Will China or Elon Musk rescue McLaren?

Wearing a brown blazer and open-necked black shirt, a youthful-looking Elon Musk was bubbling with excitement as he took delivery of his McLaren F1 supercar in 1999.

Musk had just sold his first company, an online city guide called Zip2, for $22 million and decided to splurge $1 million of the proceeds on a McLaren capable of reaching 241 miles an hour. “There it is, gentlemen, the fastest car in the world,” he boasted as the car slid off the ramps onto the street outside his home.

Speed has rarely been a problem for McLaren over its 60-year history. But keeping a lid on costs has proven more problematic.

McLaren’s owners, led by Bahrain’s sovereign wealth fund Mumtalakat, have spent £1.5 billion bankrolling the business over the past four years alone. Now investor patience seems to have run out. Wall Street investment bank JP Morgan has been hired to find new “strategic partners” ahead of Bahrain selling a controlling stake in McLaren, City sources said.

New ownership would mark a fresh twist in the colourful history of the carmaker — one where creating two or three of the fastest racing cars in the world every year came comparatively easy, but making road cars by the hundred proved a whole lot harder.

New Zealander Bruce McLaren launched his eponymous race team in 1965 after an illustrious racing career driving for the likes of Cooper and Aston Martin. McLaren won its first Formula One World Championship in 1974; but it wouldn’t be until the 1980s — under former Brabham engineer Sir Ron Dennis — that the team began asserting its dominance with the likes of Alain Prost and Ayrton Senna.

Dennis harboured ambitions to turn McLaren into a supercar manufacturer to rival Italian great Ferrari. And he took the first step into production vehicles in 1992 with the launch of the McLaren F1 — only 106 cars were made, however.

Friends of Dennis say that a bigger operation was in the pipeline. City grandee Sir Richard Lapthorne, a self-confessed petrolhead who later became chairman of the McLaren group, recalls discussing with Dennis his vision at length during the mid-noughties. “It was always going to be a difficult concept,” he said. “It was a question of how do you differentiate from a Ferrari? It needed to be: ‘Ferrari does that, but we do this’.”

McLaren Automotive finally came into being in 2010. A gleaming state-of-the-art factory on the outskirts of Woking, Surrey, was opened by then-prime minister David Cameron a year later.

But it wasn’t long before a boardroom battle engulfed the company. Dennis and fellow shareholder Mansour Ojjeh, close allies since the French-Saudi businessman invested in McLaren in 1981, fell out over the declining on-track performance. The young Lewis Hamilton, who arrived with huge success, nearly winning the F1 championship in 2007, then winning it in 2008, began to falter amid problems with the car. He eventually quit for Mercedes.

The kingmaker in the tussle turned out to be Mumtalakat, Bahrain’s sovereign wealth fund and 50 per cent McLaren shareholder. Brought in as an investor in 2007, Mumtalakat backed Ojjeh. Dennis was finally forced out in 2017 — a move that some say has had repercussions for the marque to this day.

“Ron was a brilliant engineer and a master of detail. Sponsors loved to be associated with his ability to continue winning,” said Lapthorne.“The problem was that he was no longer there and a supercar had to be in continuing development in order to maintain its allure.”

The pandemic proved an even bigger problem. David Bailey, professor of business economics at the University of Birmingham said that, although McLaren made very high profit margins on each car, its low production numbers mean any shortfall in output has an exaggerated impact on the bottom line. “So when Covid hit, they were not in a great position to deal with it — that really messed up their plans big-time.”

Lockdowns left supply chains paralysed, leaving McLaren short of computer chips from the Far East that controlled everything from the air-conditioning to airbags. Sales volumes fell from 4,662 cars in 2019, to 1,659 in 2020

Meanwhile, the widely anticipated launch of McLaren’s first hybrid car — the Artura — was beset by delays. And when the car did come to market in 2022, McLaren was forced into a series of recalls following significant supply-chain disruption of vital components.

“Occasionally, you will do a launch and it won’t work. But that’s where you need the resilience on your balance sheet,” said Andy Palmer, the former chief executive of Aston Martin.

McLaren had no such resilience. So, it called on its wealthy friends in Bahrain.

Mumtalakat led a £300 million fundraiser from shareholders in 2020, but still the company needed more. A further £1 billion was injected in 2021 — part-funded through the sale and leaseback of its Woking headquarters.

Again, the cash began running dry, and in 2022, it raised a further £225 million from investors, some of which came from the sale of McLaren’s heritage car collection, which included cars driven by Ayrton Senna, Alain Prost, Niki Lauda and Mika Häkkinen, as well as the one that gave Lewis Hamilton his first World Championship and was worth about £35 million.

Each time, the Bahraini investors contributed the lion’s share and, since the start of last year, they ratcheted up to pump in a further £480 million to keep the business afloat.

Within a few short years, Mumtalakat and fellow shareholders had put in the staggering sum of more than £1.5 billion.

Even for one of the wealthiest per capita oil states in the world, that was a lot. When it came to the attention of King Hamad bin Isa Al Khalifa, he issued a swift order to sell up and get out of McLaren, a source close to Mumtalakat said.

Lapthorne explained: “People always think buying a supercar company is a great idea and will bring them glamour. But later, when they do their maths properly, they realise that they couldn’t really afford it.”

JP Morgan’s remit is to find a “strategic partner” with expertise in the manufacturing of electric vehicles. It is envisaged that the partner would also initially take a minority stake in McLaren. In time this would grow to a majority, leaving Bahrain retaining a minority interest, under the plans, sources added.

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Those close to McLaren said that the talks were at a preliminary stage with a series of options on the table. Discussions with interested parties are not limited to other carmakers, and may not result in an equity sale, they added.

Nevertheless, Middle East sources insisted that JP Morgan has been tasked by Mumtalakat to find a Chinese suitor.

Palmer is unconvinced that that is such a good idea. “A Chinese company would want to manage centrally from China. So there is the risk that McLaren would lose its autonomy.”

He and Bailey reckon McLaren would be wiser to look west. “Best-case scenario, who would you want McLaren to partner with on electric vehicles? It would be Tesla,” said Bailey. “It would give Tesla a top-end sports pedigree. It would give McLaren access to Tesla’s cutting edge electric vehicle technology. That’s a marriage made in heaven.”

McLaren and JP Morgan are tight-lipped about whether Tesla has been approached. A spokesman for McLaren said that it was open to discussing “potential strategic technology partners and suppliers”.

One thing seems for sure: if Musk was prepared to shell out for a McLaren when he was worth $22 million, buying the whole company now he is worth almost $200 billion might not be such a ridiculous idea.