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Guenter Reinhold

Interview with Formula E CEO Alejandro Agag

The champion of Formula E movement
Tuesday, December 24, 2013

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Alejandro Agag (L) with team owner and race promoter Michael Andretti
Formula E, an all-electric, zero-emission motor-racing world championship, has been making big waves in the motorsport world recently. Launched in 2012 in the face of widespread skepticism, the series has been steadily gaining in credibility and has managed to bag some high profile partners including such storied motor-racing names as McLaren, Williams, Renault and Michelin.

Set to flag off in September 2014, the new series already boasts a full grid of teams and a healthy calendar of ten races.

Here we speak to Alejandro Agag, CEO of Formula E Holdings and the man who has been working tirelessly for over a year to prove the skeptics wrong and make this revolutionary motor-racing championship a reality.

ABHISHEK TAKLE: Hi Alejandro. Thank you for taking the time out to talk to me today. Tell me about how the Formula E idea was conceived. I know you’ve worked hard since it was announced to make it a reality but the concept was basically the FIA’s idea correct?

ALEJANDRO AGAG: Yes. It’s an FIA initiative that looks to create a new kind of racing, a sustainable kind of racing which is compatible with all the other FIA championships, is complementary and it really plays a role for the development of clean mobility technologies, particularly electric and then other technologies will also be possible in the future.

AT: So how did it work? They announced the initiative and then you bid for the commercial rights correct?

AA: Yes, that’s right.

AT: But what attracted you to Formula E? Because you’re a petrolhead and you’ve got teams in Formula One feeder series — in GP2 and GP3 — and as a petrolhead what was it about electric racing that appealed to you?

AA: We immediately realized the potential that green racing has for partners and sponsors. Many companies, many corporations around the world love motor-racing, they like the values of motor-racing. But they sometimes are hesitant to enter motor-racing because it doesn’t tick the box of sustainability. This kind of racing does. We have a long experience in the past, as you know, in GP2 and in GP3, in racing and we are definitely petrolheads. But also we had a lot of experience with sponsors. And some of these sponsors were telling us this. So when we saw this opportunity of combining exciting racing, motorsport and sustainability, we immediately jumped on it.

AT: What makes this the right time to launch this championship? Because there was the Formula Zero project a few years ago which didn’t quite take off, so what makes this the appropriate time now to have an electric series?

AA: We think two things make it the right time. First of all, the concern around the world in terms of sustainability, climate change and ecological problems is growing, is bigger than ever now. People are starting to realize that we have to act and we have to act soon in order to avoid very, very big problems in the future for the world. So that’s one thing. The other one is technology. The technology is now ready to be able to provide a good show. Of course, we are the beginning, we are the first and we will improve dramatically in the next years and we will see a very big improvement in the performance of electric racing cars but now the technology allows us to start racing. So those two things combined are what make this moment the right moment to start this championship.

AT: Now I’ve read some of your earlier interviews and you’ve mentioned that your target audience is not necessarily the diehard petrolheads but it’s more the next generation, the kids growing up today. One of the aims of the championship is that when these kids buy their first car, it’s an electric car. Now obviously those same kids are also going to be watching Formula One, so what does Formula E have that is ‘cooler’ than Formula One, for example? Because that’s a key issue you’re addressing isn’t it, the coolness factor of electric cars.

AA: We don’t compare ourselves with Formula One. We love Formula One. Formula One is, I think, the best championship really in the world of racing. But Formula E is different. We want to position it in a different way. So it’s not better or worse, it’s just different. It’s like comparing skiing and snowboarding. Snowboarding is different, it’s a different category. So there are some people who like skiing and some people who like snowboarding. So it would be a different positioning and we think it’s a positioning that may be attractive for a new kind of public – a new generation that is more digital, interactive. We will include a lot of different ways for fans to interact, to play and we think that is really what will make a difference.

AUTO - FORMULA E TESTS 2013AT: By all means you’ve got a phenomenal response. All the slots on the calendar are filled, all the slots on offer for teams have been filled by some pretty reputed names in motor-racing as well, you’ve got some wonderful venues. Were you expecting such a strong response from venues, participants, partners like Michelin, Renault or were you surprised by the response you got?

