Ford Motor Company (NYSE:F) Ford Motor Company and Volkswagen AG Update on Global Collaboration Conference Call July 12, 2019 8:00 AM ET
Mark Truby – Vice President-Global Communications
Jim Hackett – President and Chief Executive Officer
Herbert Diess – Chief Executive Officer-Volkswagen AG
Bryan Salesky – Chief Executive Officer and Co-Founder-Argo AI LLC
Marc Langendorf – Head-Global Corporate Communication-Volkswagen
Joe Hinrichs – President-Ford Automotive
Conference Call Participants
Aileen Smith – Bank of America Merrill Lynch
Patrick Hummel – UBS
Rod Lache – Wolfe Research
Tim Rokossa – Deutsche Bank
Ryan Brinkman – JPMorgan
Stephen Reitman – Societe Generale
Ian Thibodeau – Detroit News
Astrid Doerner – Handelsblatt
Gary Gastelu – Fox News
Peter Campbell – Financial Times
Stephen Wilmot – WSJ
Cathy Bussewitz – AP
Okay, good morning everyone. You are ready to get started? Good morning, thanks for joining us. Hi, my name in Mark Truby, I’m with Ford’s Communication Department. I'm joined here by Marc Langendorf, he's Head of Global Corporate Communication for Volkswagen.
Thank you to all of you who've joined us today in New York as well as those joining by phone and around the world for this important update on the Volkswagen AG-Ford Motor Company collaboration.
On stage today, we have Jim Hackett, President and CEO of Ford Motor Company; and of course, Dr. Herbert Diess, CEO of Volkswagen AG. Also today here in the front row, we're joined by several senior leaders from Ford, Volkswagen, Argo AI and AID.
Following brief remarks, we will take questions from the investment community first on the phone for about 30 minutes, then we'll answer questions here from the media here in the room as well as by phone. Today's update includes some forward-looking statements about expectations for future performance. Actual results may vary. And at this time, I'm pleased to turn it over to Jim Hackett.
Thank you, Mark, and good morning everyone. I'd like to start first with a sincere thank you to what is an emerging alliance and partner with my friend, Herbert Diess. Thank you, Herbert, and the whole team at VW in working this out and all that we've accomplished together. And I've really enjoyed my relationship with Herbert. We smile as much as we do anything when we're talking together.
Now working across companies, continents and cultures is no easy task and it's a credit to all of you that we've been cooperating effectively for the past year and finding ways to win in our very competitive market.
I'd also like to give a heartfelt thank you to the Argo team led by Pete Rander and Bryan Salesky. They have the pioneer role here, and Bryan's going to join us on stage here in a moment. Well now, we stand at the precipice of the biggest shift in transportation since someone known as Henry Ford initiated over 116 years ago. Our industry and the world are being upended by technology and innovation, and there's a deep societal need for smarter solutions for our overstressed, I call it the tyranny of traffic, transportation system.
Just as everything changed with the introduction of the automobile back in Henry's day, from how we build our cars to the propulsion systems they run on, to the way we buy them, the way we hail them or even the way they're driven, all of that's changing. At Ford, we believe that the freedom of movement drives human progress. And with the leaps in computing, connectivity, artificial intelligence and electrification, we have the best opportunity in decades to drive performance in new vehicles that serve people in ways we never thought possible.
And the opportunity to work together in unprecedented ways with connected customers, the communities they live in and business partners, well, that's just as exciting as well. And most of all, the opportunity to usher in a smarter, safer, cleaner, and of course, more efficient, more safe transportation system is going to improve lives in very tangible ways. I don't think I'm exaggerating that opportunity.
In this moment of change, new approaches for Ford include teaming with partners like Volkswagen to help each of our companies capitalize on that future. Now building on that work, we're now confirming that we will extend our collaboration into autonomous technology. We share the view that technology is an enabler and is not an end to itself. That was one of the first things that Herbert and I aligned on, that people will remain our constant focus in this ever-changing world.
