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Latest Isuppli News
Nov 15, 2022
AV Industry Progress Hits Bump in the Road with Argo Shutdown Article By : Egil Juliussen Why did Ford and VW decide to stop development of their own AV platform? Ford and Volkswagen dropped a bomb on the autonomous vehicle (AV) industry on Oct. 27 when they announced they will no longer fund Argo AI. The result is that Argo will shut down its operation. This is potentially the most negative AV industry event since Uber’s AV-based fatality in March 2018. The shutdown announcement was especially surprising since Argo made several big announcements in September — especially the introduction of its suite of products and services for AVs. It seemed like Argo was finally entering the AV market with a range of products to enhance ride-hailing and goods-delivery operations. A recent EE Times article has more details on Argo’s announcement. This clearly means that the shutdown was not an Argo decision. The next question is: Why did Ford and VW decide to stop development of their own AV platform? The short answer is that AV investments fell out of their top 10 near-term must dos. Ford and VW shutdown reasoning Both Ford and VW provided enough information to understand their decision, and it is all about the changes that have taken place in the auto industry in the last couple of years. This is my understanding of why they will no longer invest in Argo: The transition to battery electric vehicles (BEVs) is happening much faster than expected — even compared with three years ago. The latest example is that the EU has decided to ban internal-combustion engines in passenger cars starting in 2035. Click here for more information. This requires accelerated EV investments by all auto OEMs. The result is that Ford and VW are robbing the AV R&D bucket. The importance of software-defined vehicles (SDVs) has grown tremendously in the last five years. The OEMs are discovering that the SDV is much harder than expected and more R&D investments and expertise are needed. VW is acutely aware of this fact through its struggles with the ID.3 development. Hopefully, the software skills available in Argo can help Ford and VW with future SDV development. Volume deployment of L4 AVs remain five years or more in the future. Pilot projects and a few commercial deployments are appearing, but revenue potential remains minuscule compared with the cost of testing and required safety advances. Ford and VW plan to reenter the L4 AV market when the technology becomes viable for volume use. Ford’s assessment is that ADAS R&D instead of AV R&D investments will provide better returns in the next five years. The regional New Car Assessment Programs (NCAPs) are requiring more advanced driver-assistance (ADAS) features for receiving favorable ratings. The Euro NCAP is especially aggressive in introducing and requiring new ADAS features. Ford and VW have now decided that they do not need to develop their own AV technology. Instead, they can buy the technology from AV platform developers when the technology is ready. This is a reversal of their earlier strategy when the AV looked like it was just a few years away. It is noticeable that Ford and VW have new CEOs since their Argo investments took place. Both Ford and VW said they still believe AV technology will be very impactful, but much later than earlier projections. Auto unit sales dropped significantly during the Covid pandemic, but the revenue for most OEMs did very well. This was an indirect benefit of chip shortages and how the OEMs responded. The OEMs primarily used their chips in the most expensive models, which increased average price and profitability per vehicle sold. With some chip shortages beginning to ease and likely improve considerably in 2023, the high-profitability dynamics will soon end. For new car customers, this will bring back the good old days of price competition. It is only a question of time until the OEMs are forced to use incentives and related tactics to retain sales momentum. With a potential future recession, the OEMs have further incentives to manage R&D investments. Hence, AV investment became expendable. Argo, Ford, and VW impact The three companies are seeing an immediate impact — especially Argo, which will be out of business soon. Argo’s biggest problem is the future of 2,000 employees. The main impact on Ford and VW are financial losses from shutting down Argo. Argo impact Argo looked like a long-term success story, with major investments from two major OEMs, which contributed $3.6 billion in investment between 2017 and 2019. Lyft added a small investment in 2021 that gave it a 2.5% share of Argo. Argo was an early investor in its own LiDAR technology by acquiring Princeton Lightwave. The technology was integrated in Argo AVs with a 400-meter range. Argo AI is the only AV company to receive independent endorsement for its testing procedures, as measured against the SAE J3018 standard for safe on-road testing. In December 2021, Argo received SAE J3018 certification from TÜV SÜD, a leading certification body for safety in the AV industry. Argo considered going public in 2021 as Aurora Innovation did. In retrospect, this would have given Argo increased funding options and decreased Ford and VW’s losses. It is easy to see the potential advantages in hindsight. Argo looked for other investors but had no success. On Sept. 12, Argo introduced a complete line of AV products and services for ride hailing or goods delivery. The product and service suite include Argo Driver, Argo Lidar, Argo Map, Argo Hub, Argo Operations, Argo Fleet, and Argo Autonomy Data & Analytics. This shows Argo was planning to expand its business just a month ago. Argo has been testing in eight cities: Miami, Austin (Texas), Pittsburgh, Palo Alto (California), Detroit, Washington, Hamburg (Germany), and Munich. It has operations in 12 cities, with 10 in the U.S. and two in Germany. The AV industry has been hiring a lot of people in 2021 and 2022. Will the impact of Argo’s shutdown slow AV hiring? If so, this will impact the Argo employees looking for a job. Ford impact Ford invested $1 billion in Argo in February 2017. At that time, it looked like Ford was copying GM’s similar investment in Cruise in May 2016. In its Q3 2020 financial