Mercedes boss Toto Wolff has backed Formula 1's decision to reduce the budget cap from 2021.

The German manufacturer was largely silent on the topic publicly as talks were taking place during the coronavirus pandemic.

However, after it was confirmed the initial $175m would drop to just $145m next year, Wolff hailed it as a huge step in the right direction for F1 economically.

“First of all, we’re living in a financial reality that is very different to pre-COVID-19, and we have accepted the lower budget cap and it is a must that successful F1 franchises earn money rather than lose money,” he told Autosport.

“For us, it is also a way of making sure that Daimler not only appreciates the sporting and marketing benefits of the platform but also makes it as cost-neutral as possible and I believe this is why we need to support such a cost cap."

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The Mercedes boss though concedes it will mean big changes at the Brackley-based squad but, like Ferrari, it could simply mean adding new motorsport projects.

“For us, it means readjusting, it means changing the way we do things and deploy personnel in new areas," Wolff admitted.

"We have a very strong department that is called Mercedes Benz Applied Science, where we work for high-performance clients and deploy our services.

“And who knows? Maybe we will look at other race categories in order to keep the resource, and keep the human resource and intellectual property, within Mercedes.”

The Austrian though did make it clear, any other racing activities would be in addition to retaining their F1 team, despite rumours of a pending departure.

“The top management of Mercedes very much sees Formula 1 as a core activity. We build road cars, we build race cars and actually the first ever car was a race car,” he continued.

“And in that respect, we don’t see it simply as a marketing platform that generates valuable marketing dollars, but we see it as a core exercise.

“There is a technology transfer between the road and Formula 1, and it’s not being criticised within Daimler.”

But while F1 and several other major motorsport categories have taken action to reduce costs, Wolff believes a similar move should be done at the lowest levels too.

“Where it needs to start is in go-karting [so] the grassroots of motor racing need to become much more affordable than they are today,” he claimed.

“To pay £100,000, for a 12-year-old to race in a proper championship, is simply unimaginable for most families.

“We need to work on a scheme that we have a large number of kids who can try go-karting, compete in proper kit, and eventually they will make their way into F1.

“Someone like Lewis Hamilton, who was given the opportunity in a go-kart will always find his or her way into F1 because their talent is extraordinary. But every single category needs to come down in cost.”