AA: Actually, the response from every side has been a big surprise, a big positive surprise. Of course we were hopeful that it would be like this but even our best hopes have been surpassed by the welcome of the cities all around the world, we now have probably more than 40 cities on the waiting list to become hosts of the championship. We have partners, very important partners, like you were mentioning Michelin, Qualcomm, Tag Heuer, Renault, DHL and others and we’re going to be announcing more in the next weeks and months. Teams, we have great teams, the grid is full. So actually the reaction from everybody has been really, really amazing and we are very happy with the progress but of course there is a lot of work to do to deliver a top class championship in September next year.

AT: And was it particularly difficult in the beginning to get it all rolling? You had to convince partners like Michelin to come onboard, you had to convince cities to close off their roads for one day. At that time the product wasn’t really there, so was it difficult in the beginning to convince all of these guys to come onboard?

AA: Well, you know it was difficult in a way because we were new and people didn’t know what we were but it wasn’t so difficult. Because you know, there are a lot of pioneers around the world and I think everybody that is partnering with us, shares this characteristic of pioneering, of being there first, of trying and not being afraid to fail because in order to try to achieve a big thing, you need to take risks and always when you take risks there is the possibility to fail. So everybody that is joining us has this characteristic of pioneering, of taking this risk, this adventure, hoping that we will make a change. So it was difficult but we found a lot of people who were like-minded and really we found very quickly people who wanted to join us in this venture.

AT: Now I’m sure that while setting up the venture, you must have been mindful of projects like A1GP which was also a winter championship but which failed after a few years. So how is the business model of Formula E different, how does it guarantee sustainability into the years ahead?

AA: A1 was a good championship and a good concept. I think the problem was that it’s very, very difficult to compete with Formula One and I think the concept was too similar to the F1 concept and that was what made it not viable. We have a different concept, very, very different. So we think that there is a very strong possibility of success in terms of business, particularly based on partners and the sponsors because of the sustainability aspect. We think we have a unique offering that brings a special attraction for our championship. Also, another very important point for us is cost control. We have a very tight cost control procedure. Teams have budget caps, the cars have a limited maximum price. If somebody produces a very expensive car, they will need to sell it to two other teams at the maximum capped price and so on and so forth. We have really studied the championship from the start to have a very, very strict cost control policy. So those will be basically the key elements to the success of the championship financially.

AT: I was actually coming to cost control because I believe the operating costs for teams have been capped at $5 million, is that correct?

AA: Well it’s 3 million euros so it will be a little under $5 million.

AT: Right. But how do you go about policing that. Because if you look at the Formula One model for example, when there are manufacturers involved, they can use accounting tricks to hide costs and account for them as costs incurred as part of their road car operations. So it’s a tricky one to police isn’t it, a cost cap?

AA: Yes. Basically there are two different budgets. One is the operating budget for the teams. So that’s the one that is capped at 3 million euros. So you have a limited number of crew. You can only do certain things, you can buy the spare parts at a certain price, you get the tires from the tire supplier at a low cost, etc. So that’s the operating cost. Then the manufacturing costs, we cannot control. So if somebody decides to spend 100 million designing a fantastic car, that we cannot control. But what we can do and what we have done, it’s a rule, by which that team will have to sell the car to another two teams at least at a maximum capped price of 350,000 euros. That basically avoids an arms race of expenditure and if someone does it, at least you will have three teams with the same car so the championship will at least be competitive.

AT: Now, as I understand it, you and your partner have invested an initial 100 million euros to get the project underway, is that correct?

AA: Yeah, the initial budget to launch the whole project is 100 million. That was the commitment initially to invest. As you probably know, we are having new partners coming on board and investing with us. Yesterday we announced a fund called Causeway, which is the fund of the NBA Boston Celtics’ owners who invested in Formula E. And between all of the partners we have this commitment of 100 million euros and we think that is more than enough to launch the championship successfully.

AT: And by when do you expect to start making returns on this investment?

AA: The way were are going, it looks like we will be making a profit from year one, the way we are going in terms of the sponsorship response.

AT: Moving on to the fan side of things – you have some fairly interesting ideas to get fans involved and engaged with the concept. Could you elaborate on those a little bit?

