• by Thom Forbes  @tforbes, July 12, 2019

Ford and Volkswagen are holding a press conference in New York this morning that will provide the details of their expansion into applied artificial intelligence of an alliance they formed in January to jointly develop commercial vans and midsize pickups. Featuring Ford CEO Jim Hackett and VW CEO Herbert Diess, it will be live-streamed starting at 8 a.m.

“Volkswagen AG has agreed to invest around $2.6 billion in Ford MotorCo.’s autonomous-vehicle partner, Argo AI, in a deal that values the startup at $7 billion, according to people familiar with the matter. Ford has been the majority shareholder of Pittsburgh-based Argo since early 2017, when it agreed to invest $1 billion,” writes  Mike Colias for The Wall Street Journal.

“Under the agreement … Argo would develop autonomous-driving technology for VW and eventually supply systems for commercial use, while continuing its development work with Ford, the people said. The $2.6 billion investment in Argo includes $1 billion in capital funding as well as the value of VW’s 200-person autonomous-driving division in Munich, which the companies placed at $1.6 billion,” Colias adds.

“The deal could create one of the largest and most robust alliances on electric and autonomous vehicles seen yet from major automakers; Ford and Volkswagen sold roughly a combined 17 million vehicles globally last year, roughly 21% of the market,” wrote Ian Thibodeau for The Detroit News while reporting about rumors of the pending agreement on Wednesday.

“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,” observe  Bloomberg’s Christoph Rauwald and Keith Naughton.

“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 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,” they continue.

“It’s a big, well-financed effort that puts them easily on the same footing as a Waymo or a GM. By combining forces, both companies bring a significant amount to the table. This is a long-term strategic play,” Gartner analyst Mike Ramsey tells Rauwald and Naughton.

“Ford is also expected to license VW Group's MEB platform for battery-powered cars. VW has developed the platform for mass-market long range EVs for Europe, China and the U.S. It will underpin VW brand's ID electric car family and EVs for Audi, Skoda and Seat,” report  Edward Taylor and Jan Schwartz for Automotive News Europe.

“Ford is developing a family of electric vehicles aimed at European markets and would leverage access to the MEB architecture to help comply with stricter European CO2 emissions reduction rules. Analysts at Citi said Ford licensing VW's MEB platform would be a ‘transformational’ step. Ford may make ‘cost-plus' payments to VW on the order of 400 million euros ($450 million) in 2020 alone, Angus Tweedie, a Citigroup analyst, estimated,” they add.

“Both companies get scale, both get savings,” Navigant Research analyst Sam Abuelsamid tells The Detroit News’ Thibodeau, adding that the partnership indicated VW saw progress in Argo that it likely didn't see in other companies. 

“If you can start to combine some of that cost and share some of that technology, you can get more volume out of fewer platforms. You have the potential to save an enormous amount of money in development costs,” Abuelsamid reasoned.

“The race to come up with self-driving vehicles has been joined by dozens of global automakers, as well as tech companies like Waymo and China’s Pony.ai. A study released by AlixPartners last month estimated the industry’s annual spending on autonomous driving and electric vehicles will reach a combined $85 billion and $225 billion, respectively, by 2025,” writes  CNBC’s Paul A. Eisenstein.

“That is something that will strain corporate budgets, drive down profits and lead to even more joint ventures like the one Ford and VW are announcing, said Mark Wakefield, the head of the consulting firm’s auto practice,” he adds.

It could also lead to “consolidation happening in the next couple of years,” James Peng, the co-founder and CEO of Pony.ai told CNBC Wednesday, a natural process in a vibrant, young industry that he characterizes as “healthy.”

But, as we were reminded this week when the last VW Beetle rolled off an assembly line in Mexico, young and healthy seems to get old way too fast.