Ford Motor Co. and Volkswagen met Friday in New York’s financial district to announce to the investor world expansion of their global collaboration on self-driving and electric cars in the United States and Europe, signaling a new era in automotive partnerships meant to contain costs while maintaining competition.
This huge technology play is designed to put Ford and VW in a position of strength as both move into a future with unpredictable consumer needs and demands and evolving government regulation worldwide.
The latest move has Volkswagen joining Ford as an investor in Pittsburgh-based Argo AI, the autonomous vehicle technology company, at a valuation of more than $7 billion. The merging of forces allows both automakers to independently integrate Argo AI’s self-driving system into their own vehicles, delivering significant global scale
“Volkswagen and Ford partnering with Argo AI makes tremendous sense that should benefit both automakers and advance self-driving vehicles more efficiently and at scale,” Michelle Krebs, executive analyst at Autotrader, told the Free Press Friday.
“Developing autonomous vehicle technology is an immensely expensive endeavor, with no return on that investment in sight. Further, the engineering talent is in short supply and high demand. Pooling financial as well as people talent should be advantageous to all parties,” she said.
The value of scale and cost reduction can’t be overstated. It is essential to the survival of automakers everywhere. Access to batteries and software technology is perceived as key to the future.
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Ford said in a news release that it will “use Volkswagen’s electric vehicle architecture and Modular Electric Toolkit (MEB) to design and build at least one high-volume fully electric vehicle in Europe for European customers starting in 2023, more efficiently advancing its promise to deliver expressive passenger cars while taking advantage of Volkswagen’s scale.”
The news garnered praise from industry observers.
“VW’s MEB electric vehicle technology appears to truly represent the bleeding edge of the best and most cost- and performance-effective design in the industry,” said market analyst Jon Gabrielsen, who advises automakers and auto suppliers throughout North America.
“It is absolutely critical for Ford to have additional cost-competitive electric vehicle technology, like that of VW, in addition to Ford’s own EV technology, in order to have enough options to serve the markets where electric vehicles will be in demand,” he said.
- Ford gains scale, by using part of the EV units it licenses and purchases from VW, to add Ford bodies and interiors
- Ford can sell back to VW under the early 2019 agreement on vehicle sharing
- VW gains scale on the sale of many additional units of its EV platform to Ford Ford gets to purchase the EV platform from VW at a lower price because of the higher scale VW achieves in production from also producing for Ford
“It is symbiotic in terms of giving both companies the critical scale advantage needed for additional cost effectiveness and for Ford, a much lower-cost way to get the technology and the rolling chassis than having developed themselves and then set up to produce it themselves,” Gabrielsen said.
He cautioned, “there are also some risks for Ford in using a competitor’s technology since it can raise the question in informed customers’ minds as to why they should buy a ‘Ford with VW Inside’ when they can just buy a VW.”
In January, the companies announced plans to share development costs on commercial vans and medium-size pickups for each brand for customers in Europe, Africa, the Middle East, Asia Pacific and South America starting in 2022.
The companies note their “Volkswagen-Ford global alliance” does not involve cross-ownership between the companies.
Volkswagen CEO Herbert Diess, Ford CEO Jim Hackett and Argo AI CEO Bryan Salesky together unveiled the plan.
“Working together with Ford and Volkswagen, Argo AI’s self-driving system is the first with commercial deployment plans for Europe and the U.S.,” Ford said in its statement. “Plus, being able to tap into both automakers’ global reach, Argo AI’s platform has the largest geographic deployment potential of any autonomous driving technology to date.”
Argo AI’s focus remains on ride sharing and goods delivery in dense urban areas, the statement said. Argo and Ford last month started stepped-up testing of autonomous vehicles in downtown Detroit and Corktown, where Ford is expanding a next-generation automotive campus.
Ford and Volkswagen will have an equal stake in Argo AI, and combined, Volkswagen and Ford will own a substantial majority. The remainder will be used as an incentive pool for Argo AI employees. The full transaction is subject to regulatory approvals and closing conditions, Ford noted.
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The partnership puts the carmakers on better footing to compete for the future autonomous vehicle/mobility market with Google-affiliated Waymo and General Motors’ Cruise unit, which are perceived as leaders in the self-driving race. GM has won investments from Honda and Japan’s SoftBank tech investment fund to boost Cruise.
“While Ford and Volkswagen remain independent and fiercely competitive in the marketplace, teaming up and working with Argo AI on this important technology allows us to deliver unmatched capability, scale and geographic reach,” Hackett said in a prepared statement. “Unlocking the synergies across a range of areas allows us to showcase the power of our global alliance in this era of smart vehicles for a smart world.”
Volkswagen is the largest automaker in the world. Ford is a dominant player in the United States, but financial statements indicate struggle on all other parts of the planet.
Company leaders also announced Ford will become the first other automaker to use Volkswagen’s MEB architecture to deliver a high-volume zero-emission vehicle in Europe starting in 2023.
“Ford expects to deliver more than 600,000 European vehicles using the MEB architecture over six years, with a second all-new Ford model for European customers under discussion. This supports Ford’s European strategy, which involves continuing to play on its strengths – including commercial vehicles, compelling crossovers and imported iconic vehicles such as Mustang and Explorer,” Ford said.
Volkswagen started developing its MEB architecture in 2016, investing approximately $7 billion in this platform, the news release said.
For Ford, using Volkswagen’s MEB architecture is part of its more than $11.5 billion investment in electric vehicles worldwide – and supports Ford’s commitment to offer its European customers a broad range of electric vehicles while meeting its sustainability commitments, Ford said.
“Looking ahead, even more customers and the environment will benefit from Volkswagen’s industry-leading EV architecture … and we are continuing to look at other areas on which we might collaborate,” Diess said in a prepared statement. “Scaling our MEB drives down development costs for zero-emissions vehicles, allowing for a broader and faster global adoption of electric vehicles. This improves the positions of both companies through greater capital efficiency, further growth and improved competitiveness.”
Volkswagen will invest $2.6 billion in Argo AI by committing $1 billion in funding and contributing its $1.6 billion Autonomous Intelligent Driving company, which includes more than 200 employees – most of whom have been developing self-driving technology for the Volkswagen Group, the news release said.
As part of the transaction, Volkswagen also will purchase Argo AI shares from Ford for $500 million over three years. Ford will invest the remaining $600 million of its previously announced $1 billion cash commitment in Argo AI, Ford said.
The full transaction represents a valuation for Argo AI that totals more than $7 billion.
Ford will engineer, source and build the previously announced medium pickup for both companies for customers in Europe, Africa, the Middle East, Asia Pacific and South America, with trucks expected to arrive in key markets as early as 2022, the statement said.
For both companies, Ford intends to engineer, source and build larger commercial vans for European customers starting in 2022, and Volkswagen intends to develop, source and build a city van for sale in Europe and other select global markets.
Volkswagen and Ford have strong “complementary” commercial van and pickup businesses around the world, with popular models including the Ford Transit lineup and Ranger as well as the Volkswagen Transporter, Caddy and Amarok, Ford said.
Volkswagen, the largest carmaker in the world, is headquartered in Wolfsburg. It employs 664,496 employees worldwide. Ford employs 196,000 employees.
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