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February 15, 2019 11:30 AM, EST

VW, Ford Discuss Alliance on Self-Driving Cars

Ford Daniel Acker.Bloomberg News

Ford Motor Co. and Volkswagen AG are progressing toward an agreement to join forces on self-driving cars and have overcome earlier obstacles, according to people familiar with the talks.

Breakthroughs in the deliberations Feb. 14 include a possible framework for Volkswagen to work with and invest in Argo AI, the Ford-backed autonomous-vehicle startup, said the people, who asked not to be identified because the talks were private. The automakers discussed an approximate valuation for the company of $4 billion, one of the people said.

Volkswagen continues to be in constructive talks with Ford, a spokesman for the German giant said by phone, declining to elaborate. A spokeswoman for Ford said discussions are ongoing and have been productive across a number of areas.

A partnership on autonomous technology would build on the deal sealed in January to jointly produce commercial vehicles. The companies found common ground Feb. 14 on a structure to jointly bring self-driving cars to market, the people said. Volkswagen, the world’s largest automaker, and Ford would create a global colossus in the self-driving space to take on the likes of Alphabet Inc.’s Waymo and General Motors Co.’s GM Cruise unit.

Ford

Ford CEO Jim Hackett (Jeff Kowalsky/Bloomberg News)

“The opportunity here is substantial,” said Michelle Krebs, senior analyst for researcher Autotrader. “You get economies of scale, and VW has an immense global footprint and vast breadth of products.”

Few ‘Winners’

An agreement could be finalized in a matter of months, though there still is much left to be worked out and talks could still falter, the people said after a meeting at Ford’s headquarters in Dearborn, Mich. If the companies can pull it off, the arrangement has the potential to jump-start efforts to compete in a mobility services market Ford CEO Jim Hackett has estimated will one day be worth $10 trillion.

“There’s not going to be 10 winners in this space when we look back,” Hackett told analysts last year. “There’s going to be a few, and we plan on being one of them.”

Ford announced plans in February 2017 to invest $1 billion in Argo over five years and hasn’t openly discussed how much the company may be worth.

The framework Volkswagen and Ford are discussing would be to create an entity similar to a joint venture, with each partner having equal ownership of the self-driving software, the people said. Volkswagen CEO Herbert Diess said in January his company is “committed” to owning the software stack that will control self-driving cars, and the arrangement with Ford would address this, the sources said.

Ford

A fully autonomous Ford Fusion Hybrid research vehicle on streets of Dearborn, Mich. (Bloomberg News)

EV Talks

Volkswagen’s potential investment in Argo will be measured in more than just dollars, the sources said. The German automaker also is bringing its highly regarded electric-vehicle technology to the discussions. And while Ford has its own battery-powered platform that will debut this year in a sporty SUV with a 300-mile range, the U.S. automaker could gain global reach in markets including Europe and China by tapping into Volkswagen’s system, the sources said.

Volkswagen also may contribute its own autonomous technology, known as the Autonomous Intelligent Driving unit, according to the sources.

“The fact is, nobody can go it alone,” Autotrader’s Krebs said. “These are very expensive ventures with tremendous technological challenges. And the business challenge is just as difficult.”