VW to invest in Ford-backed Argo AI at US$7b valuation

Frankfurt

VOLKSWAGEN AG will invest in Ford Motor Co's autonomous-car partner Argo AI at a valuation of US$7 billion as two of the world's largest automakers expand an alliance formed earlier this year, according to people familiar with the matter.

VW will contribute US$2.6 billion, including US$1 billion in cash and its Audi Autonomous Intelligent Driving unit, which will be folded into the Ford affiliate, said the people, who asked not to be identified ahead of an official announcement. VW and Ford's chief executive officers had scheduled a briefing for 8am on Friday in New York.

Representatives for VW, Ford and Argo declined to comment. VW and Ford also are expected to announce they'll cooperate on electric vehicles, after already having agreed to a commercial van and mid-size truck tie-up in January.

Unprecedented shifts facing the auto industry are forcing players to consider new partnerships and potential consolidation. VW, the world's top automaker, offers the industry's most ambitious roll-out of electric models, while Ford, also in the top 10, is developing advanced self-driving technology with Argo.

For VW, the Argo investment is largely a defensive move, helping the German manufacturer to compete with Alphabet Inc's Waymo, and General Motors Co's (GM) Cruise unit and partners Daimler AG and Robert Bosch GmbH. Road tests and accumulating huge amounts of data are critical for the further development of self-driving cars, and few apart from Waymo are equipped to do it alone.

"It's a big, well-financed effort that puts them easily on the same footing as a Waymo or a GM," said Mike Ramsey, an automotive analyst with consultant Gartner Inc. "By combining forces, both companies bring a significant amount to the table. This is a long-term strategic play."

The Argo deal suggests VW has changed its assessment of the start-up's value in the course of just a few months. In February, VW and Ford discussed an approximate valuation of US$4 billion, a source said.

Argo AI was formed in 2016 by Bryan Salesky, an early leader in Google's self-driving programme, and Peter Rander, who helped pioneer Uber Technologies Inc's autonomous efforts, with US$1 billion in backing from Ford.

While Ford and VW will gain autonomous-technology firepower, Argo still lags behind Waymo, Cruise and the Daimler-Bosch cooperation.

GM Cruise has drawn investments from SoftBank Vision Fund, Honda Motor Co and T Rowe Price Associates Inc, with the latest infusion valuing Cruise at US$19 billion.

Teaming up with its US peer is one of the key initiatives of VW chief executive officer Herbert Diess to overhaul the German industrial giant. In January he ruled out equity ties with Ford. The German company cleared the way for a deal with Argo by backing out of a partnership with Silicon Valley startup Aurora Innovation Inc last month.

For Ford, a deal with VW fits with CEO Jim Hackett's US$11 billion overhaul of the company, which includes exiting the slow-selling sedan market in the US, shifting to focus on commercial vehicles in Europe and investing in electric-truck startup Rivian Automotive Inc.

Ford is expected to utilise VW's MEB electric platform for smaller models. Geographically, the companies complement each other, with Ford strong in the US and VW a leader in Europe and China.

Volkswagen is spending some 30 billion euros (S$46 billion) on the industry's most aggressive rollout of electric cars, with dedicated underpinnings and plants that exclusively make battery cars. Adding more vehicles to production lines would help gain scale and save costs, and offer Ford a platform to better comply with tougher rules on carbon-dioxide emissions in Europe. BLOOMBERG