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Cost Cap for Power Unit Manufacturers

Section E of the FIA Formula 1 Financial Regulations establishes a separate cost cap framework specifically for power unit (PU) manufacturers. This regulatory framework governs spending on the design, development, manufacture, and supply of power units for the 2026 regulations and beyond.

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2026 Power Unit Regulations Context

The cost cap for PU manufacturers takes on critical importance with the 2026 technical regulations introducing: These revolutionary changes necessitate substantial development investment, making the cost cap framework essential for competitive balance among manufacturers.

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Cost Cap Amount

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PU Manufacturer Cap Structure

The power unit cost cap differs from the team cap in several key respects: Development Phase Cap: Higher cap during initial development period for new regulations (2022-2025 for 2026 PU) Operational Phase Cap: Reduced cap once development stabilizes and production begins New Manufacturer Relief: Manufacturers entering F1 receive:

• Extended development period at higher cap levels
• Phased introduction to full cap constraints
• Limited technology transfer allowances

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Indexation & Adjustments

Inflation Adjustment: Annual indexation based on relevant price indices for:

• Advanced manufacturing
• Research & development costs
• Specialized personnel
• Technology sector inflation

Currency: All reporting in USD with prescribed exchange methodologies for non-USD expenses.

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Scope of the PU Cost Cap

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Included Costs (Relevant Costs)

Design & Development

All costs related to PU design and development:

• Engineering and design personnel
• CAD/CAE software and computational resources
• Prototype development and testing
• Simulation and modeling
• Materials research
• Component testing (dyno, bench testing)

Covers ICE, MGU-K, Energy Store, Control Electronics, turbocharger, and all PU systems

Manufacturing & Production

Costs for manufacturing power units:

• Production personnel
• Manufacturing equipment operation
• Component fabrication and machining
• Assembly and quality control
• Production materials and components
• Tooling and fixtures
• Depreciation of manufacturing assets

Testing & Validation

Testing activities for PU development and validation:

• Dynamometer testing
• Component testing facilities
• Validation testing
• Emissions and fuel testing
• Reliability testing
• Track testing (PU-specific allocation)

Note: Some track testing costs may be allocated to team cap depending on nature

Supply & Support

Costs related to supplying PUs to customer teams:

• Track support personnel at race events
• PU installation and integration support
• Performance analysis and optimization
• Reliability monitoring and diagnosis
• Customer technical support
• Spare parts and replacement components

Fuel & Lubricant Development

Development of fuels and lubricants (in partnership with suppliers):

• Fuel specification development
• Lubricant formulation
• Testing and validation
• Supplier collaboration costs

2026 Specific: 100% sustainable fuel development receives special provisions

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Excluded Costs

The following categories are excluded from the PU manufacturer cost cap:

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PU Supply Obligations

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Customer Supply Requirements

PU manufacturers must supply customer teams under regulated conditions: Supply Agreement Terms:

• FIA-approved standard supply agreement template
• Price caps for customer PU supply
• Performance parity obligations (no detuned customer PUs)
• Equal specification and upgrade access
• Minimum support levels

Maximum Supply Price: FIA sets maximum price manufacturers may charge customer teams. This price is excluded from customer team’s cost cap but included in manufacturer’s revenue. Supply Obligations: Manufacturers must be willing to supply at least one customer team (subject to capacity limits).

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Works Team vs Customer Supply

Works Team: Team under same ownership or partnership as PU manufacturer

• May receive preferential integration support
• Closer technical collaboration permitted
• Installation optimization advantages

Customer Team: Independent team purchasing PUs

• Must receive same specification PU
• Entitled to equivalent upgrades and updates
• Track support and technical assistance required
• Clear separation from works team technical information

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Compliance & Reporting

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Reporting Group

The PU Manufacturer Reporting Group includes:

• Legal entities developing and manufacturing PUs
• Related entities providing PU development services
• Joint ventures and partnerships for PU programs

Exclusions: Clearly separated road car divisions (subject to verification)

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Submission Requirements

PU manufacturers must submit:

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Audit Requirements

Complexity for Works Teams: Manufacturers operating works teams must maintain completely separate accounting:

• Team operations (Section D cap)
• PU operations (Section E cap)
• Shared resources allocated based on auditable methodologies
• Transfer pricing for inter-company transactions
• Independent verification of allocations

External Auditor: Must be from FIA-approved list with experience in complex manufacturing and R&D cost accounting. Audit Scope:

• Verify separation of F1 PU costs from road car programs
• Confirm proper allocation of shared costs
• Test transfer pricing methodologies
• Review capital expenditure and depreciation calculations
• Assess technology transfer valuations

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New Manufacturer Provisions

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Incentives for New Entrants

To encourage new manufacturers to enter Formula 1, the regulations provide:

Extended Development Period

New manufacturers receive additional years at development-phase cap levels before transitioning to operational-phase cap.

