What is the benefit of a cost cap on R&D?

What is the benefit of a cost cap on R&D?

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Discussion

DOCG

Original Poster:

72 posts

1 month

Friday 8th November
quotequote all
Surely it will discourage major manufacturers from entering F1, if this was in-place before Mercedes would never have been able to develop their masterpiece hybrid engine for the 2014 season.

StevieBee

8,082 posts

202 months

Friday 8th November
quotequote all
All R&D in any sector is cost-capped by default of the likely returns you might attain. You wouldn't spend £10m to develop something that would only yield £5m in revenues. Part of the challenge of R&D is to develop something good within a tight framework of parameters including budget.

In F1, there is a risk that uncapped spending could lead to a three-tier formulae with the wealthy manufacturers at the top, the less wealthy manufacturers in the middle and the privateers at the back.... or it would see off the remaining privateers entirely.

Capping R&D adds a restrictive dimension in such a way that - in theory - also flattens the paying field as the teams are are working within the same basic framework, technically, regulatory and financially. At the moment, it's only the first two that prevail.

Whether or not this will dissuade the manufacturers from participation will depend largely on if they think they can develop things within this cap. I would suspect that they will and will continue to prevail and so be better off as a result of gaining the same exposure for less investment.


RobGT81

5,123 posts

133 months

Friday 8th November
quotequote all
Engine development isn't covered under the cost cap.

DOCG

Original Poster:

72 posts

1 month

Friday 8th November
quotequote all
RobGT81 said:
Engine development isn't covered under the cost cap.
Interesting, that would imply that the engine will become an even more important part of the formula in the coming years.

DOCG

Original Poster:

72 posts

1 month

Friday 8th November
quotequote all
StevieBee said:
In F1, there is a risk that uncapped spending could lead to a three-tier formulae with the wealthy manufacturers at the top, the less wealthy manufacturers in the middle and the privateers at the back.... or it would see off the remaining privateers entirely.

Capping R&D adds a restrictive dimension in such a way that - in theory - also flattens the paying field as the teams are are working within the same basic framework, technically, regulatory and financially. At the moment, it's only the first two that prevail.

Whether or not this will dissuade the manufacturers from participation will depend largely on if they think they can develop things within this cap. I would suspect that they will and will continue to prevail and so be better off as a result of gaining the same exposure for less investment.
It seems quite evident to me that we already have a 3-tier formulae, no team other than RB, Mercedes or Ferrari has won a race in almost 7 years.

As for parity, if the engine becomes and even more important part of the formula then I would think i would give even more of an advantage to factory teams who design the engines with their cars in mind.

//j17

3,310 posts

170 months

Friday 8th November
quotequote all
DOCG said:
Surely it will discourage major manufacturers from entering F1...
The hope is it will do quite the opposite.

Currently if you want to talk the board of a major manufacturer in to joining F1 they will want to win to make the investment pay off, which would currently mean what, $800Million for the first three season ($500 for your own engine), dropping back to $300Million (minus engine) each year after. And history suggests even that will only see you fighting in the middle of the pack (BMW, Honda, current Renault).

Post 2021 the pitch of $675Million for three years dropping to $175Million, knowing your competitiors can still out-develop you, but can't just out-spend you.

TheDeuce

3,455 posts

13 months

Friday 8th November
quotequote all
StevieBee said:
All R&D in any sector is cost-capped by default of the likely returns you might attain. You wouldn't spend £10m to develop something that would only yield £5m in revenues. Part of the challenge of R&D is to develop something good within a tight framework of parameters including budget.

In F1, there is a risk that uncapped spending could lead to a three-tier formulae with the wealthy manufacturers at the top, the less wealthy manufacturers in the middle and the privateers at the back.... or it would see off the remaining privateers entirely.

Capping R&D adds a restrictive dimension in such a way that - in theory - also flattens the paying field as the teams are are working within the same basic framework, technically, regulatory and financially. At the moment, it's only the first two that prevail.

