Ford and Volkswagen burst the automated car bubble by leaving the start-up Argo

Detroit: Ford Motor Co. and Volkswagen AG are currently rewriting the roadmap for fully autonomous vehicles.

The two automakers’ partnership to jointly own self-driving company Argo AI in July 2019 upended the industry’s other major players.

The revelation on Wednesday that Argo, located in Pittsburgh, will be closing down and some of its staff will be going to Ford and VW highlights the growing reality that autonomous vehicles may not be ready for mass deployment as soon as industry officials had anticipated back in 2019.

“It’s become very clear that profitable, fully autonomous vehicles at scale are still a long way off,” Ford CFO John Lawler said on Wednesday.

As Ford, General Motors Co and other companies began to realize they would need to step up investment over a longer period of time, “it was never clear what the financial returns were going to be” on automated vehicles, Evangelos Simoudis, an investor, author and corporate adviser, told Reuters on Wednesday.

Regarding Ford and Volkswagen’s exit from Argo AI, Simoudis said, “I expect we will see more of those decisions.”

The once-inflated valuations of self-driving firms have collapsed as the timescale for AV deployment lengthens further and after an estimated $100 billion in cumulative investment by international automakers and suppliers.

Including $1 billion in cash and the $1.6 billion value of VW’s European self-driving unit, which was merged into Argo, VW’s original investment in Argo in 2019 was valued at $2.6 billion. Ford sold VW shares of Argo for $500 million in addition.

Previously, Ford invested $1 billion in Argo when it acquired the business in 2017. It wrote off impairment charges of $2.7 billion on Wednesday.

VW flirted with at least two other American self-driving startups before acquiring a share in Argo: Alphabet Inc.’s Waymo and Aurora Innovation.

VW reportedly thought about investing $13.7 billion for a 10% interest in Waymo in 2018, giving the company a $137 billion valuation.

Before then, Wall Street put Waymo’s value between $175 billion and $250 billion. Its most recent PitchBook valuation, $30.75 billion, was made in May 2020.

From a 52-week high of more than $20 billion, Aurora’s market worth, which went public about a year ago, has dropped to $2.5 billion.

VW backed out of a development agreement with Aurora when the Silicon Valley company was valued at $2.5 billion and funded by Hyundai Motor and Amazon.com Inc. at the time VW revealed its initial investment in Argo in July 2019.

Eventually, Hyundai and Aptiv created a joint company for autonomous vehicles named Motional. Self-driving startup Zoox was purchased by Amazon.

According to the investor website PitchBook, Argo’s most recent valuation was $7.25 billion, although that was over two years ago. When the company announced in July that it was changing its business plan, 150 people were let go.

Its closest competitor, Cruise, which is majority owned by General Motors, was valued at $30 billion by PitchBook in January 2021, but its actual valuation is likely to have decreased since key investor SoftBank returned its investment to GM earlier this year. In the meantime, GM loses $2 billion on Cruise annually.

This week, Mobileye Global filed for an IPO, but only at a third of the $50 billion valuation it had originally sought.

The business’s market valuation increased to more than $21 billion on Wednesday, demonstrating the company’s financial stability and repute, particularly in the field of assisted driving systems. Intel Corp. paid $15.3 billion to acquire the company in 2017. Still, Intel owns a large majority.

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