Transforming carmakers

VW, Ford mull wide-ranging partnership in e-mobility, autonomous driving

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There's room for a Ford in here. Source: Reuters

The Volkswagen Group and Ford Motor are discussing a wide-ranging partnership that stands to change the German industry. The world’s biggest and fifth-biggest automakers want to join forces to move into electric vehicles and autonomous driving.

The plans go well beyond the cooperation on light commercial vehicles that the carmakers discussed in June, Handelsblatt learned. 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.

The carmakers’ goal is to pool their resources for the massive investments needed in this new era of the automobile. In doing so, they may stand a chance of catching up with new rivals like Apple, Google parent Alphabet, and Tesla, which are all well-advanced in new technologies.

Catching up to do

In the US, Alphabet unit Waymo has already topped 16 million kilometers (9.9 million miles) with its self-driving vehicles. This is an enormous head start on the two legacy automakers, which have to log similar distances to receive regulatory approval.

VW’s supervisory board will consider specific steps to cement the partnership at its November 16 meeting, where it will consider management’s 10-year investment plan. This is the first time the German carmaker will look a decade ahead, rather than five years, because of the long-range planning needed for this transition.

Previously, VW estimated it would spend €34 billion ($38.7 billion) on new technologies through 2022; such daunting amounts spurred consideration of partnering, insiders said. Together, they could save a buck or two.

Friends with geographic diversification

The two carmakers don’t want to waste any time. One consideration is for VW’s Moia subsidiary to take a 50 percent stake in Ford’s Autonomous Vehicles LLC, the unit focused on self-driving technology. VW, for its part, could share its modular electrical vehicle platform with Ford. VW wants to bundle all autonomous driving activities in Moia, which will transfer its headquarters from Berlin to Hanover, Germany.

Aside from pooling resources, the transatlantic partnership provides the geographic diversification both companies need. US authorities are more willing to allow tests of self-driving vehicles on public roads.

Plus, both companies hope business will benefit from the deal. Ford’s Europe sales are troublesome and it is far from reaching the 6 percent return on sales industry experts consider the minimum for survival. And VW remains a niche producer in the United States. Ford also needs help meeting strict new environmental targets in the EU from 2021 and can use VW’s e-vehicle platform to improve its emission averages with electric models.

VW will buy Ford’s combustion engines

The partnership will embrace combustion technology as well, with VW drawing on Ford’s expertise with its ubiquitous pickup trucks. VW will also buy Ford’s efficient engines, enabling the German carmaker to massively reduce its investment in this legacy technology.

After all, VW is trying to leave the Dieselgate catastrophe behind and marshal its considerable resources to face the future. Company sources said that while planning is intense and stressful, once everyone agreed on what has to be done, things are surprisingly calm.

For the new CEO, Herbert Diess, the issue is existential. “From today’s point of view,” he recently told the group’s internal suppliers, “the chances stand at maybe 50-50 that the German automobile industry will still be a world leader in 10 years.”

Martin Murphy and Stefan Menzel cover the auto industry for Handelsblatt. Darrell Delamaide, a Washington, DC-based editor for Handelsblatt Global, adapted this story into English. To contact the authors: murphy@handelsblatt.com and menzel@handelsblatt.com

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