report, Ford took an impairment charge of $2.7 billion to cover the costs of closing Argo. This created a net loss of $827 million in Q3 2022. Ford is providing generous benefits to the Argo employees that will not get a job at Ford. Ford said it still believes AV technology will have a future but is no longer investing in L4 technology. Ford plans to buy future AV technology when it is ready for volume use with commercial revenue. VW impact VW invested $1 billion in Argo in July 2019. VW also contributed its Autonomous Intelligent Driving subsidiary to Argo, which was valued at $1.6 billion. In its Q3 2020 financial report, VW took an impairment charge of €1.9 billion to cover the costs of closing Argo. VW said it would be continuing its AV testing with ID.Buzz in Germany, which looks like it focused on ride hailing and fixed-route trips. Cariad, VW’s software group, is now responsible for its AV activities. VW will also continue working with Bosch and Mobileye, as well as announce a new future AV partner. VW announced a major AV investment in October 2022 with Horizon Robotics for the Chinese market. VW invested €2.4 billion for a 60% share of the new joint venture. Cariad is responsible for its China AV and software activities. AV industry impact The Argo closure is a major blow to the viability of the AV industry. How big an impact this will have mostly depends on the future AV funding climate. The counterforce is a potential AI breakthrough that can solve key AV complexity. However, such innovation is impossible to forecast. There are multiple scenarios that will probably overlap in the next decade or so: No additional major shutdowns, along with slow expansion of pilots and small commercial deployment in the next two to three years. This will happen in four AV use cases: fixed-flexible–route vans/buses, robotrucks, goods delivery, and robotaxis. Around 2030, these use cases would see significant revenue but may need several more years for profitable operations. Venture-capital “recession” for AV funding. This will result in the demise of many AV startups — even some of the leading AV startups. Some of the AV startups that went public are in a better position, but they still have a limited time until new funding is needed. The length and severity of the economic recession will determine the AV impact. There is no doubt that dozens more AV startups will disappear in the next couple of years. AV development slowdown. All established and startup AV companies become thrifty and slow down their AV investments. They start focusing on cost-effective development, safety testing, and pilots — including shared development with other companies. AI breakthroughs are the best scenario for future AV success. Such innovation is likely to happen but is difficult to predict. It is not likely to happen for a decade or longer. Additional major shutdowns. If Waymo and/or Cruise lose their funding from Google and/or GM, this could spell hibernation of AV development for a decade or more. In this case, AI breakthroughs would be needed to restart major AV investments and development. The result is that we are at a precarious time for the AV industry. The key question is if the AV industry can weather the emerging financial storm and doubts about the safety of AV technology, testing, and trials. I believe it can, but I am an optimist. This EE Times article was written a couple of weeks before the Argo shutdown. Summary Argo’s shutdown was a big surprise — especially since Argo had a “coming-out party” in mid-September by announcing a suite of AV products and services for robotaxis and goods delivery. This means the shutdown was decided by Ford and VW and is primarily determined by emerging clouds in the auto industry. Yes, it was also caused by disappointments from missed deadlines and slow recent progress. And Ford and VW did not believe significant commercial AV opportunities will appear in the next five years or so. Small commercial opportunities are emerging but far below what is needed for operational profit — at least until 2030. AV industry funding was already heading downhill for most of 2022. Argo’s demise is likely to further impact the funding of AV companies. How severe the AV funding recession will depend on whether additional shutdowns will happen in the next year for other leading AV developers, such as Aurora, Cruise, and Waymo. If more major AV shutdowns happen, it will not kill the AV industry but would delay development by a decade or more — until innovative AI technologies improve AV safety and resolve key complexity issues. There are a few AV companies that are likely to continue their AV investments, such as Mobileye and Motional. Mobileye has a strong revenue stream from its ADAS products and Intel backing. Motional is owned by Hyundai and Aptiv and has their backing. Most of the Chinese AV platform companies are also likely to continue their AV investments. This article was originally published on EE Times . Egil Juliussen has over 35 years’ experience in the high-tech and automotive industries. Most recently he was director of research at the automotive technology group of IHS Markit. His latest research was focused on autonomous vehicles and mobility-as-a-service. He was co-founder of Telematics Research Group, which was acquired by iSuppli (IHS acquired iSuppli in 2010); before that he co-founded Future Computing and Computer Industry Almanac. Previously, Dr. Juliussen was with Texas Instruments where he was a strategic and product planner for microprocessors and PCs. He is the author of over 700 papers, reports and conference presentations. He received B.S., M.S., and Ph.D. degrees in electrical engineering from Purdue University, and is a member of SAE and IEEE.
Isuppli Frequently Asked Questions (FAQ)
When was Isuppli founded?
Isuppli was founded in 1999.
Where is Isuppli's headquarters?
Isuppli's headquarters is located at 1700 East Walnut Avenue, El Segundo.
What is Isuppli's latest funding round?
Isuppli's latest funding round is Acquired.
How much did Isuppli raise?
Isuppli raised a total of $41.25M.
Who are the investors of Isuppli?
Investors of Isuppli include IHS Markit, Goldman Sachs, NeoCarta Ventures, Presidio Partners, JCI Ventures and 8 more.
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