From Streisandre Neto

LONDON, June 18 (Reuters) - Electric car giant BYD is showing interest in entering Formula One racing as it seeks to boost its brand outside its home market of China, where it already has a strong presence.

But becoming the first Chinese team in Formula 1 would be costly, and joining an existing team presents challenges, so a sponsorship-based approach might offer an easier path to entering the sport.

“Everyone wants to be involved in Formula 1, and the reason is that it’s the best marketing tool available to the original equipment manufacturers that use it,” said Ian Moore, a research analyst at Bernstein.

Formula 1, owned by Liberty Media, already includes European and American car manufacturers such as Ferrari, Mercedes-Benz, Ford, and General Motors' Cadillac, which develop racing engines or car chassis for the teams.

Actual participation costs hundreds of millions

FIA President Mohammed Ben Sulayem and Formula 1 welcome the idea of a Chinese team, provided it brings commercial and sporting benefits to all.

BYD declined to comment on its goals in Formula 1.

If it decides to participate, there is room for one more team on the starting grid, and BYD will have a strong commercial argument for being the twelfth competitor in Formula 1: it is the world's largest electric car manufacturer in terms of sales, China hosts the Shanghai Grand Prix, and there are 221.1 million Formula 1 fans in China, according to Formula 1. The company aims to produce all the cars it sells in Europe locally by 2028.

However, if BYD decides to proceed in this direction, it will have to overcome several obstacles.

"From a financial perspective, spending so much money in an area they don't know well may not seem like a wise move," independent analyst Felipe Munoz told Reuters.

Spending on infrastructure and wind tunnels will be costly with no guarantee of success. For example, the Aston Martin Formula 1 team's factory and headquarters in Silverstone, which includes a wind tunnel, is estimated to have cost between £150 million and £200 million, and the team has only scored one point so far this season.

The new team will likely have to pay more than $450 million in "anti-dilution" fees that protect investors from a decrease in their stake in the company and the value of their shares when new shares are issued, as Cadillac did when it entered the market this year, because having more teams affects the distribution of revenues.

Other options also present challenges.

Buying a stake in a team could be one way, as Otro Capital, which has a minority stake in the Alpine Formula 1 team, is looking to sell its 24 percent share, but Renault, which owns a majority stake, is unwilling to give up control and must approve any deal.

Christian Horner, the former Red Bull boss, is seeking a return to the sport and has made some contact with BYD, but an investment stake in Otro might better suit his objectives.

The choice of care may cause conflict

Alternatively, there may be opportunities to take a brand-promotion-based approach.

"Entering Formula 1 as a sponsor would be the least risky option for BYD because it avoids the FIA's regulatory requirements, such as proving compliance with technical and governance requirements," Nick De Marco, a sports law lawyer at Blackstone Chambers, told Reuters.

BYD could sponsor a mid-tier or lower-ranked team at a lower cost than top teams like Red Bull, where Oracle pays $300 million over five years to be a major sponsor.

For example, software company Atlassian signed a sponsorship deal with the Williams team, nine-time constructors' champions, worth between $40 million and $60 million annually.

Bernstein analysts estimated that the automotive category represents only 1 percent of Formula 1's annual sponsorship value, while technology represents 14 percent and luxury goods 26 percent.