Ricardo renews and expands its engine manufacturing contract with McLaren

/ February 21, 2019/ Automotive, Contract, Ricardo, UK

British ER&D service vendor Ricardo has renewed and expanded its engine manufacturing contract with McLaren. The company will manufacture engines for McLaren’s Track 25 plan. McLaren is expanding its car portfolio and as part of Track 25, will design 18 new models or derivatives of existing models.

This is a significant expansion for Ricardo, which mentioned that this contract is the largest one ever awarded by McLaren to Ricardo. To provide a bit of perspective, Ricardo produced in 2018 approximately 5k engines, a significant acceleration over the past years: since 2011: Ricardo manufactured about 15k engines or about 2k per year.

While Ricardo is known for its ER&D capabilities, its Performance Products, which focus on small-scale manufacturing, has been a growth engine for the firm. In FY18, revenues of Performance Products were up 28% while its mainstream ER&D service business (Technical Consulting) was only up 2.8%, impacted by Brexit delaying decisions in the UK automotive sector and difficulties in the US.

Ricardo is managing well its Performance Products business unit. However, on a strategic level, Ricardo is increasing its risk profile. We estimate the majority of Ricardo’s Performance Product revenues come from its McLaren contracts and in all likelihood, McLaren represents 15% to 20% of Ricardo’s revenues.

While Ricardo has a good track record with Performance Products, there are many examples of design or ER&D firms that went into product manufacturing, in the automotive industry and that burnt themselves. Pininfarina is a good example: great firm, the ultimate reference in automotive design, and now under the ownership of Mahindra & Mahindra.

Let’s not spoil the party: Ricardo is doing great with McLaren. Still, we would like it to mitigate its risk profile by expanding outside of automotive, in its core ER&D business.

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