Both companies start with a customer experience that will make a difference for people and the communities they're in and, of course, the planet that we all inhabit. And then we work backwards to design products and services to deliver on that special promise. Self-driving vehicles are going to open up a whole new industry that can fundamentally change how not only people move, but the goods that serve you are moved.
Now two years ago, Ford made $1 billion commitment to a start-up company called Argo AI. Go online and Bryan maybe will tell you about the naming of Argo and where that comes from. This was an artificial intelligence robotics firm, and there weren't many of these that was led by some of the world's most creative, and we know, sought-after experts. That investment has proven to be mutually beneficial because Argo had leading robotics expertise, a culture aligned very quickly around safety and a healthy respect for this complex challenge of developing the safest self-driving system.
Both Bryan and I have been very conservative in the way we've described the emergence of this technology, and we found that Herbert shares this view. Bill Gates is famous for saying you overestimate the arrival when you underestimate the impact. So nothing will be more important in our future when it's ready. And Ford brought the world-class experience of our product development, manufacturing and business teams to the Argo relationship to ensure that there was an integration between the products and services that will reach that safe, reliable and enjoyment target for people.
So today, I'm so gratified to have Volkswagen join us on stage and make their news about an investment commitment in Argo. This means that already Argo is among the most capable, autonomous vehicle platform developers in the world. And with today's announcement, Argo is one of the best resourced, with an estimated valuation of more than $7 billion.
Folks this is big news because the combination of these two companies in this industry make this instantaneously the largest platform working on this. Ford and VW could have partnered with anyone. Everyone was after us, but we both chose Argo. And together, we're on a path to create the industry's leading autonomous vehicle platform. And having two global automakers as customers is going to be leverage they can use because they can recruit and retain more talent where the race will arguably be won or lost.
We'll all benefit with Argo's experience in working closely. This is one of Bryan's dreams that I hope he talks about, which is to work side-by-side as technologists with the vehicle manufacturers. So you have full vehicle integration of the technology. Now here's how we'll all work together. First, we will collaborate, VW and Ford, with Argo on what we call the self-driving system, or the SDS. That means that Ford and Volkswagen will be able to reduce what is a large investment for this AV business.
We'll also be able to co-create common AV platforms for now and in the future. This helps in the downstream manufacturing, so that you're not doing a unicorn every time you have different brands or you change models. And we can share valuable data with Argo to help build the best vision in the mappings models and data utilization analysis. These vehicles are chimneys of data that'll be spewing from the vehicles that they get to use in the development of this product.
Now second, we'll share costs and expertise so we can each design and engineer a unique, safe and self-driving vehicles that are efficient. Now Ford and VW, let me point out, remain competitors. We've been purposeful in designing this. As you see the outer ring of our diagram, that's where we compete. We're going to use the Argo SDS platform and then we each will deliver unique experiences for our customers.
Now at Ford, we believe the data can help us continually improve those vehicles and improve our customer experience. So we're taking a community-minded approach that focuses where the needs will be in moving goods and people. I mean think about this. AVs are going to offer affordable ways to get people from their homes to public transportation. There's a neighborhood in Ohio where the mayor and I talked about these folks cannot get jobs because they're not on the public transportation system.
My mother, who suffered for Alzheimer's and had trouble getting to see her doctor. This kind of technology solves incredible social dilemmas. With AVs, we have practical things like there's a reduced need for parking that's going to enable communities to reimagine and reuse space in new ways. That space could be used for parks and recreation. We have an entity called Ford AV LLC, which is on that outer ring and it's working with small businesses and large partners already, Postmates, Walmarts and Domino's to test the most user-friendly and efficient ways to deliver goods.
In fact, Bryan will share with you, we've been testing autonomous technology in five American cities. And let me say to you, these aren't easy cities where the streets are wide and only retired people are driving. These are very difficult challenges and on purpose so that we learn faster and design what is a smart, scalable platform. You'll be able to check out, actually, one of the Argo AVs outside. And let me just point out, those are early prototypes. That's not exactly the way it the vehicle is going to look in its evolution but we've got to get something in test, and that's what's there. At Ford, we're also obsessed with creating a high-value, self-driving experience with the best user experience. And of course, making this safe and trusted.
