Here's how Volkswagen and Ford's partnership will advance their autonomous and electric vehicle efforts

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Ford and Volkswagen (VW) have taken their existing partnership to the next level with two new initiatives that will advance their respective autonomous vehicle (AV) and electric vehicle (EV) efforts.

The two auto giants first struck an alliance in January 2019 with a focus on EVs, AVs, and mobility services. Here's how their latest moves will see VW and Ford lean further on each other's strengths to build up auto segments that will be important for future growth.

Global Autonomous Truck Market Size
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  • VW is investing $2.6 billion in Ford-backed self-driving startup Argo AI. VW's investment comes in two parts, $1 billion in cash and a further $1.6 billion in assets, including the automaker's Munich-based Autonomous Intelligent Driving team. This considerable investment builds on Ford's own $1 billion investment in the startup in February 2017. By investing in Argo, VW will have access to the company's self-driving software which it can use to power its own future AV product. This could help VW speed up its AV development and close the gap on its rivals.
  • Ford will be able to use VW's MEB modular EV platform to build its own vehicle.Ford will become the first major automaker outside VW to use the platform, using it as the base components for at least one EV it will sell in Europe by 2023. Because the MEB is modular, Ford can design multiple vehicles that use the same base, which VW has already fine-tuned. The ability to build cars using VW's tech will help Ford deliver a wider lineup of EVs than it could on its own — as of now, the US automaker has only one EV in the pipeline, set to be released in 2020. Expanding its lineup of EVs to fit consumers' varying needs will help Ford cash in on the growth of the EV market — by 2025, annual passenger EV sales will hit 10 million, up from 2 million in 2018, according to BloombergNEF.

The bigger picture: Companies are increasingly making alliances to develop next-generation AV and EV technologies, as no one company has a deep background in both areas.

Partnering on new technologies such as AVs and EVs enables companies to speed up development times and reduce their individual investments. Together, companies can split the cost of developing a new technology while combining their best assets to bring solutions to market faster.

For example, because the talent pool of engineers and developers who specialize in self-driving and electric technology is limited, partnerships allow the companies to combine their resources for mutual benefit rather than recruiting talent away from each other. 

Partnering on next-generation vehicle technology is a strategy that has been employed by German automakers BMW and Daimler, which announced a partnership earlier this month to develop automated driving technologies. Moreover, earlier this month Mazda, Suzuki, Subaru, Isuzu, and Toyota-owned compact car maker Daihatsu all pledged to invest in Toyota's autonomous driving joint venture with SoftBank. This recent surge in next-gen vehicle technology partnerships will likely drive more automakers to explore collaboration — or else risk being left behind as the industry changes.

VOLVO BUNDLES AV SERVICES: Volvo has made its first commercial autonomous truck deal, in which the Swedish automaker is pursuing a strategy of bundling services to generate revenue from the next-generation technology, according to Reuters. Under the deal, Volvo will provide Norwegian mining firm Broennoey Kalk with seven autonomous trucks, as well as a virtual driver, control tower system, maintenance, repair, and insurance starting later this year.

Volvo's decision to sell its trucks with a bundle of services enables it to derive greater revenue in the potentially lucrative autonomous truck market than if it were to sell its trucks alone, as it can likely charge more for its added services. The global autonomous truck market will grow by more than 50% between 2020 and 2025 to hit nearly $1.7 billion, per Allied Market Research estimates.

Providing supporting services in addition to autonomous trucks solves a logistical headache for clients who would otherwise need to look elsewhere for autonomous vehicle mechanics, supporting technology, and insurance. Volvo's all-in-one solution could serve as a model for other autonomous truck makers looking to lower the barrier for companies to embrace autonomous trucks in their own businesses.

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