Ford Motor (F) - Get Report and Volkswagen (VLKAF) on Friday formally announced their global collaboration on self-driving and electric cars in the U.S. and Europe, signaling a new era in the automotive world that focuses on technology and innovation -- and staying competitive.
At a press briefing in New York's Financial District on Friday, the two auto giants confirmed their new joint venture, which will see Volkswagen inject $2.6 billion in capital and infrastructure into Ford's self-driving unit, Pittsburgh-based Argo (AI) - Get Report .
The alliance, which does not entail cross-ownership between the two companies, will be governed by a joint committee led by Ford CEO Jim Hackett and Volkswagen CEO Herbert Diess.
"This is quite a significant coup for Ford, as it attracts another major vehicle manufacturer to its Argo AI investment, giving it a very high valuation, as well as helping Argo AI move into the European market -- all without Ford having to put up much additional cash at a time when it is not cash rich," said Norman Levine, Managing Director and Portfolio Manager with Toronto-based Portfolio Management Corp., which oversees more than $700 million in assets for high-net-worth and institutional clients.
The agreement enables both automakers to independently integrate Argo AI's self-driving system into their lineups of current and to-be-created vehicles. Ford became the majority shareholder of Argo in early 2017 after it invested $1 billion in the startup. Argo AI now has a $7 billion valuation, according to executives.
Both Ford and VW emphasized their strength in the commercial van and pickup segments, indicating the two automakers will be working to create electric and autonomous goods haulers with popular nameplates such as the Ford Transit family and Ranger as well as the Volkswagen Transporter, Caddy and Amarok.
The companies' collective light commercial vehicle volumes from 2018 totaled some 1.2 million units globally, which could represent the industry's highest-volume collaboration as production scales.
The joint venture comes as several of the world's biggest automakers team up to try to stay ahead of the rapidly changing technology landscape in the automotive industry.
Ford created Ford Autonomous Vehicles LLC in 2018, pledging to invest $4 billion until 2023 and seeking outside investors to work on developing autonomous vehicles.
"For Ford, this is a clear sign they are committed to moving more toward BEV (Battery Electric Vehicles) in the future while minimizing their cash outlays by partnering with other global manufacturers," said Levine. "We shouldn't be surprised if there are similar joint-ventures in the future, as it would benefit all manufacturers while limiting their individual risks."
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