Big investments on table in Ford, VW talks
Volkswagen AG is negotiating to invest potentially more than $1 billion in Argo AI, the robotics and technology company majority-owned by Ford Motor Co., as part of partnership discussions between the two automakers.
The investment could boost the value of Pittsburgh-based Argo and Ford, which last year invested $1 billion to acquire a majority stake in the company. The potential investment in Argo is being considered as Ford and Volkswagen continue months-long talks on global partnerships, according to two sources with knowledge of the situation. Volkswagen also is considering a separate investment in Ford's in-house autonomous vehicle business, The Detroit News has previously reported.
The potential deals could result in both Ford and Volkswagen saving massive amounts of money as they invest in self-driving vehicles, aligning two of the world's largest automakers behind one of the biggest bets on the future of the auto industry. The companies could co-develop hardware and software for robotic vehicles, widen global market penetration and save money on software and licensing as a result of the partnership after the vehicles launch in 2021, the year Ford is targeting to put the vehicles on roads.
Volkswagen officials declined to comment on the discussions with Ford, or any potential investment in Argo AI. In a statement, Ford spokeswoman Jennifer Flake said, "Our (Memorandum of Understanding) with VW covers conversations about potential collaborations across a number of areas. It is premature to share additional details at this time."
For example, if a $1 billion investment bought Ford more than half of Argo, and a $1 billion investment by Volkswagen two years later would net a smaller stake in Argo, the value of Ford's initial stake would increase, said Sam Abuelsamid, senior research analyst at Navigant Research, a company that tracks autonomous vehicle development.
"They're certainly spreading the costs across a larger range of vehicles," Abuelsamid said. "It helps Ford from a financial-markets perspective. It helps reduce their need to fund Argo on an ongoing basis. It depends on how much Argo (and Ford) has to give up for that money."
The intensifying talks come as Ford is preparing to showcase its self-driving business model to media, industry analysts and investors this week in Miami. Company executives, including CEO Jim Hackett, are expected to tout progress on the autonomous vehicles it is developing with Argo, and the services Ford to offer using those vehicles.
Discussions about the size and scope of the Volkswagen investment are continuing, and it remains unclear whether Volkswagen's prospective investment in Argo would come from the stakes held by Ford or Argo employees, among others. Argo leadership and employees are also stake holders in the growing company.
Any Volkswagen investment in Argo would be separate from a second possible investment the German automaker is considering for Ford's own self-driving business, Ford Autonomous Vehicles LLC, the sources said.
A Volkswagen investment in Ford Autonomous Vehicles LLC could mean Ford and Volkswagen partner on the development of the autonomous vehicle business Ford is pushing to launch at scale in 2021. An investment in Argo would mean Volkswagen gets a share of the self-driving system Argo has been developing. The possibility of an Argo-Volkswagen deal was first reported by Bloomberg.
Meantime, Ford and Volkswagen also are deep into partnership discussions, the sources said, focusing among other things on globally co-developing light-commercial vehicles. The two automakers and Argo hope to have some part of the autonomous vehicle deals finalized before the end of 2018, the sources said, though no deal is close to being reached.
Ford and Volkswagen began talking about partnering on light-commercial vehicles in June when the companies signed a memorandum of understanding to investigate "several joint projects." Both automakers have stressed repeatedly that any alliance would not include cross-shareholding, or a merger, of the parent companies.
The most recent discussions on self-driving vehicles grew from the partnership discussions for Ford, though Argo and Volkswagen have been discussing the investment since the beginning of 2018. Ford officials have said that collaboration talks between the Ford and Volkswagen are not being limited, and a broad set of discussions about global partnerships is ongoing.
Details remain thin, and the automakers and Argo are examining multiple partnership scenarios regarding autonomous vehicles. But any deal likely would be a critical piece of Hackett's ongoing $11 billion global restructuring aimed at stemming losses in Europe and South America, growing market share in China, boosting profit margins in North America and cutting costs globally to free capital for investments in next-generation technology.
Volkswagen is the best-selling automaker in China, where Ford has struggled to enlarge its foothold. The German automaker, based in Wolfsburg west of Berlin, also has strong presences in South America and Europe, two markets where Ford has struggled in recent years. This year, Ford has lost $479 million in South America, $199 million in Europe and $721 million in the Asia Pacific market.
Volkswagen, meantime, could piggyback on Dearborn-based Ford's market penetration in North America. A tie-up would enable the companies to offer a wider portfolio of vehicles for self-driving technology, to spread costs and to build the economies of scale thought necessary to profitably build battery-electric autonomous vehicles. Ford has spent $479 million on mobility efforts so far this year.
Partnership is proving to be an increasingly popular route to the mobility, autonomy and electrification of Auto 2.0. Google parent Alphabet Inc.'s Waymo self-driving unit is partnering with Fiat Chrysler Automobiles NV to provide minivans to its Waymo self-driving unit. Toyota Motor Corp. is partnering with Uber Technologies Inc. on self-driving cars.
And General Motors Co. and its self-driving arm, GM Cruise LLC, last month inked a deal with Honda Motor Co. to develop and build a “purpose-built” autonomous vehicle, with Honda investing $2.75 billion in Cruise over 12 years.