand, which is a hugely valuable asset to a business that is trying to ramp up sales volumes of its road cars across the world. Aston Martin attributes some of the fortunes of its Vantage road car to its work on the track, and the vehicle is a testament to the view that motorsport is an essential platform for automotive engineering and brand appeal.
Automotive consultancy Ricardo (RCDO), meanwhile, derived 27 per cent of its order intake from high-performance vehicles and motorsport in its 2019 financial year, up from 21 per cent in 2018. It reached a milestone of delivering more than 20,000 engines for high-performance brand McLaren’s road cars over the past decade, attaining a record output of 5,000 engines this year. Ricardo’s shares have also been depressed by the sluggish automotive market.
AB Dynamics (ABDP) – another high-quality business with involvement in motorsport – could not be more distinct in this respect; its shares have nearly doubled over the course of 2019. The growth rate of UK motorsport, its benefits to these businesses and its uses to the wider automotive community suggests an opportunity for other companies and investors.
Ride of the Valkyries
Aston Martin’s involvement in motorsport can be traced back to the early 20th century, and the marque counts victory in the 1959 Le Mans 24-hour race in its rich history. Today, the group competes in the FIA World Endurance Championship, and celebrated victory again at Le Mans in 2017 in the GTE Pro class.
The company’s thirst for competitive racing goes beyond a pure interest in sport. Motor racing underpins Aston’s limited edition ‘specials’ range, which includes vehicles such as the Valkyrie and Valkyrie Pro hypercars, which were directly inspired by the company’s partnership with Red Bull Racing. Aston plans to introduce two specials on average per year, and the cars have helped the company lift the average selling price of its cars overall. Excluding specials, an Aston will sell on average for £141,000. Including specials, this increases to £157,000.
“Without our racing activities, we wouldn’t have been able to create some of the special edition models,” says David King, president of Aston Martin Racing, who highlights the Vantage as an example. “Without the racing, those cars wouldn’t have commanded the price position and the customer interest that they did.” The race cars are very close in specification to their road equivalents, and this is an advantage when attempting to win over new customers.
Another benefit of being on the track, even through sponsorship, is the enhancement of Aston’s marketing appeal. Research conducted for Aston Martin showed that over 80 per cent of premium and luxury car buyers in the UK, US, Germany and Japan are interested in F1, which is far higher than that of the general public.
Mr King says it is difficult to put an exact commercial value on Aston Martin’s motorsport involvement, but says that it has attracted “some very wealthy customers” who were drawn in by Aston’s road cars before entering the world of racing, and in becoming collectors of special editions have provided “multi-millions worth of business”. Some have even graduated from driving the humble Aston Martin road car to racing at Le Mans themselves.
De-tuning for the race track
Supplier relationships are key to the prospects of car manufacturers, and Aston Martin is no exception to this rule. But “supplier relationships can be amplified through racing”, Aston Martin’s head of racing observes.
Aston Martin is familiar with Shoreham-based Ricardo. The engineering group secured a contract to manufacture the Valkyrie’s advanced transmission in 2017, providing technology for 150 road-bound Valkyries and 25 track-only versions. The Valkyrie may be primarily a road car, but it is clearly designed to be at the very extreme of what can be achieved on a track.
Far from race car variants representing beefed-up versions of a road model, racing machines are often watered-down from their road-legal cousins. “You’re now at a point where you’re generally de-tuning for the race track,” says Martin Starkey, managing director of Ricardo’s performance products division, “because there are rules and regulations about power and performance” in motor racing.
A motorsport team can take an automotive engineer towards an idea, before a more conventional automotive mindset takes over. “What you need to do is to get to a concept very quickly,” Mr Starkey observes. “And then that concept needs to be very vigorously validated before it can ever go in a safe road car application.”
“So what you end up doing is using your motorsport-type design principles to get to a very early concept… and then you do a very detailed level of more automotive engineering, where it’s a lot about validating and iterative improvements.” Ricardo earns around £80m a year from its motorsport and high-performance work for the likes of McLaren and Bugatti.
Two related opportunities for returns borne by motorsport are the advent of electric cars and changes in regulations. The Formula E (FE) series, a single-seater competition established in 2014, has attracted car manufacturers that have shunned F1 in favour of cleaner, more environmentally-friendly racing. Nissan, Audi and BMW are participants.
In its formative years, the limited range of FE cars provided for the bizarre spectacle of drivers pitting halfway through races, in order to switch into another car with a fresh battery. Unlike electric road cars, there is more of an onus on increasing power in electric motor racing than range, says Joanna Clark, head of product development, battery materials at chemicals business Johnson Matthey (JMAT). But battery technology has come on, and FE cars are now able to make it through a whole race. In the broader automotive sector, battery technologies “are often proved out, first and foremost, in the motorsport industry”, Ms Clark says.
Testing times for motorsport
Over the past decade, F1 has played around with its rules on the testing of race cars. In some seasons, teams have not been allowed to undertake any mid-season testing on track at all.
Gains in computing power have offered a solution. Teams have taken their testing off track, and made greater use of driving simulators instead. F1 drivers will spend countless hours learning and practicing every track prior to a race. This year, the Alfa Romeo F1 outfit became AB Dynamics’ third client for its advanced Vehicle Driving Simulator (aVDS) system. “When driving the aVDS, vehicle set-up parameter changes were made that were smaller than those typically made on the real car,” said Alfa Romeo driver Antonio Giovinazzi in an announcement from AB Dynamics in July 2019. “The aVDS was capable of accurately representing the effect that these changes would have on the real car.”
AB Dynamics provides a machine to many current F1 teams that allows them to analyse the suspension design on their vehicles. It also used to offer consulting services to F1 teams. Matthew Hubbard, chief operating officer at AB Dynamics, envisages future sales of simulators into motorsport, as well as for general vehicle development. Again, there is the opportunity to exploit technological crossover from motorsport for road vehicles.
“The thing that we’ve realised since we’ve been involved in simulation is that the quality of the computer model of both the vehicle and the tyre is of paramount importance,” he says. “Some of the methodologies that have been used to create the mathematical models used in motorsport, some of those methodologies are equally applicable in road car development.
“Although oddly enough, a road car is a significantly more complicated thing to model mathematically, because it is less stiff than a typical motorsport car.”
