Pressure to develop costly self-driving and electric vehicles is leading to more partnerships between rival carmakers. Ford and VW are the latest.
Carmakers worldwide are contending with slower sales in all major markets, including China, the U.S. and Europe, leaving them ill-positioned to build out expensive new technologies. But in the race with automotive industry competitors, not to mention well-funded tech firms, they risk being left behind. With regard to EV development, stricter emissions regulations in Europe and China are adding extra urgency.
Carmakers want to share the risks and human resources as well as the costs, particularly on autonomous vehicles, which are still years from hitting the road. “The financial investment is immense, and yet we don’t know when they will be in the marketplace or how they will make money,” said Michelle Krebs, a senior analyst at Autotrader. “It’s not just the money. The talent pool for people developing these vehicles is small.”
General Motors’ self-driving unit, Cruise, has received billions in financing from Honda and other big car companies. Toyota and Uber teamed up to develop self-driving cars last summer. Earlier this year, luxury brands BMW and Daimler-owned Mercedes started working together on self-driving cars, and in early July announced ambitious plans to deliver them by 2024.
Ford and Volkswagen announced on July 12 that they will expand on their existing alliance to develop self-driving cars and share electric vehicle (EV) components. The German carmaker will invest $2.6 billion in Argo AI, a Ford-backed startup that is developing sensors, software and other technologies for autonomous vehicles. Volkswagen will fold its own autonomous vehicle project into Argo, including 200 employees. The agreement values Argo at $7 billion, according to the New York Times. In 2017, Ford agreed to invest $1 billion in Argo over five years for an undisclosed stake. The firm is headed by CEO Bryan Salesky, who formerly worked on self-driving cars for Google.
Volkswagen adds heft to Ford and Argo’s effort, said Gartner analyst Mike Ramsey. “Volkswagen is the world’s largest automaker by sales volume and has a huge global footprint,” he explained. “The potential market for Argo technology is much bigger than with Ford alone.” Volkswagen wants to use autonomous driving technology in its Moia ride-sharing service, which currently operates in Hamburg and is expected to move into other European cities.
Separately, Ford will build electric cars using motors, batteries and other components developed by Volkswagen. Ford plans to introduce a vehicle in Europe made from VW components in 2023, and sell 600,000 electric cars over six years. Volkswagen is already using the components in its model ID.3, a mass-market EV due next year. The company expects to sell 15 million electric vehicles in Europe over 10 years.
These agreements will allow the two automotive industry giants to take advantage of one another’s strengths: Ford is ahead of Volkswagen in autonomous driving, while Volkswagen has the edge over Ford in electric cars.