Why did Ford and VW decide to stop development of their own AV platform?
Ford and Volkswagen dropped a bomb on the autonomous vehicle (AV) industry on Oct. 27 when they announced they will no longer fund Argo AI. The result is that Argo will shut down its operation. This is potentially the most negative AV industry event since Uber’s AV-based fatality in March 2018.
The shutdown announcement was especially surprising since Argo made several big announcements in September — especially the introduction of its suite of products and services for AVs. It seemed like Argo was finally entering the AV market with a range of products to enhance ride-hailing and goods-delivery operations. A recent EE Times article has more details on Argo’s announcement.
This clearly means that the shutdown was not an Argo decision. The next question is: Why did Ford and VW decide to stop development of their own AV platform? The short answer is that AV investments fell out of their top 10 near-term must dos.
Ford and VW shutdown reasoning
Both Ford and VW provided enough information to understand their decision, and it is all about the changes that have taken place in the auto industry in the last couple of years. This is my understanding of why they will no longer invest in Argo:
Argo, Ford, and VW impact
The three companies are seeing an immediate impact — especially Argo, which will be out of business soon. Argo’s biggest problem is the future of 2,000 employees. The main impact on Ford and VW are financial losses from shutting down Argo.
Argo looked like a long-term success story, with major investments from two major OEMs, which contributed $3.6 billion in investment between 2017 and 2019. Lyft added a small investment in 2021 that gave it a 2.5% share of Argo.
Argo was an early investor in its own LiDAR technology by acquiring Princeton Lightwave. The technology was integrated in Argo AVs with a 400-meter range.
Argo AI is the only AV company to receive independent endorsement for its testing procedures, as measured against the SAE J3018 standard for safe on-road testing. In December 2021, Argo received SAE J3018 certification from TÜV SÜD, a leading certification body for safety in the AV industry.
Argo considered going public in 2021 as Aurora Innovation did. In retrospect, this would have given Argo increased funding options and decreased Ford and VW’s losses. It is easy to see the potential advantages in hindsight. Argo looked for other investors but had no success.
On Sept. 12, Argo introduced a complete line of AV products and services for ride hailing or goods delivery. The product and service suite include Argo Driver, Argo Lidar, Argo Map, Argo Hub, Argo Operations, Argo Fleet, and Argo Autonomy Data & Analytics. This shows Argo was planning to expand its business just a month ago.
Argo has been testing in eight cities: Miami, Austin (Texas), Pittsburgh, Palo Alto (California), Detroit, Washington, Hamburg (Germany), and Munich. It has operations in 12 cities, with 10 in the U.S. and two in Germany.
The AV industry has been hiring a lot of people in 2021 and 2022. Will the impact of Argo’s shutdown slow AV hiring? If so, this will impact the Argo employees looking for a job.
Ford invested $1 billion in Argo in February 2017. At that time, it looked like Ford was copying GM’s similar investment in Cruise in May 2016.
In its Q3 2020 financial report, Ford took an impairment charge of $2.7 billion to cover the costs of closing Argo. This created a net loss of $827 million in Q3 2022. Ford is providing generous benefits to the Argo employees that will not get a job at Ford.
Ford said it still believes AV technology will have a future but is no longer investing in L4 technology. Ford plans to buy future AV technology when it is ready for volume use with commercial revenue.
VW invested $1 billion in Argo in July 2019. VW also contributed its Autonomous Intelligent Driving subsidiary to Argo, which was valued at $1.6 billion.
In its Q3 2020 financial report, VW took an impairment charge of €1.9 billion to cover the costs of closing Argo.
VW said it would be continuing its AV testing with ID.Buzz in Germany, which looks like it focused on ride hailing and fixed-route trips. Cariad, VW’s software group, is now responsible for its AV activities. VW will also continue working with Bosch and Mobileye, as well as announce a new future AV partner.
VW announced a major AV investment in October 2022 with Horizon Robotics for the Chinese market. VW invested €2.4 billion for a 60% share of the new joint venture. Cariad is responsible for its China AV and software activities.
AV industry impact
The Argo closure is a major blow to the viability of the AV industry. How big an impact this will have mostly depends on the future AV funding climate. The counterforce is a potential AI breakthrough that can solve key AV complexity. However, such innovation is impossible to forecast. There are multiple scenarios that will probably overlap in the next decade or so:
The result is that we are at a precarious time for the AV industry. The key question is if the AV industry can weather the emerging financial storm and doubts about the safety of AV technology, testing, and trials.
I believe it can, but I am an optimist. This EE Times article was written a couple of weeks before the Argo shutdown.
Argo’s shutdown was a big surprise — especially since Argo had a “coming-out party” in mid-September by announcing a suite of AV products and services for robotaxis and goods delivery. This means the shutdown was decided by Ford and VW and is primarily determined by emerging clouds in the auto industry. Yes, it was also caused by disappointments from missed deadlines and slow recent progress. And Ford and VW did not believe significant commercial AV opportunities will appear in the next five years or so. Small commercial opportunities are emerging but far below what is needed for operational profit — at least until 2030.
AV industry funding was already heading downhill for most of 2022. Argo’s demise is likely to further impact the funding of AV companies. How severe the AV funding recession will depend on whether additional shutdowns will happen in the next year for other leading AV developers, such as Aurora, Cruise, and Waymo.
If more major AV shutdowns happen, it will not kill the AV industry but would delay development by a decade or more — until innovative AI technologies improve AV safety and resolve key complexity issues.
There are a few AV companies that are likely to continue their AV investments, such as Mobileye and Motional. Mobileye has a strong revenue stream from its ADAS products and Intel backing. Motional is owned by Hyundai and Aptiv and has their backing. Most of the Chinese AV platform companies are also likely to continue their AV investments.
This article was originally published on EE Times.
Egil Juliussen has over 35 years’ experience in the high-tech and automotive industries. Most recently he was director of research at the automotive technology group of IHS Markit. His latest research was focused on autonomous vehicles and mobility-as-a-service. He was co-founder of Telematics Research Group, which was acquired by iSuppli (IHS acquired iSuppli in 2010); before that he co-founded Future Computing and Computer Industry Almanac. Previously, Dr. Juliussen was with Texas Instruments where he was a strategic and product planner for microprocessors and PCs. He is the author of over 700 papers, reports and conference presentations. He received B.S., M.S., and Ph.D. degrees in electrical engineering from Purdue University, and is a member of SAE and IEEE.