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Aug 21, 2019,  by Allianz Partners Business Insights

Electric and autonomous cars: Ford and Volkswagen join forces to stay among the leaders in the sector

Ford and Volkswagen are set to join forces to develop their electric and autonomous vehicles. The two manufacturers hope that this will help them to limit the risks and combine investments in a sector that is incredibly costly and where competition is intensifying all the time.

Photo credits: Ford

Automotive manufacturers Ford and Volkswagen announced that they were going to broaden the alliance which they formed in January to encompass the development of driverless and electric cars, considered to be the next golden goose for the automobile industry. The two groups are already working together on the production of vans, utility vehicles and commercial pick-up trucks.

By joining forces, the two manufacturers hope to save billions of dollars, with their alliance meaning that they do not have to invest in areas that the other company has already ploughed money into, and vice versa.

 

Volkswagen to test its driverless vehicles in Europe

 

In the autonomous car sector, Volkswagen (VW) is set to invest a total of 2.6 billion US dollars in Argo AI, the driverless car development subsidiary of its US rival Ford, taking the subsidiary’s. value to over 7 billion US dollars.

They will also be equal shareholders in Argo AI, with Volkswagen committing to buy 500 million US dollars of Ford shares over three years, while the latter will finalise the remaining investments (of 600 million US dollars) that it promised to pour into the start-up. Meanwhile, VW is to commence testing driverless vehicles in Europe.

In the electric sector, the alliance will see Ford using the MEB platform shared by all new electric Volkswagen cars to make its own models. The first Ford to be assembled there will hit the market in Europe from 2023, with the aim being to produce 600,000 vehicles over six years.

 

Economic necessity

 

The strengthening of the alliance between Ford and VW illustrates the transformation that the automotive sector is undergoing as it struggles to deal with falling sales, in particular in the major markets of China, the USA and Europe, and with new electric and driverless technologies.

These technologies require significant investment, and so to limit the risks and remain at the forefront of the industry, in particular in the face of competition from tech giants such as Google who are working with Waymo, the traditional manufacturers are putting their rivalries to one side and forging new alliances.

According to Alix Partners consultancy, 275 billion US dollars of investments have been announced by auto manufacturers over the coming five years, of which USD 225 billion are targeting electric vehicles and the remaining USD 50 billion devoted to driverless vehicles.

 

Culture shocks

 

"Ford and Volkswagen both need to cooperate on driverless vehicles. It’s a type of technology that is going to be very, very costly in the future. You need to invest now and hope to make the first income on it perhaps in 2030," explained Ferdinand Dudenhöffer, head of the Center for Automotive Research (CAR) in Germany. "And it’s not just a question of money, the talent pool for these smart cars is not very deep," Michelle Krebs from AutoTrader added.

Analysts have not however ruled out the possibility of failure due to differences in mentality. "Understanding between two different corporate cultures is crucial," says Dudenhöffer. "Can Wolfsburg (VW headquarters) and Dearborn (Ford headquarters) get along? That is the question."

The partnership between Volkswagen and Suzuki Motors died a death in court in 2015, well before the two had managed to produce a vehicle together, while cooperations between Daimler and Chrysler and Opel and GM also failed.

 

Allianz Partners

Cover photo credits: Volkswagen 

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