Southfield, Michigan

Ford Motor Co. and Volkswagen AG are progressing toward a potential agreement to join forces on self-driving cars and have overcome earlier obstacles, according to people familiar with the talks.

Breakthroughs in the deliberations include a possible framework for Volkswagen to work with and invest in Argo AI, the Ford-backed autonomous-vehicle start-up, said the people, who asked not to be identified because the talks were private. The automakers discussed an approximate valuation for the company of $4 billion, one of the people said.

Volkswagen continues to be in constructive talks with Ford, a spokesman for the German giant said by phone, declining to elaborate. A spokeswoman for Ford said discussions are ongoing and have been productive across a number of areas.

A partnership on autonomous technology would build on the deal sealed in January to jointly produce commercial vehicles. The companies found common ground on Thursday on a structure to jointly bring self-driving cars to market, the people said. Volkswagen, the world’s largest automaker, and Ford would create a global colossus in the self-driving space to take on the likes of Alphabet Inc.’s Waymo and General Motors Co.’s GM Cruise unit.

“The opportunity here is substantial,” said Michelle Krebs, senior analyst for researcher Autotrader. “You get economies of scale, and VW has an immense global footprint and vast breadth of products.”

Few ‘Winners’

An agreement could be finalised in a matter of months, though there’s still much left to be worked out and talks could still falter, the people said after a meeting at Ford’s headquarters in Dearborn, Michigan. If the companies can pull it off, the arrangement has the potential to jump-start efforts to compete in a mobility services market Ford Chief Executive Officer Jim Hackett has estimated will one day be worth $10 trillion.

“There’s not going to be 10 winners in this space when we look back,” Hackett told analysts last year. “There’s going to be a few, and we plan on being one of them.”

Ford announced plans in February 2017 to invest $1 billion in Argo over five years and hasn’t openly discussed how much the company may be worth.

The framework Volkswagen and Ford are discussing would be to create an entity similar to a joint venture, with each partner having equal ownership of the self-driving software, the people said. Volkswagen CEO Herbert Diess said in January his company is “committed” to owning the software stack that will control self-driving cars, and the arrangement with Ford would address this, the people said.

Argo’s credentials

Argo AI was formed in 2016 by Bryan Salesky, an early leader in Google’s self-driving programme, and Pete Rander, who helped pioneer Uber Technologies Inc.’s autonomous efforts. The company’s technology drew positive reviews in November when analysts and media rode along in its test cars at an event in Miami.

Where Argo has lagged is in winning the outside investment GM has drawn with Cruise. Japan’s SoftBank Vision Fund and Honda Motor Co. last year committed to invest a combined $5 billion in Cruise. The deal with Honda valued the company at $14.6 billion.

GM disclosed this month that it may eventually spin off Cruise. In January, the carmaker put it’s No. 2 executive, Dan Ammann, in charge of the unit.

EV Talks

Volkswagen’s potential investment in Argo will be measured in more than just dollars, the people said. The German automaker is also bringing its highly regarded electric-vehicle technology to the discussions. And while Ford has its own battery-powered platform that will debut this year in a sporty SUV with a 300-mile range, the US automaker could gain global reach in markets including Europe and China by tapping into Volkswagen’s system, the people said.

Volkswagen also may contribute its own autonomous technology, known as the Autonomous Intelligent Driving unit, the people said.

“The fact is, nobody can go it alone,” Autotrader’s Krebs said. “These are very expensive ventures with tremendous technological challenges. And the business challenge is just as difficult.”