Volkswagen and Ford on Friday will announce the next step in their joint effort to develop the next generation of vehicles in the face of huge disruption to their business.
Ford (F) CEO Jim Hackett and Volkswagen (VLKAF) CEO Herbert Diess appeared together on Wall Street Friday, building on a growing alliance between the two automakers first announced a year ago.
The alliance between the automakers had produced only modest agreements until now. In January, they said they would develop commercial vans and medium-sized pickups beginning as early as 2022. But they said at the time they were investigating how to develop the next generation of vehicles, such as electric and self-driving cars.
All of the world’s major automakers are racing to develop electric and self-driving cars. Traditional automakers are worried they could be left behind by changes in the market being brought about by both tougher environmental regulations in Europe and elsewhere, as well as new players such as Uber (UBER) and Tesla (TSLA) and potentially deep-pocketed tech companies such as Google parent Alphabet (GOOG) and Amazon (AMZN).
The alliance follows a similar tie-up between German carmakers BMW (BMWYY) and Daimler (DDAIF), which formed a joint venture that will develop driverless technology. Honda (HMC), for its part, has invested in General Motors’ self-driving car unit.
German carmakers BMW (BMWYY) and Daimler (DDAIF) have formed a joint venture that will develop driverless technology. Honda has invested in General Motors’ self-driving car unit.
Fiat Chrysler (FCAU) and Renault (RNLSY) recently held unsuccessful merger talks motivated by this same desire to share costs. Renault (RNLSY) is already a part of an alliance with Nissan and Mitsubishi.
“You can’t do this alone,” said Hackett at a joint appearance with Diess in January. “All these efforts will be enhanced by sharing brainpower.”
Both Ford and Volkswagen have announced ambitious plans of their own beyond the growing alliance.
Ford has said it anticipates spending $11 billion restructuring its business in the coming years. It so far has entailed shutting money losing operations around the globe. Volkswagen has said previously that it will spend €44 billion ($50 billion) by 2023 on an “electric offensive” to develop electric cars, self-driving vehicles and other new technology.
Though Ford (F) is a major player in the US market, second only to General Motors (GM) in terms of sales, it has struggled to battle Volkswagen’s dominance in Europe. Meanwhile Volkswagen has struggled with the US market, trailing not only domestic companies but also Asian automakers in market share.
There are limits to how close an alliance the two automakers can form. A formal merger was always unlikely, if not impossible, because of the unique nature of each company’s ownership structures – Ford effectively remains in the hands of founder Henry Ford’s descendants, while Volkswagen has about 20% of its shares owned by the German state of Lower Saxony, where it is based.
Both companies need to play catch up because they trail some competitors in the industry in the development of electric cars.
Ford does not currently sell any electric-only vehicles. But much of the $11 billion restructuring is with an eye towards developing electric and self-driving cars.
And in the wake of a massive diesel emissions cheating scandal revealed by US investigators, Volkswagen has been under pressure to clean up its image.
Volkswagen is on record saying it plans to be CO2 neutral by 2050 — “and investing in electro mobility is a way to get there,” Volkswagen sustainability spokesman Guenther Scherelis told CNN Business.
Volkswagen estimates that electric vehicles will make up 40% of its fleet by 2030.
It plans to market some 70 electrified models by 2028, and over the same period sell 22 million electric cars, Scherelis said, with Europe, China, and the United States its main markets.