The hype around full-on autonomous driving has retreated about as fast as my hairline, though at least my hairline was something real that many people could enjoy. The latest victim is the Ford-and-Volkswagen-backed Argo AI, which was once of the most promising autonomous startups. It’s reportedly going to be broken up for parts and absorbed into the two parent companies as Ford reports a big loss on that investment.
As she often does, Kristen Korosec at TechCrunch has the details. It sounds like employees are getting a healthy severance, but the timing of this is extremely curious. This comes while GM-backed Cruise is trying to expand into other cities, though Tesla is reportedly under investigation for self-driving claims.
As TechCrunch notes:
Argo seemed to be gaining ground in the past year. The company’s self-driving Ford Fusion vehicles, and now Ford Escape Hybrids, were frequently seen testing on public roads in Austin, Detroit, Miami, Palo Alto and Pittsburgh, where it is headquartered. In the EU, Argo was using the all-electric Volkswagen ID. Buzz for its testing programs in Hamburg and Munich. Argo also has several pilot programs underway in Austin, Miami and Pittsburgh with Lyft, Walmart and 412 Food Rescue.
Just last month the company revealed an ecosystem of products and services designed to support commercial delivery and robotaxi operations. The products — a list that includes fleet management software, data analytics, high-definition mapping and cloud-based communication tools — stretches far beyond the self-driving system that allows a vehicle to navigate city streets without a human driver behind the wheel. Argo appeared to be telling the world it was open for business.
The answer for why it’s getting tossed aside appears to be Ford, Ford, Ford. Per a Ford press release:
“We’re asking ‘What’s best for customers?’ in everything we do,” said President and CEO Jim Farley. “Winning for customers is driving a re-founding of the company through Ford+, with high ambitions for quality, innovation, profitability and growth across all our businesses – making smart choices about how we deploy capital even as we learn and adapt.”
During the quarter, Ford concluded that the auto industry’s large-scale profitable commercialization of Level 4 advanced driver assistance systems will be further out than originally anticipated – but development and customer enthusiasm for benefits of L2+ and L3 ADAS warrant dialing up the company’s nearterm aspirations and commitment in those areas. In the third quarter, Ford made a strategic decision to shift its capital spending from the L4 advanced driver assistance systems being developed by Argo AI to internally developed L2+/L3 technology. Earlier, Argo AI had been unable to attract new investors. Accordingly, Ford recorded a $2.7 billion non-cash, pretax impairment on its investment in Argo AI, resulting in an $827 million net loss for Q3.
Yikes. Emphasis mine. An accounting terms, an “impairment” means that the value of something purchased is now less than it was (or what you said it was). If Ford is saying that they’re taking a $2.7 billion pre-tax impairment that means that they’d invested more than $2.7 billion in Argo AI (they initially put in $1 billion) OR they counted the investment as earnings (maybe when Argo said it was worth $7.5 billion).
Additionally, L3 autonomous driving is currently crap and L2+ autonomous driving isn’t a real thing?
Curious times at Ford.
UPDATE: Went back in their filings to answer the above question:
Ok, fun with math time. Here is Ford’s 2021 10K SEC filing. Here’s what it says:
Argo AI, LLC (“Argo AI”). On June 1, 2020, we completed a transaction with Volkswagen AG (“VW”) that reduced our ownership interest in the autonomous vehicle technology company Argo AI and resulted in Ford and VW holding equal interests that comprised a majority ownership of Argo AI. The transaction involved us selling a portion of our Argo AI equity to VW for $500 million and VW making additional investments in Argo AI, including contributing its Autonomous Intelligent Driving company. As a result of the transaction, we deconsolidated Argo AI, remeasured our retained investment in Argo AI at fair value, and recognized a $3.5 billion gain in Other income/(loss), of which $2.9 billion related to our retained investment in Argo AI. Our retained investment in Argo AI consists of an equity method investment and a preferred equity security investment, reflected on our consolidated balance sheets in Equity in net assets of affiliated companies and Other assets, respectively.
So, Ford said at one point they put in $1 billion. Ford sold some of their holdings for $500 million to Volkswagen, who reportedly put in $2.6 billion. Ford then said it gained $3.5 billion due to their retained investment in Argo. I’m assuming this was when the company was worth $7.5 billion (as determined, I assume, by the VW investment). There’s an unknown variable here because we don’t know if Ford put in more than $1 billion overall, but it sounds like Ford got to ride Argo as a gain and most of that money has evaporated in a quarter.
