It's October 2022.
Multi-billion dollar company Argo Ai, once thought to be one of the leaders in
the race towards self-driving cars, suddenly shuts down.
But to understand why, we need to rewind the clock.
In the world of autonomous vehicles, big bets were made by big players.
In steps Ford Motor Company and a $1 billion investment into self-driving
cars. The company was backing Argo AI.
Everybody thought that autonomous vehicles, especially robotaxis, was
right around the corner.
Two years later, Volkswagen joined Ford in the venture.
At its height, the startup was reportedly valued at $12.4 billion.
Argo AI had more than 2000 employees, was testing vehicles in seven cities and
had offices around the world.
And then reality struck them on both cheeks.
Robotaxis are not just around the corner.
After a rush of enthusiasm, self-driving projects have been besieged by the
challenges of developing both the technology and a business model to run
alongside it. Ultimately, Argo AI failed.
Argo AI was founded by Brian Salesky and Pete Render.
Both had big ambitions and years of experience in the field.
Argo II's plan was to bring fully self-driving cars to market.
At the time, legacy automakers like Ford were facing criticism for being
behind on electrification and autonomy.
It's a common technology story.
The world gets excited about a technology that's going to revolutionize
a market or revolutionize an industry.
The old players get scared.
In mobility. There was a lot of talk that Tesla was going to own the world,
that Ford and Volkswagen and GM and Toyota were the dinosaurs.
When Tesla's stock soared to all time highs in 2017, it pushed its market cap
past Ford's for the first time.
That happened despite Ford having sold nearly ten times as many cars as Tesla
in 2016.
Companies were plunging into self-driving car research and
development. Through a partnership with Carnegie Mellon in 2015, Uber started
its self-driving research.
GM bought Autonomous Driving Startup Cruise in 2016.
Google executed its first fully autonomous drive in 2015 and a year
later turned the self-driving car project into an independent company
named Waymo. In 2016, Tesla began producing cars the company said were
fitted with all the hardware necessary for full self-driving.
Rumors were spreading that Apple was working on an electric car project as
well, possibly with self-driving capabilities.
In 2017, Ford Motor Company announced a five year, $1 billion investment in Argo
AI. Shortly thereafter, they replaced Mark Fields, the CEO who had facilitated
the deal. Jim Hackett, a former university athletic director and
furniture executive who at the time was running Ford Smart Mobility, took over.
In 2019, VW Group, the second largest automaker in the world, joined Ford by
investing $2.6 billion into the project: $1 billion in cash, and the
remainder with its self-driving research unit.
Argo AI was valued at more than $7 billion.
And they paid a huge price, which is what usually happens when you are afraid
of missing out on something.
But the consequences of being perceived as being left behind was just battering
the stock price of Volkswagen and Ford and in fact made the price that they
paid for Argo look reasonable compared to the battering their stock was taking.
The joint venture had big plans.
Through a partnership with Lyft, it was announced that Argo AI would put
self-driving taxis on the road by the end of 2021.
The company's value reportedly ballooned to $12.4 billion.
But less than a year later, in October 2022, the startup was shut down.
When Ford reported its third quarter 2022 results, it said.
It's estimated that more than $100 billion has been invested in the promise
of level four autonomy, and yet no one has defined a profitable business model
at scale.
Based on the change in this outlook, we've decided to wind down the Argo
business.
Level Four autonomy, what Ford was abandoning when it shut down Argo AI is
a vehicle that can drive itself in nearly all conditions.
Level Two is what a lot of active safety features fit under, like a car
that can automatically keep itself in a lane or adjust its speed to maintain
distance from a car in front.
Many automakers have these systems either standard or as options.
Level three, on the other hand, entails a car that can drive itself under some
circumstances, but requires a driver to be able to take over if needed.
Pulling out of the venture cost the automaker $2.7 billion, resulting in an
$827 million net loss for the quarter.
And as for the future of true L4 autonomy, we don't expect there to be a
sudden aha moment like we used to.
Their core technology was solid.
The system that they were developing was really strong, really robust.
That's not why Argo failed.
It wasn't the technology, it was the business side of it, that was the
challenge.
Many of these challenges are not unique to Argo AI.
By the time 2022 rolled around, a lot of the hype that had been swirling in
2017 seems to have evaporated.
When Level four was a hot idea in 2017, you could easily get companies to come
in and invest. But once we started seeing there was obstacles in the
technology, that money kind of dried up.
And there are also a lot of high profile sales of autonomous companies
and fleet type companies to larger companies that bought them because they
were unable to get financing.
A couple of examples: in early 2020, Uber executives were saying that Uber's
self-driving car business was key to bringing the company to profitability by
December of that same year.
Uber sold its autonomous driving unit to Aurora.
In 2021, Lyft sold its autonomous driving unit to Toyota.
In the case of Ford and VW with Argo, they were also looking for partners to
try to invest. And it's been difficult .
When you're dealing with an industry at its infancy, you need partners to come
in and invest. It's a lot easier to do that than to use the capital of your own
carmaker yourself.
While money was drying up Argo AI's backers began to demand more of the
team. Initially, Ford had planned to launch its own mobility service that
would build a robotaxi business using Argo AI's technology.
But that didn't happen.
Instead, that was handed off to Argo AI itself.
So in addition to being the group creating the tech, Argo also had to
build the service. An IPO was planned to raise money.
A lot of the companies that did go public in 2020, 2021, mostly through
SPACs, but some through traditional IPOs, their prices, their valuations
were in the tank.
That option evaporated.
Then it was reported that Amazon was interested in some kind of investment or
partnership.
But for a variety of reasons, between Amazon and Ford and Volkswagen, they
could not come to an amicable deal.
