Class of 2019 | delgj@wharton.upenn.edu

On Friday, February 10, auto manufacturing giant Ford announced that it plans to invest $1 billion in Argo AI, an artificial intelligence startup to develop a system for its self-driving car set to be released in 2021. Ford is a global automotive and mobility company based in Michigan with over 200,000 employees and 62 plants worldwide. To expand its current business model of designing, manufacturing, marketing and servicing a full line of vehicles, Ford is aggressively investing in electrification, autonomy, and mobility.

Argo AI is an artificial intelligence company based in Pittsburgh focused on tackling self-driving vehicles using computer science, robotics, and artificial intelligence. The technology company was founded by former Google and Uber leaders: Bryan Salesky, CEO of Argo AI, who was the head of hardware at Alphabet’s car division Waymo for the past three years, and Peter Rander, COO, who was one of the top engineers for Uber’s self-driving division but left the company in September.

Ford will roll out $1 billion over a five-year schedule, which is consistent with Ford’s autonomous vehicle capital allocation plan, but will immediately become the majority stakeholder in Argo AI. This makes for one of the largest plays in a series of investments made by traditional auto manufacturers in self-driving technology over the last year. For instance, GM announced in March 2016 that it acquired self-driving startup Cruise Automation for north of $1 billion and invested $500 million to buy a 9-percent stake in ride services firm Lyft, a chief competitor to Uber. Similarly, in 2016, Uber bought autonomous trucking company Otto for $680 billion.

Ford will combine its autonomous vehicle development expertise with Argo AI’s robotics experience and startup momentum on artificial intelligence software to develop a virtual driver system for Ford’s fully autonomous vehicle for commercial application in 2021. In Ford’s press release, Raj Nair, Ford’s executive VP and CTO stated, “Working together with Argo AI gives Ford a distinct competitive advantage at the intersection of the automotive and technology industries. This open collaboration is unlike any other partnership - allowing us to benefit from combining the speed of a startup with Ford’s strengths in scaling technology, systems integration and vehicle design.”

Although the investment makes Ford the majority stakeholder in Argo AI, it is important to note that the deal has been structured such that Argo AI will remain substantial independent from Ford. Ford CEO and president Mark Fields explained that the most important reason Ford did not acquire Argo AI was so that the startup could attract top robotics and engineering talent from competing companies with attractive offers of equity. Sure enough, the startup plans to have more than 200 employees by 2017 and will allow them significant equity participation as well, enabling them to share in their success.

Ford will continue to lead on development of its autonomous vehicle hardware platform as well as systems integration, manufacturing, design, and regulatory policy management. Argo AI’s immediate focus is to support Ford’s self-driving vehicle development and production and create the virtual driver system. However, the startup intends to license is technology in the future to other companies and sectors looking for autonomous capability.

This whole move comes as Ford aims to position itself not only as an auto manufacturer, but also as a provider of mobility services. In other words, Ford placed a billion-dollar bet that people will eventually get around without actually owning cars. By allowing Argo AI to license its technology to competitors, Ford intends to scale the industry as a whole and create value for other companies while not compromising their own competitive advantages. As Mark Fields said, “The next decade will be defined by the automation of the automobile, and autonomous vehicles will have as significant impact on society as Ford’s moving assembly line did 100 years ago.”