DETROIT (AP) — Ford announced Wednesday that it is dissolving Argo AI, an autonomous vehicle company it co-owns with Volkswagen.
Executives said they see no path to profitability in fully autonomous vehicles and will now focus on partially automated driver assistance systems, which must be monitored by humans.
“We looked at this in every way we could,” chief financial officer John Lawler told reporters on Wednesday. “We just see the profitability, given the investment that is going to be required, far from it.”
It would take Ford billions of dollars to put self-driving robotaxis on the streets, Lawler said, but it was unclear when it would happen “in a way that would allow us to have a profitable return on that investment.” .
The move by Ford and VW shows how difficult and expensive it is to make self-driving cars a reality, said Sam Abuelsamid, mobility analyst at Guidehouse Research. The business, he said, required large investments for years with little results, and investors’ appetite for investing more money has dwindled.
He expects consolidation in the industry, perhaps five or six major players. “More companies are going to go bankrupt,” he said. “They’ll just run out of cash or, in some cases, get swallowed up by one of the bigger players.”
Still, Crosstown rival General Motors sees revenue gains coming for its self-driving vehicle unit Cruise, which uses driverless robotaxis in San Francisco and is expanding to Phoenix and Austin, Texas. GM expects Cruise to generate $1 billion in revenue in 2025.
Ford took a $2.7 billion accounting charge to write down the value of its investment in Pittsburgh-based Argo, and it writes off a cash investment of about $500 million. Largely due to the charge, Ford posted a net loss of $827 million from July to September.
Ford said so and Volkswagen would hire many of Argo’s 2,000 employees and some of its offices would remain open.
The Dearborn, Michigan-based automaker said customer enthusiasm for driver assistance systems warrants additional investment. Ford also said Argo, in which it took a stake five years ago, has been unable to attract more investors.
Doug Field, Ford’s chief technology officer, said a breakthrough would be needed to make self-driving cars work, and further advances would be needed before the vehicles could be deployed at scale. High-tech laser and radar sensors in self-driving vehicles cannot be scaled for high volumes or affordable prices, Field said.
“There is a lot of work to not only fix the technical problem, but also to turn it into a reliable, high-volume vehicle,” Field said.
Excluding one-time items, Ford said it earned 30 cents per share in the quarter. That beat Wall Street estimates by 27 cents, according to FactSet. Revenue of $39.4 billion also beat estimates of $37.46 billion.
The company said it had strong cash flow in the quarter, ending it with $32 billion in cash and $49 billion in total liquidity.
Ford said it expects full-year pretax profit to be about $11.5 billion, in the low range of previous guidance.
Lawler attributed the change to factories being slowed by parts suppliers who are struggling with labor shortages and falling currencies in the UK, a big market for Ford.
Economic problems could also start to weigh on consumers and a recession in the United States is possible, Lawler said. Near-record vehicle prices are starting to drop. And demand for midrange vehicles is outstripping more cost-effective ones laden with options, he said.
“We still have a strong order bank and we still see significant demand,” he said. “You’re starting to see that the macroeconomic environment, the interest rates, are starting to have an impact on the industry.”
Lawler said Ford is bracing for a mild to moderate U.S. recession next year, but is better positioned to weather it than past downturns because it has lower inventory and a more profitable model lineup.
Ford built 40,000 vehicles without one part or another during the quarter, Lawler said, and plans to ship completed vehicles to dealerships by the end of the year. Like other automakers, Ford has been hit hard by parts shortages, including a global shortage of computer chips.
GM said earlier this week that its production was improving and dealers were getting more vehicles.
Ford shares fell just over 1% in extended trading on Wednesday.