AA: We have very different ideas. There’s two that we are focusing more on. First, the social media push-to-pass. So fans will be able to vote for their favorite driver. We are still to exactly define how it will work. We are thinking if this is going to happen during the race or if it’s going to happen a whole week before the race and then the push-to-passes are announced just one minute before the start of the race on the starting grid. So we’re looking at how exactly to make that happen, to make it more exciting. But fans will be directly involved in the result of the race through the social media push-to-pass. Push-to-pass means an extra amount of horsepower for ten seconds for one car so he can make an overtake. The other one that we’re really working on is the online real-time video game. So we want fans to be able to play in the race. It will be a mobile-based game, very simple in terms of graphics but very let’s say connected to reality because the cars will be where they really are during the race and fans will have a shadow car that will be racing against them. So those things we think are important to give new ways of engagements to the fans in terms of interacting with the race.

AT: But the fan-voted push-to-pass feature, some people have said it’s a bit too gimmicky, that it could unfairly skew the competitive order of the series. How do you respond to that?

AA: I respond that they are right. I respond that it gives an advantage to certain drivers that have maybe more fans than others. It will also give an advantage to the drivers who work better on social media and that’s actually something we want to really promote. And it will be a non-decisive advantage because it will be just one push-to-pass, so probably that won’t determine the result of the race at the end but it may just change one position. Of course it may eventually, in an extreme case, help the second go to first but again it’s a trade-off between pure racing and interaction with the fans and we think that’s a good balance.

AT: And I’m sure you get this question a lot, but what about the sound? I’ve seen the videos of the testing and it sounds like it’s got a high-pitched futuristic sound, but do you think that will be enough for motor-racing fans who generally go to a Formula One race, for example, for the sound?

AA: You know, I love the sound of racing – Formula One, IndyCar – I love the loud sound but this is different. And again, sound is going to be I think one of our great assets. If we had a high sound, we probably couldn’t race in many of the cities where we have gotten the permission to race, in city centers. The lower sound gives us an advantage from that point of view. But on the other hand, it’s high enough – in the region of 80 decibels – so like a sports car or a motorcycle, that 20 of them racing at the same time will provide more than enough excitement to the fans that are watching right there. But if you are one mile away, you won’t hear anything. If you’re at home, you can be peacefully at home and you won’t hear anything. So that, in terms of minimizing the disruption in a city, it’s a big advantage. So I think it’s going to combine excitement with minimum disruption. And also, it’s kind of a futuristic sound and as I said we want to position this championship differently and that’s one of the main assets.

AT: You’ve got ten races in the first year. I believe you’re looking at adding two races every year following the first year. Is that correct?

AA: Yes, that’s correct.

AT: So what level will the calendar be capped at? Right now it’s 10 but what is the maximum number of races that you could have in a calendar?

AA: I think the maximum number of races probably down the line will be around 18, between 18 and 20 but I think 18 is a good number.

Mahindra_Racing_1AT: And what cities are you looking at adding next. Is India in the pipeline possibly?

AA: Yes, India is in the pipeline. We have a great partner in India which is the Mahindra Group. And together with them, we would like very much to bring a race to India. We have to look for the best location in India. As you know we race in city centers so traffic and other city center limitations have to be considered. But we are optimistic we will find somewhere spectacular to race in India together with Mahindra. And we are looking at other cities. Probably Hong Kong will be in year two as we couldn’t put it in year one due to just some small track design details. We are looking at cities in North America, we are looking at more cities in Europe, we are looking at Australia, we are looking at Africa so, yeah, we have a number of venues that we are considering.

AT: One last follow-up on India. I’m sure you must have watched Formula One’s foray into India and you also must be aware of some of the limitations that the sport has faced because of the authorities in India. Now, is that a worry for you because you’re going to need municipalities and governments to back your effort given that you will be racing on city streets here?

AA: Well it is not a concern at the moment. I think we will see when the discussion comes up. Of course we will have to agree with the authorities. We only go to a city or to a country if we are welcome. Of course if we are not welcome we just don’t go. So we will check and if we are welcome, we will come and if we are not we just go somewhere else.

Images courtesy of Formula E.

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