Picture: REUTERS
Picture: REUTERS

Frankfurt/Southfield — Volkswagen (VW) will invest in Ford’s autonomous-car partner Argo AI at a valuation of about $7bn, as two of the world’s largest carmakers expand an alliance formed earlier in 2019, according to people familiar with the matter.

In addition to backing the Ford affiliate, VW will fold its Audi division’s autonomous intelligent driving unit into Argo, said the people, who asked not to be identified ahead of an official announcement. VW and Ford’s CEO have scheduled a briefing for 8am Friday in New York.

Representatives for VW, Ford and Argo declined to comment. VW and Ford also are expected to announce they’ll co-operate 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 carmaker, 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’s Waymo, and General Motors’ Cruise unit and partners Daimler and Robert Bosch. 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. “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 $4bn, a person familiar with the deliberations 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’ autonomous efforts, with $1bn in backing from Ford.

While Ford and VW will gain autonomous-technology firepower, Argo still lags behind Waymo, Cruise and the Daimler-Bosch co-operation. GM Cruise has drawn investments from SoftBank Vision Fund, Honda and T Rowe Price Associates, with the latest infusion valuing Cruise at $19bn.

Teaming up with its US peer is one of the key initiatives of VW CEO 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 in June.

Aurora is led by the former heads of Google’s self-driving car project and Tesla’s Autopilot team, and has raised money from the likes of Amazon.com and Sequoia Capital.

“Volkswagen’s profitability should be supported by the licensing agreement of its electric-vehicle platform to Ford, supporting our view that the German auto manufacturer’s credit metrics may hold up stronger than peers over the coming quarters," Bloomberg credit analyst Joel Levington says.

"A potential investment by Volkswagen in Ford’s autonomous-car partner, Argo AI, may be favourable for both companies given reduced investment needs.”

For Ford, a deal with VW fits with CEO Jim Hackett’s $11bn 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.

Ford is expected to use 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 about €30bn on the industry’s most aggressive roll-out 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.