Ford, Volkswagen to absorb autonomous vehicle partner Argo AI

Ford Motor Co. and Volkswagen AG will absorb their autonomous vehicle partner, Argo AI, in a move that demonstrates the difficulties of success in the self-driving space, experts say.

The move — driven in part by Argo's inability to attract new investors — will shut down the Pennsylvania-based startup founded by two Michigan natives that launched publicly in 2017 with a $1 billion investment from Ford. It was a time of buzz for the infant self-driving industry that since has faced consolidation, technology challenges, government regulations and ethical concerns on the road to commercialization. Ford and VW say they will offer jobs to many Argo engineers as they shift their focus to internal technology efforts.

"In coordination with our shareholders, the decision has been made that Argo AI will not continue on its mission as a company," Argo spokeswoman Catherine Johnsmeyer said in a statement. "Many of the employees will receive an opportunity to continue work on automated driving technology with either Ford or Volkswagen, while employment for others will unfortunately come to an end."

Details on what will happen to the technology weren't immediately provided. It also was unclear how many employees would receive job offers. In July, Argo had more than 2,000 employees. TechCrunch first reported the news on Wednesday.

“We are incredibly grateful for the dedication of the Argo AI team, and so proud of our achievements together," Argo CEO Bryan Salesky and President Peter Rander said in a statement. "The team consistently delivered above and beyond, and we expect to see success for everyone in whatever comes next, including the opportunities presented by Ford and VW to continue their work on automated driving technology.”

The move is a setback for the AV industry, according to analysts, though Ford and VW could benefit from having an AV division within their walls. The companies have invested another $2.6 billion since Argo's launch, and they could build off its core technology for more use cases that fit their priorities like Ford's efforts around commercial vehicles.

"It’s a cautionary tale for the complexity and competition in the autonomous space," said Dan Ives, an analyst at investment firm Wedbush Securities Inc. "This was a great idea when it launched in 2017, but it had a lot of execution issues, faced significant hurdles, and it’s been overshadowed by Cruise, Waymo and others that have become the behemoths in this space."

Taking a $2.7 billion pretax impairment on its investment in Argo that resulted in a net loss in the third quarter, Ford said it's shifting its capital spending from Argo's Level 4 fully self-driving advanced driver assistance systems with human observation to the hands-free driving technology Level 2+ and Level 3 technologies, which it's developing in-house. Ford said Argo was unable to attract new investors. Originally, the plan was to bring the Level 4 technology to market by 2021.

"But things have changed, and there's a huge opportunity right now for Ford to give time — the most valuable commodity in modern life — back to millions of customers while they’re in their vehicles,” Ford CEO Jim Farley said in a statement. “It’s mission-critical for Ford to develop great and differentiated L2+ and L3 applications that at the same time make transportation even safer.

"We’re optimistic about a future for L4 ADAS, but profitable, fully autonomous vehicles at scale are a long way off and we won’t necessarily have to create that technology ourselves."

Volkswagen likewise confirmed it no longer is investing in Argo, though other partnerships with Ford remain unchanged. The company says it is refocusing on other automated driving efforts, including offering robotaxi electric ID. Buzz vehicles in Hamburg in 2025.

Ives said the automaker's efforts aren't too late. The AV race is a long journey, and much of the technology won't start producing revenue until the latter part of the decade.

Argo isn’t alone in its challenges. Competitor Aurora Innovation Inc.’s shares are down 75% year-to-date, and last month, CEO Chris Urmson weighed a sale to the likes of Apple Inc. and Microsoft Corp., spinouts and layoffs in a leaked memo to the company’s board. GM in March bought out Softbank Vision Fund’s $2.1 billion stake in Cruise. Google parent Alphabet Inc.’s Waymo LLC has held external funding rounds.

Even Wednesday’s initial public offering of Mobileye Global Inc., an advanced driver-assistance systems company formerly a part of Intel Corp., resulted in a $16.7 billion valuation much lower than initially anticipated last year. And the U.S. Justice Department has opened a criminal investigation into Tesla Inc.'s self-driving Autopilot technology, Reuters reported on Wednesday, citing anonymous sources.

There had been plans to have Argo make an initial public offering this year, said Sam Abuelsamid, principal e-mobility analyst at market research firm Guidehouse Inc.

“When the markets tanked this year, that became an impossibility,” he said. “They knew they were going to have to raise more capital. Ford and Volkswagen as the two primary shareholders looked at what was going to be needed going forward, he challenges facing them and investments they have to be making in electrification and current supply chain problems. They decided putting more money into Argo at this point was not a wise move, because there’d be no return on that investment for many, many years.”

“The whole rollout of this technology is clearly a lot slower, a lot longer, a lot tougher,” Abuelsamid said. “There will be a few companies that will stick it out.”

Argo, though, had appeared to be making progress. It has tested self-driving Ford Fusions and Escape Hybrids on public roads in several U.S. cities, including Detroit, and ID Buzz vehicles in Germany. It also had launched pilot programs with companies like ride-hailing app Lyft Inc. and Walmart Inc. Last month, it announced several software products around AV technology to support commercial delivery and robotaxi operations.

The company, however, did cut 150 jobs in July after it said it had grown too quickly.

"It was an arms race, a race against the clock," Ives said. "It hit one of those inflection points where you'd have to commit more capital. They needed to execute and commercialize. In that period, they weren't able to. Ultimately, the clock struck midnight."

Adding to that, economic conditions have soured as interest rates have increased, and the dollar has weakened because of inflation.

"It shows in this broader climate with raising capital becoming incrementally more difficult," Ives said, "companies are under more pressure. This was a fork-in-the-road time."

bnoble@detroitnews.com

Twitter: @BreanaCNoble