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Ford/VW Deal Wins Plaudits, But Be Wary Of Culture Clash

Ford/VW Deal Wins Plaudits, But Be Wary Of Culture Clash.

“Even more important is “cultural understanding”. The question remains how well Wolfsburg gets along with Dearborn. Challenges lie in the design of cooperation”

Ford and Volkswagen’s ambitious plans to expand their alliance by jointly developing autonomous and electric vehicles were lauded by investors and academics, although some worried that company culture might be a source of friction over the long-term.

Highlights of the deal were included Ford gaining VW electric technology to meet harsh European Union (EU) CO2 rules which kick in next year, and get tougher in 2025 and 2030.  VW strengthens its ability to be a contender in the world of autonomous cars.

Volkswagen and Ford announced last week that VW would invest $2.6 billion in Ford’s Argo A1, while Ford would use the German company’s battery car technology to build a range of electric vehicles in Europe. This expands on the deal announced in January to cooperate on mid-sized pickup trucks and vans for use outside the U.S.

Ford and VW will become equal shareholders in Argo AI which is charged with developing autonomous vehicles. Ford will sell 600,000 electric vehicles in Europe based on VW’s so-called MEB engineering. The Ford MEB vehicle will be built at one its plants starting in 2023 with an option to build a second one.

Professor Ferdinand Dudenhoeffer from Germany’s Center for Automotive Research (CAR) was impressed by the ambition, but worried about the possibility of a culture clash.

“Even more important is “cultural understanding”. The question remains how well Wolfsburg gets along with Dearborn. At Daimler-Chrysler and Opel-GM, these were not success stories. The challenges lie in the design of cooperation,” Dudenhoeffer said.

Marriage made in heaven
Daimler’s 1998 take-over of Chrysler was described as a marriage made in heaven, but ended in 2007 after what were called “cultural difficulties”. Opel and its Vauxhall sibling made massive losses until GM sold them to PSA Group of France, and have since become impressive profit makers.

Dudenhoeffer said the deal will help Ford avoid huge EU fines because of its production of VW based electric cars. The autonomous cars investment makes sense because massive long-term funding is required beyond the ability of even the biggest automotive manufacturers.

Fitch Solutions Macro Research like what it saw too.

We believe that this expansion of the VW-Ford partnership will further secure the continued co-operation between the two automakers and secure the future of the partnership by limiting the scope for conflict over the autonomous technology,” Fitch Solutions said in a report.

“We believe this part of the partnership will benefit both parties equally, unlike the electric vehicle side of the tie-up in which VW will benefit most,” Fitch Solutions said.

Fitch expects other big carmakers to follow this blueprint, and soon.

“We also expect more automakers to form similar partnerships over 2019, leading up to the launch of new EV (electric vehicles) models in 2020/2021, as global automakers get set for a massive EV and AV (autonomous vehicle) push,” Fitch said.

Investment bank UBS saw some big wins for VW.

Great leap forward
“For VW, becoming a shareholder in Argo AI marks a leap forward on the road to AV at reasonable cost. Stand-alone investments would have possibly been higher, with a lower chance to win the race. Ford’s use of the MEB platform validates VW’s dedicated EV platform strategy and brings some additional economies of scale, even though without a near-term earnings impact,” UBS analyst Patrick Hummel said.

“The second leg of the agreement is that VW will supply Ford with 600,000 MEB “skateboards” for their first EV in Europe, which will be launched in 2023. We expect VW to make some money with the deal and it brings some additional economies of scale. However, it is not yet a financial game-changer as the volume only comprises 4% of VW’s expected cumulative MEB sales. However, (VW believes) that this marks just the beginning, and that the supply agreement can be expanded to additional models and regions,” Hummel said.

Investment researcher Evercore ISI was more restrained in its appraisal.

“Time will ultimately tell whether this collaboration will be a success of 1+1=3 or a drain on global management/engineering time and resources. What is clear – the move to EV and AV is the long-term auto future and both will be very expensive. We do not see the announcement in current form as moving the needle on either our bullish VW Call or our Inline Ford call,” Evercore ISI analyst Chris McNally said.


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