Both Ford and VW have to balance their autonomous tech ambitions against
another massive project that is more or less essential if they want to keep
selling cars: electrification.
Ford has committed $50 billion to electrification, while VW Group has
committed more than three times that much.
What do we have to do versus what do we want to do?
They wanted to do the automated driving stuff, but they have to do the
electrification to meet regulatory requirements and also to meet customer
demand.
To give you an idea of how far off profitability is in self-driving cars,
consider that so many of the businesses ride-hail scooters, shuttles, bike share
that fall under the umbrella of mobility are all money pits.
Ford has entered and exited several mobility businesses over the last
several years.
It bought scooter rental company Spin for $100 million, then sold it to a
German company in 2022.
It acquired Chariot, a shuttle service, in 2016 and then shut it down in 2018.
It launched Go Ride Health, a non-emergency medical shuttle service
and then shuttered that as revenues from Ford's automotive business grew.
Ford Smart Mobility, the division established in 2016 to invest in these
types of businesses, actually shrank in 2022 over the previous year.
And this is not unique to Ford.
You look at companies like Uber and Lyft.
They've been around since 2010.
They've never made a dime.
None of the micromobility companies have ever made any money.
Lift lost $1.6 billion in 2022, a half a billion more than it lost in 2021.
Uber lost $9 billion in 2022.
These companies are losing money even though they are relatively asset light
firms. When it comes to their core ride-hailing and delivery businesses,
Uber and Lyft don't own any cars.
Running a fleet of self-driving cars requires, of course, first developing
the technology. But you also have to manufacture or acquire the vehicles.
You need to fix, maintain and clean cars and the specialized equipment on them.
Keeping the sensors clean is crucial to keeping the vehicle functional.
You also need to devote time, space, equipment and staff to regularly
charging or refueling them.
If a passenger leaves something behind in a robotaxi or somebody gets sick in
the robotaxi or somebody lights up a cigarette, the company has to somehow
detect that and resolve the situation.
It's not as simple as, Yeah, we'll get rid of the driver and we'll eliminate
most of our costs.
No, it's not anywhere remotely close to that simple.
Ford has decided to focus on L2 and L3 driving systems in the near term.
In March of 2023, Ford said it was creating Latitude AI a project focusing
on these efforts.
Mercedes-Benz was the first car brand to introduce an L3 system.
It was very expensive.
They still had to do it with partners like Nvidia, but they really developed
their own solution.
And when they gave their financial targets for the solution, it it actually
isn't creating a big financial windfall for them.
They're looking at this as really primarily a tool to differentiate their
product as a product enhancement.
The advantage with these types of features is that they are already
available and can be packaged often as options on cars.
These automakers are already selling.
Marketing them doesn't require a whole new business model.
We know that business model well, we can execute that business model well, maybe
that's how we get to autonomous vehicles in 10 or 15 years without every
car company going broke in between.
VW has not given up on autonomous driving yet.
As of March 2023, the company continued its partnership with Mobileye, an
Israeli autonomous vehicle technology company.
It was also working with a company called Horizon Robotics in China that
makes high performance processors and computing platforms.
It's continuing a self-driving delivery van project using its new ID Buzz
electric van. Other rivals are still working on level four autonomy.
Waymo, GM Cruise and Baidu, a Chinese company operating primarily outside the
US, are three that stand out.
One that isn't a leader: Tesla.
Tesla's technology is kind of a joke.
It's not even remotely close to being something that can operate without a
human being behind the wheel, supervising ready to take over at any
time. It's a decent level two system like Super Cruise or Ford's Blue Cruise.
Waymo started operating a driverless ride-hailing service first in Phoenix
and then San Francisco In October 2022, it began expanding to Los Angeles
and hit 1 million ride or only miles in January 2023.
GM's cruise launched driverless taxis in San Francisco in June 2022 and later
announced plans to expand to Austin and Phoenix.
The startup also hit 1 million driverless miles.
Also near the top is Mobileye, an Israeli company that makes technology
for autonomous cars rather than the cars or services themselves.
Their business model is very different.
Mobileye has their core driver assist business, which is profitable.
Their plan is not to own and operate the fleets of automated robotaxis They
want to provide the technology.
Among the companies At the next level, the Contenders, is Zoox, owned by tech
giant Amazon.
The two companies that really don't care about the realities of what's happening.
Like, Oh, this is going to be really expensive is Google and Amazon.
Why? Because they're enormous and they can have pet projects that go nowhere.
GM however, is a car company like Ford.
It spent $2 billion keeping Cruise afloat in 2022, a 58% increase over
2021.
Mary Barra, who is the chair and CEO of General Motors, has been very publicly
committed to the Cruise effort.
And I think as long as she is in that position, that will continue to be the
case. But she's also 62 years old.
Cruise CEO Kyle Vogt has said their target is to have $1 billion in revenue
in 2025.
Nobody from Cruise or from GM has talked at all about what the timeline is
for profitable business.
Abuelsamid says, for what these services charge, about as much as a conventional
ride hailing service, Cruise would need to hit 400 million revenue generating
miles to reach $1 billion in revenue.
Assuming the cars are carrying paying passengers or goods for about half of a
20 hour operational day, the rest set aside for charging, maintenance,
cleaning, Et cetera, Cruise would need to have 5,500 to 6000 robotaxis running
by 2025 to hit that target.
By comparison, New York City has about 13,000 yellow cabs and 100,000 ride hail
vehicles.
So it's certainly feasible that they could get that billion dollar revenue
number, but it's probably not going to be anywhere close to profitable.
In the meantime, they could lose the support of their backers without much
warning and the pool will shrink.
By the end of the decade.
We don't expect more than 5 to 7 companies doing this stuff globally.
I'd long expected that Argo would probably be one of those companies.
It turns out they're not.