Volkswagen and Ford announce the next step in their joint effort to develop the next generation of vehicles in the face of huge disruption to their business.
Volkswagen CEO Herbert Diess and Ford CEO Jim Hackett updated the alliance they first announced a year ago. Volkswagen will take a 50-percent stake in Ford’s hi-tech unit developing self-driving and electric vehicles, as the two companies join forces in the new technology. Ford and VW are already developing new vans and trucks.
So far the joint efforts have been modest. In January, they said they would develop commercial vans and medium-sized pickups beginning as early as 2022. They also said they were investigating how to develop the next generation of vehicles, such as electric and self-driving cars.
All of the world’s major automakers are racing to develop electric and self-driving cars. Traditional automakers are worried they could be left behind by changes in the market being brought about by both tougher environmental regulations in Europe and elsewhere, as well as new players such as Uber and Tesla and potentially deep-pocketed tech companies such as Google parent Alphabet and Amazon.
The alliance is part of a larger trend in the industry of automakers partnering to develop next gen vehicles.
German carmakers BMW and Daimler have formed a joint venture that will develop driverless technology. Honda has invested in General Motors’ self-driving car unit.
Fiat Chrysler and Renault, which is already a part of an alliance with Nissan and Mitsubishi, recently held unsuccessful merger talks motivated by a desire to share costs.
“You can’t do this alone,” said Hackett at a joint appearance with Diess in January. “All these efforts will be enhanced by sharing brainpower.”
Both Ford and Volkswagen have announced ambitious plans of their own beyond the growing alliance.
Ford has said it anticipates spending $11 billion restructuring its business in the coming years. It so far has entailed shutting money losing operations around the globe. Volkswagen has said previously that it will spend ¬44 billion ($50 billion) by 2023 on an “electric offensive” to develop electric cars, self-driving vehicles and other new technology.
Though Ford is a major player in the US market, second only to General Motors in terms of sales, it has struggled to battle Volkswagen’s dominance in Europe. Meanwhile Volkswagen has struggled with the US market, trailing not only domestic companies but also Asian automakers in market share.
There are limits to how close an alliance the two automakers can form. A formal merger was always unlikely, if not impossible, because of the unique nature of each company’s ownership structures — Ford effectively remains in the hands of founder Henry Ford’s descendants, while Volkswagen has about 20% of its shares owned by the German state of Lower Saxony, where it is based.
Both companies need to play catch up because they trail some competitors in the industry in the development of electric cars.