Whether or not this will dissuade the manufacturers from participation will depend largely on if they think they can develop things within this cap. I would suspect that they will and will continue to prevail and so be better off as a result of gaining the same exposure for less investment.
And to add.. the cost caps as set for 2021 are more notional than restrictive. It's true that in R&D terms the teams are all going to have to manage with the same resources... But major auto manufactures will still have a significant advantage as there are uncapped spend areas (engine development, team management staff, driver salary, and others..) that can bring an advantage when 'money is no object' for a manufacturer serious about F1 results. If every part of spending and influence was weighed up in value and all teams allowed exactly the same, that would be quite different. What we have here is a first step towards that idea, and it will bring the teams closer together. Those with the most resource will find a way to bring that influence to the track though, albeit not quite as impact-fully as at present.

It's also got to be true that an auto manufacturer setting up a team will have some transferable benefits they can bring to that team. Which is fair enough in many ways - it's not unreasonable that 100+ year old car makers can find ways to help their F1 teams that, for example, a fizzy drinks company might not be able to provide so easily/cheaply.

Deesee

3,139 posts

30 months

Friday 8th November
quotequote all
I thought the cost cap was on budgets, R&D is pretty much 100% refundable in the UKPLC, so how’s that going to effect the spend budget?

I’ll have to go and have a look at the regs again.

TheDeuce

3,455 posts

13 months

Friday 8th November
quotequote all
Deesee said:
I thought the cost cap was on budgets, R&D is pretty much 100% refundable in the UKPLC, so how’s that going to effect the spend budget?

I’ll have to go and have a look at the regs again.
Well I suppose the budget, taking out the uncapped areas of expense, is effectively the cost of maintaining a team capable of doing the R&D, build and fielding the car through each season. That's what the entire team are employed to do, one way or another.

Why is R&D 100% refundable? Some of the R&D we do at work is, but only within the terms of a suitable R&D grant/tax allowance etc. How are the teams getting 100% back for it all the time?


Rumblestripe

1,276 posts

109 months

Friday 8th November
quotequote all
How about every manufacturer must supply a sample engine to every other manufacturer/team before it can race? Perhaps just a day before first practice.

This would discourage outrageous spending on a "super engine" but still give a window of advantage if a new design has a significant advantage before the other manufacturers can reverse engineer a copy of take advantage of some new technique in their own engine.

Just thinking out loud. Stupid idea or genius?

StevieBee

8,082 posts

202 months

Friday 8th November
quotequote all
Deesee said:
R&D is pretty much 100% refundable in the UKPLC.
Not quite.

You can claim back the tax paid on the money you've invested in R&D so you essentially get back your own money. It's a tax incentive rather than an out and out financial one.

TheDeuce

3,455 posts

13 months

Friday 8th November
quotequote all
Rumblestripe said:
How about every manufacturer must supply a sample engine to every other manufacturer/team before it can race? Perhaps just a day before first practice.

This would discourage outrageous spending on a "super engine" but still give a window of advantage if a new design has a significant advantage before the other manufacturers can reverse engineer a copy of take advantage of some new technique in their own engine.

Just thinking out loud. Stupid idea or genius?
Part of the F1 effort is to pioneer your own technology independently though. Many things (aero) are subsequently copied in the end, but I think asking teams to hand out their kit for reverse engineering directly is a bit much.

Deesee

3,139 posts

30 months

Friday 8th November
quotequote all
StevieBee said:
Deesee said:
R&D is pretty much 100% refundable in the UKPLC.
Not quite.

You can claim back the tax paid on the money you've invested in R&D so you essentially get back your own money. It's a tax incentive rather than an out and out financial one.
I may well have over simplified/stated my 100% statement hehe , tax credit (or cash if loss making as such), add in capital allowances, and other accounting mechanisms it’s no surprise the teams set up here (even if partial like toro Rosso/Hass).

Good example here of what F1 brings to general life

https://www.formula1.com/en/latest/article.how-f1-...

Although not mentioned is one of my favourites the aero foil for supermarket fridges..

Well at least we know Williams are saving the planet and not chilling shoppers in the cold section.


https://www.williamsf1.com/advanced-engineering/wh...


Edited by Deesee on Friday 8th November 16:39

TheDeuce

3,455 posts

13 months

Friday 8th November
quotequote all
Deesee said:
I may well have over simplified/stated my 100% statement hehe , tax credit (or cash if loss making as such), add in capital allowances, and other accounting mechanisms it’s no surprise the teams set up here (even if partial like toro Rosso/Hass).

Good example here of what F1 brings to general life

https://www.formula1.com/en/latest/article.how-f1-...

