VW gives startup infusion of cash, talent, potential to grab global AV leadership

When Bryan Salesky was in charge of hardware development for Google's self-driving car project, he quickly grasped not just the value, but the necessity of close collaboration with automakers.

"I certainly gained in my appreciation for why timelines are long on the hardware side, gained in my appreciation for the difficulties on setting up new manufacturing and building parts that are cost-effective," he told Automotive News.

Those lessons were foremost in mind when he co-founded Argo AI in 2016, and now they're paying off.

Argo AI received a $2.6 billion investment from Volkswagen Group last week in a blockbuster deal that gives the Pittsburgh company the potential to scale its self-driving systems on at least two continents across a variety of vehicle platforms and uses.

The company had received a $1 billion commitment from Ford Motor Co. If it wasn't already considered one of the front-runners in the global push to develop autonomous driving technology, it is now.

"For us, this is a huge boost for our team, and it cements us as a self-driving platform that can reach globally," Salesky, Argo's CEO, said. "Two of the largest automakers aligning around our technology is a really big deal."

Waymo, the commercial-minded descendant of Google's self-driving car project, in June announced an agreement to explore the use of its self-driving technology with Renault-Nissan in Japan and France. Honda in October announced a $2.7 billion investment over 10 years in General Motors' Cruise subsidiary.

Now investment from the world's largest automaker provides the potential for Argo to scale at a global level.

"The fact that Volkswagen has been at it long enough, since the days of the DARPA challenges, when they supported a Stanford team, I think they probably have a pretty good idea of what they're looking for," said Sam Abuelsamid, a principal research analyst at Navigant Research. "The fact they opted to go with Argo and use that technology really validates what Argo is doing and how they're doing it."

With the Volkswagen investment, Argo AI is valued at $7 billion, the companies said last week.

One of the more notable aspects of VW's investment is that $1.6 billion of it comes from the transfer of the company's Autonomous Intelligent Driving, or AID, division, which had been part of the Audi brand, to Argo. The transfer includes 200 employees, intellectual property and technology, Salesky said.

AID's Munich headquarters becomes Argo's European base. That Volkswagen was willing to fold its in-house efforts into the deal underscores its commitment to — and now reliance upon — Argo.

The combination of Argo and AID creates a company with 700 employees and an infusion of talent in an industry that craves experienced software and hardware engineers. It also ups the risk. Salesky says it's too early to say which components of the group's intellectual property and technology will be most useful.

"The Argo tech stack is what we're aligning around," he said. "The question is where that [intellectual property] fits in and complements ours. We're going to work with them to understand our opportunities, and I'm sure there will be some integration."

Argo tests self-driving vehicles in Miami, Washington, Detroit, Pittsburgh and Palo Alto, Calif. With VW, testing is expected to begin in Europe next year. Commercial deployments of the self-driving technology are expected with Ford in 2021, and Volkswagen CEO Herbert Diess said similar uses are on an "early 2020s" timetable.

As much as global scale remains a focus and a benefit of the partnerships with Ford and VW, Salesky emphasized last week a less-appreciated aspect of building self-driving technology: One size does not fit all locations, and often, developing and vetting the technology requires a city-by-city approach.

"We believe it's one city at a time, and you can do that globally, working in multiple locations simultaneously," he said. "But I say city by city in relation to customizing self-driving systems to fit in with local driving behaviors and patterns. It can literally vary intersection by intersection whether it's acceptable to 'block the box.' We want to take our time and understand at a local level what the needs are."

Ford and Volkswagen now own equal stakes in the self-driving tech company. Both companies will hold two board seats, while Argo has three. Argo remains open to further outside investment.

Before landing on Argo, Volkswagen had considered a number of self-driving partners. Last fall, Reuters reported that VW held discussions with Waymo. In June, Volkswagen officials announced the end of an exploratory partnership with Aurora Innovation. In Argo, the company finally found its match.