Jan 16, 2019 - Energy & Environment

Even powerful automakers are hedging on self-driving and electric

Seat belt with VW logo on it

Illustration: Aïda Amer/Axios

Ford and Volkswagen said Tuesday they plan to pool their efforts on electric and self-driving cars — proof that even some of the most powerful automakers in the world aren’t sure where the technology is headed.

The big picture: Strategic bets are becoming larger and a lot riskier for the auto industry, which used to worry only about whether next year's model would sell.

Now, traditional sources of revenue are drying up and new players are competing for tomorrow's customers. It’s an awkward transition for most, and companies like Ford and VW must decide how much to expose themselves to a future that is far but certain.

Driving the news: Ford and VW are forming a global alliance to develop commercial vans and medium-sized pickups together while exploring broader cooperation on future battery-powered and autonomous vehicles and services.

  • Their first jointly developed vehicles would arrive by 2022, producing savings that would generate stronger profits starting in 2023.
  • Ford will take the lead on pickup trucks and large delivery vans, while VW will develop small vans for crowded cities.
  • The deal has practical implications near-term, and allows them to hedge their bets on the future.
  • "Both Ford and VW expect an uptick in EVs and AVs, but that's not determined yet. We still have to prove to the world that people will want them," Ford CEO James Hackett told reporters and analysts at the Detroit auto show.

What's happening: Global automakers are investing some $255 billion to bring more than 200 EVs to market by 2022, knowing most will be unprofitable, says global consulting firm AlixPartners.

  • Another $61 billion — just the opening ante, Alix says — is being spent by carmakers and tech giants on future self-driving cars.
  • To share the cost, more companies are collaborating, including Fiat Chrysler-Waymo, GM-Honda, and Toyota-Uber.

Yes, but: Consumers aren’t yet on board. EVs today account for less than 3% of worldwide car sales and most Americans say they're afraid to ride in an AV.

  • An AlixPartners survey found consumers say they are willing to pay $2,300 extra for AV technology — systems that cost about 10 times more than that today.
"No consumer is saying I want a self-driving vehicle. What they want is safe, convenient and affordable mobility. That hasn't changed in 20 years."
— Joe Vitale, global automotive leader, Deloitte

The bottom line: Collaboration may be the best strategy in the face of what AlixPartners warns is a "monumental capital drain."

"We are a big company, with large resources, but in view of what this industry is going to face, partnerships are going to be necessary."
— Herbert Diess, CEO, Volkswagen AG

PS: Everyone should reread the late Fiat Chrysler CEO Sergio Marchionne's 2015 presentation, "Confessions of a Capital Junkie," which warned that the industry could go broke chasing redundant technologies.

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