Higher Initial Cap

First years of participation have higher cap to cover establishment costs and catch-up development.

Technology Transfer Allowance

Limited ability to acquire or license technology from existing manufacturers or external sources without full cost inclusion (subject to controls).

Testing Allocation

Additional dyno testing hours and track testing allocation during development phase.

Phased Compliance

Gradual transition to full reporting and compliance requirements as organization matures.

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Definition of “New Manufacturer”

A manufacturer is considered “new” if:

• Has not supplied F1 PUs in previous 3 years
• Developing PU to current regulations for first time
• Not a renamed or restructured existing manufacturer

Example: A manufacturer returning to F1 after a multi-year absence may qualify for new manufacturer relief.

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Penalties for Breaches

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Minor Overspend Breach (< 5%)

Available Penalties:

• Financial penalty
• Public reprimand
• Reduction in PU dyno testing allocation
• Reduction in future PU cost cap
• Restrictions on customer supply activities
• Constructors’ points deductions (if works team)

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Material Overspend Breach (≥ 5%)

Available Penalties:

• Severe dyno testing restrictions
• Prohibition on customer supply (affecting team competitiveness)
• Exclusion from Constructors’ Championship (works team)
• Mandatory cost cap reduction for multiple future years
• Suspension of PU development activities

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Procedural Breaches

Failure to submit required documentation, provide access to auditors, or cooperate with Cost Cap Administration:

• Financial penalties
• Public reprimand
• May be combined with overspend breach penalties if both occur

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Technology Transfer Controls

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Road Car Technology

Stirct controls govern technology transfer between F1 PU programs and road car development: From Road Car to F1:

• Technology must be valued at fair market value
• Cost included in PU cap if developed with F1 application in mind
• Independent valuation may be required
• Clear documentation of technology origin

From F1 to Road Car:

• F1-developed technology transferred to road car division must be at market value
• Revenue from technology transfer credited against PU cap costs
• Licensing agreements require FIA approval

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Inter-Manufacturer Technology Transfer

Transfer of PU technology between manufacturers (e.g., for new entrant):

• Must be at arm’s length market value
• Purchasing manufacturer includes cost in cap (with new manufacturer relief if applicable)
• Selling manufacturer recognizes revenue
• FIA oversight of all transactions
• Restrictions on works team technical data sharing

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Supply Price Regulation

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Maximum Customer Price

FIA sets maximum price for customer PU supply to prevent:

• Excessive customer exploitation
• Anti-competitive pricing
• Barriers to customer team viability

Price Components:

• Base PU supply (engines, MGU-K, Energy Store, etc.)
• Trackside support
• Spare parts and consumables
• Performance upgrades
• Technical assistance

Exclusions from Price Cap:

• Installation and integration (team responsibility)
• Team-specific customization beyond standard offerings

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Minimum Service Standards

Customer teams entitled to:

• Same specification PU as works team
• Simultaneous access to upgrades
• Defined minimum trackside support personnel
• Technical documentation and support
• Reasonable spare parts availability

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2026 Sustainable Fuel Provisions

Special considerations for 100% sustainable fuel development: Increased Complexity: Sustainable fuel introduces new development challenges

• Fuel chemistry optimization
• Compatibility with PU components
• Performance parity with previous fuels
• Supply chain development

Cost Cap Treatment:

• Fuel development costs included in PU cap
• Supplier collaboration costs included
• Infrastructure for production may be excluded (sustainability exemption)
• Fuel testing allocation increased for 2026 PU development

Supplier Partnerships: Most manufacturers partner with fuel suppliers (Petronas, Shell, etc.). Cost sharing and allocation must be documented.

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