Article by | Wu Yihan
Edited by | Wu Xianzhi
Recently, Volkswagen and Ford have decided to withdraw from the jointly invested autonomous driving start-up company Argo AI, leaving Argo AI facing bankruptcy. Established in 2016, Argo AI has been in business for seven years.
Argo AI was founded by Bryan Salesky and Peter Rander, two engineers from Google and Uber, in 2016. Its headquarters are located in Pittsburgh, Pennsylvania.
The company was founded with a core focus on L4 mode, and at the beginning of its inception, it obtained a $1 billion investment from Ford Motor Company with a $10 billion valuation. In 2019, Argo AI received strategic financing of $2.6 billion from Volkswagen (a $1 billion investment and a $1.6 billion investment in its autonomous driving technology subsidiary AID). Both Volkswagen and Ford hold roughly 39% of the shares of Argo AI.
Backed by Ford and Volkswagen, Argo AI was once valued at more than $7 billion. Some industry insiders believe that there is a huge valuation bubble among global autonomous driving start-ups.
This is currently a period of rapid development for autonomous driving technology worldwide. As an advanced new technology, L4 research and development are costly, and commercialization is difficult to achieve. Once the corporate financing is affected, it can lead to the breakdown of the company’s capital chain, and all projects will immediately come to a halt. The exit of Ford and Volkswagen doomed the fate of Argo AI.
The Difficulty of Commercializing L4 Technology Led to Ford’s Decision to Withdraw
On October 26th, Ford announced that the autonomous driving technology development project Argo AI will be shut down and dissolved, with its members and some parts being incorporated into Ford and Volkswagen separately.On October 26th, Ford Motor Company released their Q3 financial report, showing a net loss of 827 million USD. The main reason for the loss was the non-cash pre-tax impairment charge of 2.7 billion USD for Ford’s investment in Argo AI. The company believes that L4 profitability is still far off, and thus announced that Ford will shift their autonomous driving development strategy towards L2+ and L3 technologies.
Ford CEO Jim Farley hopes to challenge Tesla by transforming their company. To achieve this, he plans to invest 50 billion USD in the field of electric vehicles and increase their annual production capacity to 2 million vehicles by the end of 2026. To reach this goal, Jim Farley’s first step is to reduce costs, cutting 3 billion USD of costs. In August of this year, Ford cut 3000 salaried positions, and may plan to continue to reduce staff.
Regarding Argo AI, Farley remarked that when they invested in 2017, the expectation was to successfully bring L4 advanced driving assist systems to the market by 2021. However, Ford’s development strategy has now shifted. The current focus is on developing advanced, differentiated, and safer L2+ and L3 technologies.
As L4 technology requires a long road to achieve large-scale profitability, it will take at least 5 years to see returns, which is far beyond the expected profit time when Ford first invested.
Ford is cutting costs and preparing for transformation, and apparently does not have the energy and patience to spend extra capital on “incubating” a new project. However, Jim Farley remains optimistic about the future of L4, stating that purchasing L4 technology in the future is a possibility without necessarily requiring independent development.
In the market, consumers’ enthusiasm for L2+ and L3 technology has prompted Ford to shift its focus away from L4 technology and toward driving assistance technology, which can bring faster profits. Jim Farley believes that “L2+ and L3 systems have truly provided convenience for customers, and their popularity has increased the possibility of achieving revenue and profits.”
Volkswagen has also decided to stop investing in the L4 project with Argo AI and establish a joint venture with Horizon Robotics, choosing to shift its autonomous driving business to the domestic market. Volkswagen CEO Oliver Blume stated that the core focus of future technology development is speed, and our goal is to achieve technology grounding in the shortest possible time while making our development costs cost-effective.
Apparently, Ford and Volkswagen agree that commercializing L4 technology has exceeded their expectations. The departure of the two giants has caused the survival fortress of Argo AI, the “blood bag” supplier, to collapse. Ford and Volkswagen’s withdrawal from Argo AI and the abandonment of the direct L4 model will have a direct impact on the financing confidence of the industry and the investment in direct L4 technology by some giants.
After all, this is a field that is heavy in research and development, capital, and future returns are completely unknown. It is unlikely that anyone would risk burning money on a project that may or may not be profitable in the future. Therefore, in the current environment, more people will choose investment projects that have visible returns with a stable mentality.# Argo AI: From the Height of the Autonomous Driving Hype to the End of Its Life Cycle
The reasons why Argo AI finds itself in its current predicament go beyond burning through cash and the lack of a profitable future prospect, but also relate to the fading hype around the autonomous driving industry. For example, autonomous driving chip company Mobileye went public on October 26, and while its stocks rose by 38% at the end of the day, reaching a market value of $23.07 billion, this still represented a more than 50% drop compared to its valuation of nearly $50 billion just a year ago. Other related companies have experienced similar drops in their valuations.
Argo AI was born with the wind at its back for autonomous driving, but has now ended its seven-year life cycle due to the deflating hype in this field.
Looking at the current state of the autonomous driving industry, experts say that directly pursuing Level 4 autonomous driving has led to a true winter for this industry. As a result, it’s unclear when Level 4 will be able to make further progress, and the road ahead for this field is shrouded in uncertainty.
A Rough Future for Domestic Autonomous Driving Companies
Argo AI’s changing situation also affects how the market views domestic autonomous driving companies.
Currently, there are many players in this field, such as Baidu Apollo, AutoX, XMOTORS.ai, Quicktron, Mogu Car Alliance, DiDi Autonomous Driving, ZongMu Technology, Momenta, Neousys Innovation, Horizon Robotics, LI Automotive, and Pony.ai.
For companies that are committed to pursuing Level 4 autonomous driving, they may face unprecedented challenges in terms of funding. Especially for companies that rely on capital injections from investors, their valuations may be affected to varying degrees, and in the end, they might even become the next Argo AI.
In fact, some companies have shifted their focus to L2 or L3 strategies. For example, Momenta has collaborated with Bosch’s strategic investment company in the first half of this year to jointly develop mass-produced L2 and L3 level autonomous driving systems, with plans to achieve mass production by 2023. Ford has returned to independent development, and Volkswagen has turned to working with Horizon Robotics, all with the same goal.
And players such as Baidu, Pony.ai, Momenta, and WeRide have also begun to shift their focus from the Robotaxi track to other scenarios, adjusting their development strategies in response to the current situation.
After all, sticking to L4 is difficult, but giving up is a pity.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.