Analysis-Ford, VW Pop The Automated-Vehicle Bubble With Argo AI Exit

The road map to fully self-driving vehicles is being rewritten once again, this time by Ford Motor Co and Volkswagen AG.

When the two automakers joined forces in July 2019 to share control of self-driving startup Argo AI, it shook up the landscape among other key players.

Wednesday's announcement that Pittsburgh-based Argo is being shuttered and some of its employees moving to Ford and VW underscores the growing realization that automated vehicles may be even further away from mass deployment than industry executives predicted back in 2019.

"It's become very clear that profitable, fully autonomous vehicles at scale are still a long way off," Ford CFO John Lawler said on Wednesday.

As Ford, General Motors Co and other companies began to realize they would need to step up investment over a longer period of time, "it was never clear what the financial returns were going to be" on automated vehicles, Evangelos Simoudis, an investor, author and corporate adviser, told Reuters on Wednesday.

Regarding Ford and Volkswagen's exit from Argo AI, Simoudis said, "I expect we will see more of those decisions."

As the AV deployment timeline stretches out even further - after an estimated $100 billion cumulative investment by global automakers and suppliers - once-inflated valuations of self-driving companies have come crashing to earth.

VW's initial investment in Argo in 2019 was valued at $2.6 billion, including $1 billion in cash and the $1.6 billion value of VW's European self-driving unit, which was absorbed into Argo. VW also bought Argo shares from Ford for $500 million.

Ford previously injected $1 billion into Argo when it bought control of the company in 2017. On Wednesday, it wrote down $2.7 billion in impairment charges.

Before it acquired the stake in Argo, VW flirted with at least two other U.S.-based self-driving startups: Alphabet Inc's Waymo and Aurora Innovation.

VW reportedly considered a $13.7 billion investment in 2018 in Waymo for a 10% stake that would have valued Waymo at $137 billion.

The value of Waymo just before then was estimated by Wall Street at $175 billion to $250 billion. Its most recent valuation by PitchBook of $30.75 billion dates to May 2020.

The market cap of Aurora, which went public nearly a year ago, has sunk to $2.5 billion, from a 52-week high of more than $20 billion.

When VW announced its initial investment in Argo in July 2019, it walked away from a development deal with Aurora, when the Silicon Valley firm was valued at $2.5 billion and backed by Hyundai Motor and Amazon.com Inc.

Hyundai eventually formed a self-driving joint venture called Motional with Aptiv. Amazon bought self-driving startup Zoox.

Argo's most recent valuation was $7.25 billion, but that was more than two years ago, according to investor website PitchBook. The company laid off 150 employees in July, when it said it was adjusting its business plan.

The value of its nearest rival, the General Motors majority-owned Cruise, was estimated by PitchBook at $30 billion in January 2021, but its current value likely has dropped since key investor SoftBank sold its stake back to GM earlier this year. GM meanwhile is losing $2 billion a year on Cruise.

Mobileye Global went public this week, but at a third of the $50 billion valuation it was targeting earlier in its IPO.

The company, which was acquired by Intel Corp in 2017 for $15.3 billion, saw its market cap recover to more than $21 billion on Wednesday, reflecting the company's financial strength and reputation, particularly in assisted driving systems. Intel still holds a majority stake.