Although not mentioned is one of my favourites the aero foil for supermarket fridges..

Well at least we know Williams are saving the planet and not chilling shoppers in the cold section.


https://www.williamsf1.com/advanced-engineering/wh...


Edited by Deesee on Friday 8th November 16:39
A lot of this technology is actually developed outside F1, and then utilised (enforced by the regs..) in F1 though. The current PU's are indeed an amazing 50% efficient, but none of that is remotely transferable to a road car. It's only possible by running such tight engines that they would destroy themselves many times a month in normal road car usage - hardly god for the planet and efficiency as a whole wink

I will not accept the Merc Project One as a 'road car', and it too is already proving unreliable in testing and will never be a reliable daily driver, even with it's somewhat limited performance 'F1' engine.

The whole paddle shift and hybrid system thing coming from F1 is also slightly skewed. Hybrid has existed in road cars ahead of F1. Paddle shift is somewhat open to interpretation, the box tech that lead to paddles in F1 was to be fair developed mostly for F1 and there has been some pass down to road cars - but at the same time different systems with paddles were also coming to road cars.

I'm not saying F1 isn't a hi-tech showcase, it is. But it's not the same tech that transfers down to the real world. Even without F1, I think the real world would have everything it has today.

As for the Williams aerofoil, the aerofoil has been in use since before F1 even existed. The same basic technique has been employed for decades in the warm air fans above shop doors. This is not a Williams technology handed down, so much as an existing technology with value added by being re-tweaked and the Williams moniker slapped on to the end product. Countless tech firms given the same challenge would have come up with the same solution regardless of F1 attachment.

RobGT81

5,123 posts

133 months

Sunday 10th November
quotequote all
TheDeuce said:
It's true that in R&D terms the teams are all going to have to manage with the same resources...
The teams won't have the same resources. Ferrari, Mercedes and Red Bull already have much more testing facilities than the other teams, they can do much more off track testing in house. The decrease in winter testing and in-season testing, along with the budget cap, will just make the gap to the other teams bigger.

sparta6

1,396 posts

47 months

Sunday 10th November
quotequote all
RobGT81 said:
The teams won't have the same resources. Ferrari, Mercedes and Red Bull already have much more testing facilities than the other teams, they can do much more off track testing in house. The decrease in winter testing and in-season testing, along with the budget cap, will just make the gap to the other teams bigger.
Reintroducing in-season testing could liven things up a little

rdjohn

3,788 posts

142 months

Monday 11th November
quotequote all
TheDeuce said:
A lot of this technology is actually developed outside F1, and then utilised (enforced by the regs..) in F1 though. The current PU's are indeed an amazing 50% efficient, but none of that is remotely transferable to a road car. It's only possible by running such tight engines that they would destroy themselves many times a month in normal road car usage - hardly god for the planet and efficiency as a whole wink

I will not accept the Merc Project One as a 'road car', and it too is already proving unreliable in testing and will never be a reliable daily driver, even with it's somewhat limited performance 'F1' engine.

The whole paddle shift and hybrid system thing coming from F1 is also slightly skewed. Hybrid has existed in road cars ahead of F1. Paddle shift is somewhat open to interpretation, the box tech that lead to paddles in F1 was to be fair developed mostly for F1 and there has been some pass down to road cars - but at the same time different systems with paddles were also coming to road cars.

I'm not saying F1 isn't a hi-tech showcase, it is. But it's not the same tech that transfers down to the real world. Even without F1, I think the real world would have everything it has today.

As for the Williams aerofoil, the aerofoil has been in use since before F1 even existed. The same basic technique has been employed for decades in the warm air fans above shop doors. This is not a Williams technology handed down, so much as an existing technology with value added by being re-tweaked and the Williams moniker slapped on to the end product. Countless tech firms given the same challenge would have come up with the same solution regardless of F1 attachment.
I am in complete agreement with your comments.

F1 serves F1 very well - but trickle down is virtually non-existent.

A small example in the early noughties, a firm of consulting engineers were building up theIr CFD expertise. Red Bull started using their services and then bought them out. So a resource that was available to anyone with a need became devoted to a very narrow field of study.

So conversely, if the teams need to release half of their resource to meet a cost cap that means there are a group of engineers who can bring their expertise to anything, from replacement heart valves to stick blenders.