Pedal to the metal - Mumtalakat and McLaren

Since taking a major stake in the iconic McLaren Group in 2006, Bahraini sovereign wealth fund Mumtalakat has played a vital role in helping to fund the British firm’s plan to roll out its portfolio of production supercars across the world. McLaren board member Sheikh Mohammed bin Essa Al Khalifa explains how Bahrain benefits from its association with the global brand.
Pedal to the metal - Mumtalakat and McLaren
Sheikh Mohammed Bin Essa Al Khalifa is the political and economic advisor to the Crown Prince of Bahrain’s Court and former CEO of the country’s Economic Development Board.
By Ed Attwood
Sat 08 Nov 2014 01:27 PM

Sheikh Mohammed bin Essa Al Khalifa is temporarily at a loss for words while attempting to discuss the performance of his beloved McLaren P1 supercar.

“When I first drove it a year ago, it just blew my mind,” he muses, as he walks around the gleaming vehicle at the Bahrain International Circuit. “It’s just a wonderful car.”

Perhaps Sheikh Mohammed can be forgiven for being a little biased. As well as being the political and economic advisor to the Crown Prince of Bahrain’s Court and former chief executive of the country’s Economic Development Board, he is also an active board member at McLaren Group Ltd, as the representative of major shareholder Mumtalakat.

McLaren may be best known as one of Formula One’s landmark names, under the guidance of legendary founder Ron Dennis, but the involvement of the Bahraini fund has proved crucial to the fortunes of the British firm’s ambitious road car programme.

When it comes to McLaren, it seems that Sheikh Mohammed has a firm grasp of what’s going on at the company. “I just spoke with Ron on the way here, actually,” he says, settling back onto a sofa on the eighth floor of the Sakhir Tower, which overlooks the racetrack. “It was mainly administrative — nothing newsworthy, I’m afraid,” he smiles.

Eight years ago, the initial deal with McLaren represented Mumtalakat’s first major venture. Founded in 2006, the sovereign wealth fund had $10.6bn in assets as of the end of 2013. In total, it had majority or minority stakes worth $7.2bn in 38 different companies, both inside Bahrain and beyond. While not on the scale of some of the other major Gulf sovereign wealth funds, such as the Abu Dhabi Investment Authority (ADIA), the Kuwait Investment Authority (KIA) and the Qatar Investment Authority (QIA), the fund shares some of the same basic characteristics.

“We were looking to participate in global industries,” says Sheikh Mohammed, of the original deal to take a 30 percent stake in McLaren Group eight years ago (the firm presently owns 42 percent of the McLaren Group and 50 percent of McLaren Automotive, the production car arm). In that sense, Mumtalakat is walking down the path trodden by funds like Abu Dhabi’s Mubadala, which is investing heavily in areas like aerospace and computer chip manufacturing, and the Qatar Investment Authority, which has stakes in companies such as Fisker Automotive and Volkswagen.

The perception of McLaren prior to the fund’s investment was largely linked to its prowess in Formula One. The British company has won eight constructor’s championships and is the sport’s second-oldest team, behind Ferrari. However, the firm had also made a successful foray into road cars, via the McLaren F1, which held the world record for the fastest production car for 13 years, and through a now-defunct partnership with Mercedes, which resulted in the SLR.

“We viewed McLaren like any other business,” says Mahmood Al Kooheji, Mumtalakat’s chief executive officer. “We did our due diligence, we studied the company and asked about the growth plan.

“We found it has a lot of know-how — it’s way ahead of its competitors. We knew we were buying into something that is building the future. When we acquired McLaren, these [the production] cars were only on the drawing board — and now they are reality.”

Reality they may be, but McLaren’s eye-catching range of supercars have entered a market where brand, heritage and longevity appear to count for a great deal. It is competing against the lustre of Italian marques Ferrari and Lamborghini, not to mention premium models from BMW and Mercedes, and other luxury car manufacturers like Rolls-Royce. The barrier to entry in the market is high, especially given the fact that other manufacturers have invested heavily — in terms of both time and cash — in honing their product lines.

“McLaren is different — it’s not just a supercar manufacturer, it’s a technology company,” Sheikh Mohammed says. “They have a lot of research and development, and an array of other activities. Plus, don’t forget, they have experience building cars, so it wasn’t a completely greenfield venture, there was expertise built up over 20 years that formed the seeds for this new venture.

“So you could say it was risky, but any start-up is risky, to an extent. The solid fundamentals were there. It’s also the only standalone company that carries the F1 brand and also builds road cars. Obviously there is Ferrari, but that is part of Fiat.”

Thus far, McLaren Automotive released the 12C, its first production car since the F1, in mid-2011, and the P1, a limited edition plug-in hybrid supercar that went on sale last year. Just 375 of the latter are being built, and all have been sold out. Earlier this year, the company launched the 650S, another model that sits between the 12C and the P1.

Sheikh Mohammed says reaction to the range has been strong — an assessment that’s certainly borne out by the sales results — and that there is plenty more to come.

