Weekly Brief: VW’s Driverless Investment Possibly Premature?

What began as whispers of a potential partnership materialized last week into one of the blockbuster deals of the summer.

Volkswagen will invest $2.6Bn into self-driving start-up Argo AI. The deal means the end of VW’s in-house Autonomous Intelligent Driving unit, which will transform into Argo AI’s European division. It also means that VW and Ford have hitched their self-driving futures to the same horse.

Ford invested $1Bn into the start-up back in 2017 and plans to integrate the software into Ford consumer and commercial vehicles in the near future. VW now owns an equal stake in the company and plans to add its tech to its vehicles as well. The two carmakers also plan to team up on trucks and electric vehicles, where the self-driving software is likely to make an appearance.

The deal elevates Argo AI into the upper echelon of start-ups in the autonomous tech space, where the likes of Waymo, General Motors’ Cruise and Aurora vie for supremacy. VW has promised Argo AI $1Bn in cash, an investment that values the start-up at $7Bn. Just as helpful as the cash is the addition of VW’s team of 200 engineers, who will expand Argo AI’s staff by 40%. That’s significant in an industry where the competition for engineers is often the biggest challenge that companies face. Mopping up VW’s autonomous vehicle division, which is valued at $1.6Bn, comes with the added bonus that Argo AI will now have a European headquarters from which it can access the European market. All in all, not a bad week’s work.

The most pressing question for carmakers now is whether it’s worth the investment to become a minority or majority owner of a self-driving start-up (as Ford, VW, GM and others have chosen) or whether it makes more sense to wait on the sidelines until autonomous technology kits start to hit the open market.

Last week Luminar, a leading LiDAR manufacturer, announced that its next generation sensor system will cost carmakers less than $1,000 apiece. That’s staggeringly cheap, considering that LiDAR systems to date have been one of the most expensive components of self-driving cars. They traditionally have gone for up to $75,000 a pop, which has led people like Elon Musk to call them “a fool’s errand”. Trouble is, skipping LiDAR and relying on traditional radar doesn’t work that well, especially in sub-optimal conditions like rain or darkness. Musk would disagree but then his cars keep slamming into big rigs while in Autopilot mode, so you be the judge.

Most people agree that lidar is essential. They also agree that it’s prohibitively expensive. That’s why Luminar’s announcement is such a game changer, especially for consumer cars whose advanced driver assistance systems are limited in LiDAR’s absence. If Luminar’s system can perform as promised at that price point, self-driving tech becomes more feasible for everyday cars, rather than just large fleets of robo-taxis.

In that future, maybe the best strategy for carmakers is to save their money until the likes of Luminar, Waymo and Argo AI figure out how to produce their software and their sensors safely and at affordable prices, and then become paying customers for the best products on the market.

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