Ford and Volkswagen are discussing a “wide-ranging partnership that stands to change the German industry,” German media is reporting.
“The world’s biggest and fifth-biggest automakers want to join forces to move into electric vehicles and autonomous driving,” according to Handelsblatt, the largest business daily in Germany. Volkswagen, headquartered in Wolfsburg, Germany, is the world’s No. 1 automaker.
“The plans go well beyond the cooperation on light commercial vehicles that the car makers discussed in June," the Dusseldorf-based media outlet said. "The extent of the planned cooperation between the erstwhile rivals comes as a surprise to the industry, but reflects the scope of the transition in mobility and the pressure from new players.”
U.S. auto analysts told the Free Press last month that they expect Ford and Volkswagen to reveal big news within 60 days about a strategic alliance designed to save billions of dollars on research and development.
International industry watchers say an announcement could come within two weeks.
“Look, where there’s smoke, there’s fire. And there’s a lot of smoke coming out of Volkswagen and Ford right now,” said John McElroy, longtime industry analyst and host of Autoline.tv. “Clearly, something is afoot. No question, Ford and Volkswagen keep getting closer to making a major announcement. Things are leaking out. It’s coming.”
In recent days, Ford CEO Jim Hackett and Volkswagen CEO Herbert Diess both referred to ongoing talks and potential collaboration during third-quarter earnings calls. Each revealed no detail. Both companies have predicted a decision by Dec. 31.
Mark Clothier, a spokesman for Volkswagen, declined to comment.
Sources say the German automaker wants to “work in previously unimaginable measure with the U.S. manufacturer Ford,” according to Handselsblatt.
The top priorities: Electric cars and driverless technology.
'Well advanced' talks
“The companies want to bundle their forces in the important future fields of autonomous driving and electromobility,” German news reports said. “The aim of the cooperation is to significantly reduce the costs for the development of these future technologies: At Volkswagen alone, investments in this area would add up to around 34 billion euros (or $38.8 billion)" through 2022.
The talks are "well advanced" and could be finalized in a Nov. 16 VW board meeting.
"At the meeting, VW boss Herbert Diess wants to present (the board) his investment plans for the next 10 years — and this is all about the development of electric motors and self-propelled and networked cars,” Handselsblatt said.
An announcement with Ford may follow immediately.
"Too early to speculate on any details," Jennifer Flake, Ford spokeswoman, told the Free Press on Thursday, "Our MOU (memorandum of understanding) with VW covers conversations about potential collaborations across a number of areas. It is premature to share additional details at this time."
Meanwhile, Ford is hosting a media event in Miami on Nov. 14 to spotlight a “a self-driving journey to experience the ecosystem of capabilities we’re building in support of our autonomous vehicle business.”
Hackett has urged the investor community to pay attention upcoming activity.
Industry analysts in North America are trying to piece together the clues.
“It appears that discussions between Volkswagen and Ford are in very advanced stages regarding working jointly in the area of electric vehicles and autonomous vehicles,” said Jon Gabrielsen, an independent market economist who advises automakers and suppliers. "These are extremely critical, ‘must have' technologies that are extremely difficult and time-consuming to develop, and reduce the cost of to the competitive levels necessary to be successful in the marketplace. Hence, sharing their efforts and their technologies should shorten development time, spread risk, and increase joint scale."
He added: “The prospect of Volkswagen and Ford partnering on electric vehicles and autonomous vehicles has the potential to be truly game-changing for both of them as it enables them to pool the best minds of each company around these exciting future growth products.”
Frank Witter, chief financial officer at Volkswagen, said this week in a conference call with journalists that the company was open to deeper alliances, particularly related to driverless technology.
Narrowing the lead
Asked specifically whether partnership would include allowing Ford to build cars on Volkswagen’s electric vehicle architecture, the CFO "did not rule out such an idea,” Automotive News Europe reported Oct. 31. “Whether we might provide access to other brands outside of the VW Group is theoretically possible, but there is no decision.”
Witter said, “It’s no secret that this is very expensive to develop and that there is the one or the other that is far ahead, such as Waymo in the U.S., so we are naturally thinking about how we can narrow the lead.”
Waymo, Google's robot car unit, is regarded as a leader in the race to put autonomous ride-sharing on the road.
General Motors and its Cruise subsidiary are seen as close to Waymo, and have won investments in recent weeks from Japan's SoftBank and Honda, which will partner on development. GM and Cruise say they will have a self-driving ride-sharing service operating by the end of next year, likely in San Francisco, where Cruise is based and where it has been engaged in intensive testing.
Ford and VW announced in June 2018 that they had signed an agreement to confidentially explore several joint projects, including (but not limited to) development of a range of commercial vehicles. Both companies said they want to strengthen global competitiveness.
VW is strong in Asia, South America and Europe, and lacks vehicles in the high-profit full-size pickup category. Ford dominates the U.S. with its lucrative F-Series pickups and SUVs.
“Partnerships on electric vehicles and advanced technologies, like the one being discussed by Ford and Volkswagen, make sense,” said Michelle Krebs, executive analyst at Autotrader. “These efforts are extremely expensive with no clear timing on return on investment. Sharing cost and boosting economies of scale makes sense. We will see many more of these partnerships between car companies as well as technology companies.”
Buzzing within both companies tends to swirl after quarterly earnings are released.
In August, the Volkswagen CEO said an alliance with Ford had “very promising potential. Diess said the company projected an annual cost savings of up to $466.88 million (or 400 million euros).
What makes sense
“I believe Ford has had success in working with other companies when the effort is focused on technology or components,” said Jeoff Burris, founder of Plymouth-based Advanced Purchasing Dynamics, a supply chain consultant to auto suppliers primarily in North America. He worked for Ford in 1984-97 and most recently oversaw global responsibilities for purchasing brakes, steering and suspension.
“If VW and Ford are going to work together on technology and then each apply the technology to their own vehicles it makes sense," Burris said. "Development cost is spread over more vehicles. They each get to decide how to apply it to their vehicles,” he said. “If they are talking about developing Ford and VW vehicles from the same platform, I get concerned. There are certain things that make a Ford a Ford and a VW a VW.”
Collaboration appears to be a strong element of Ford’s strategy moving ahead, as it announced in October a strategic partnership with Indian automotive group Mahindra to develop and share technology.
Ford officials note that the Dearborn-based automaker has separated its driverless vehicle operations into the newly formed Ford Autonomous Vehicles LLC, which seeks investors, much the way General Motors did with Cruise. Ford has said it would invest $4 billion through 2023 in the limited liability company, including the $1 billion it previously earmarked for Argo AI, the Pittsburgh-based startup that Ford acquired in 2017.