“If you look back at the first year [of sales] we achieved a 13 percent market share in the category for the 12C, which we were very pleased with,” he says. “The plan is strategically to have a three-model range — a supercar, a super or ultimate sports series and then an entry-level sports category.

“That plan remains in place — we’ve evolved the 12C into the 650S, it was a step up in quality and performance, and that has been reflected in the sales.”

Results-wise, McLaren Automotive certainly seems to be accelerating in the right direction. In 2013, the firm posted a pre-tax profit of $7.2m, only three years after its cars starting rolling off the production line. Revenues rose by 7 percent to $457m. In the process, it sold about 1,400 cars worldwide.

The firm’s strongest market last year was North America, which accounted for about 40 percent of sales, however a recent spate of dealership launches in China should see the Asia market ramp up its share. Middle Eastern buyers made up just over 10 percent of overall sales.

“It was slightly ahead of plan,” says Sheikh Mohammed, of McLaren’s move into the black. “For any business plan, the payback period is a little bit longer. You could say it was a conservative business plan that was executed well.

“We worked to ensure that all the funding was there during the build-out and were committed to seeing it through. That helped the company to focus on the product — it was a case of letting the management get on with what they are supposed to do.”

For 2014, the prospects are looking even stronger. In an interview in April with Bloomberg, McLaren director of finance Paul Buddin said that pre-tax profits could rise four-fold while revenues could double — largely on the back of deliveries of the P1. Sheikh Mohammed won’t be drawn on any projections, simply stating that “the direction is good” and that the results so far this year are going “according to plan.”

The McLaren strategy for the future involves releasing either one new model or a significant derivative every year.

“The models will target different segments,” Sheikh Mohammed says, on what the average McLaren buyer looks like. “The lower end will target the working professional — competing against Audi R8s and Porsches, the supercars are a bit higher end, so they tend to be bought by successful entrepreneurs and the ultimate cars are mainly collector cars.”

“The next sport model will be about 50-60 percent of the 650S in terms of price, and if you can define that in terms of performance, maybe the same again.”

However, Sheikh Mohammed also says that there are no plans to release a straight-out four-seater (in the mould of Ferrari’s FF) and certainly no intention of developing an SUV.

As well as new models, McLaren will also be adding capacity at its plant in the English town of Woking. Compared to its nearest competitors in the luxury car segment, it has some catching up to do. Ferrari manufactured around 7,000 cars last year, while Rolls-Royce produced just over 3,600 and Lamborghini sold 2,121 vehicles. But the company is more focused on quality than numbers.

“We’ll ramp up from where we area, yes, but it will remain an exclusive brand,” says Sheikh Mohammed. “We’re not going to go into significant numbers. It will be in the 3,000 to 4,000 range, I think, for the foreseeable future.

“One car does not create a car company. As you’ve seen from others [competitors], it’s always better to be a position where demand slightly exceeds supply and we’ll try and maintain that. But when you’re starting out, it’s always a challenge because you have to find a way to build that demand.”

McLaren’s challenge is to create awareness of its brand in some parts of the world. For example, it may be familiar to British and European drivers, but not so recognisable to potential Chinese buyers, or even those in the Middle East, for example.

“It’s difficult to compare it to Porsche or Ferrari,” Sheikh Mohammed says. “Those brands have been around for 50 or 60 years. The enthusiasts will know it and understand it quickly, but general awareness takes time.”

To entice potential buyers and introduce them to the brand, McLaren lays on driving programmes. Drivers in the UAE, for example, can check out the vehicles on testing drives like the hairpin-heavy road to the top of Jebel Jais, the country’s tallest mountain.

The firm is also attempting to attract would-be owners via McLaren’s Special Operations team, which provides custom designs and bespoke vehicles — something that is particularly popular in the Gulf. For other high-end manufacturers, this amounts to a hugely profitable exercise, but Sheikh Mohammed says it’s as much about adding value as boosting McLaren’s bottom line.

“We’ve upgraded various parts for free and increased horsepower for free,” he says. “So yes, some things cost money, but making it the best value performance car is one of the core brand principles of McLaren. So it’s not all about money, because the more you get your customers feeling that this is incredible value, the more likely you are to get them as repeat customers.”

But looking around the other major luxury car brands, there is a feeling that McLaren is the odd one out. Ferrari is owned by the Fiat Group, while the Volkswagen Group owns Bentley, Bugatti, Porsche and Lamborghini. The BMW Group, meanwhile is the parent company for Rolls-Royce Motor Cars. Is it therefore inevitable that McLaren will go the same way? After all, Mumtalakat’s prime mandate is to secure sustainable returns and generate wealth for future Bahraini generations.

Sheikh Mohammed refuses to rule out the prospect of the fund selling down its stake in the future.

“Is it inevitable? No, because we’ve proved in our business processes that we have a business model that works — we’ve been able to fund the development and the research and produce cars profitably.

“But the market is the market. We would never rule it out, but currently we have no intention of exiting right now. We want to finish establishing the company and [see it through] the growth phase.”

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