So the stakes are high there. As this product hits the market, who's going to win the hearts and minds of people for safety and trust? If we've learned anything from technology in the revolution we've all lived in the past two decades, it's this: There's only going to be a few winners who create the leading platforms for the future. We cannot be late, Ford can't be late, and we have to be great. So we're on track to start the commercialization of this, as we've said, with initiatives starting in 2021. But listen, as I came into the job, I told you that Herbert and I realized it's not about being first or that date isn't important as we get this design and technology right, it's about being the best.
So we're a company with the cars that parents have trusted their kids to drive for 116 years. And all of this trust is rooted in the fact that we've worked so hard with an unyielding commitment to safety. So I just want you to see the departure here with new technologies is totally connected to that vision. It's critical to winning this market and driving human progress through the freedom of movement in a new era because it's not going to happen the way the cartoon suggests, where everyone gives up their whole life and just switches to the new. Humans evolve themselves into this as you think about the way you use your computer and your smartphone.
So that's the first announcement, that Ford, VW and the Argo alliance about AV. Quite excited about that. But there's another one that's big that's – that came from Herbert and I starting to talk about Argo. We're also excited today to announce that Ford will become the first additional automaker to use VW's MEB electrical vehicle architecture for a high volume Ford European zero emissions vehicle. And we're going to design this model at our Ford Cologne– Merkenich German engineering center.
In Ford of Europe, we're not saying where, we'll start building it in 2023. Plus the teams are working on an idea for a second EV model for our European lineup based on that same platform. This is an impressive product and it's another important building block in my characterization of our renaissance in Europe, the Ford renaissance of our brand. We're undergoing right now the most comprehensive redesign of Ford in the history of our business there. So we focus on sustainable profitability by growing our commercial vehicle business and by offering a fresh lineup of EVs, SUVs, performance models, and we have an import strategy that's bringing some great products like Mustang and Explorer.
So over the next five years, Ford will introduce four new nameplates for the European market, including a new fully electric Mustang-inspired utility vehicle. You want to get in line for that one. So today's announcement only accelerates that European plan. And I know that this is not only a win for Ford but it for Ford but it's a win for VW who has the courage to make this investment ahead of the demand for these vehicles. And the winner is going to be our customers. We'll be able to offer vehicles that meet their expectation, they match the European kind of experience in roads, and they're going to be built and designed Ford proud.
So more importantly, this gets us closer to Bill Ford's vision when with talked to Ted in 2011 for a zero-emissions future. He was very clear and said, "If we cut and paste the old system as Asia was growing, we'll hurt the world." So we're on a course here to build an industrial company that not only we are proud of environmentally but now we can deploy an entire portfolio of electrified vehicles.
And these aren't just smaller cars, there are iconic nameplates, the F-150 and the Mustang. And of course, recently, the news is out there that we also invested in a company, a startup called Rivian. This allowed us to speed our learning and EV go-to-market plans. All of this together is a portfolio that will help us serve customers and meet that challenge that Bill laid out in 2011, which is our commitment to The Paris Climate Agreement. And this is a commitment that we're really steadfast in meeting.
Well, these developments that we're talking with you about today represent the latest progress in what is a burgeoning collaboration with Volkswagen. Now back in January, we already had a press conference and we announced the deal to develop commercial vans and medium-sized pickups for the global markets. Teams are working really well together, and we're on track.
So this alliance has strategic value for both companies. We're sharing costs, we're taking advantage of combining capability. We're better positioned to capitalize, as you've heard me say, on the future of mobility with an EV platform and this electric vehicle platform. This is the commitment to our promise for a more sustainable transportation system. So on behalf of Ford, we're committed to leading this era of change. Working with our Ford team, with old and new partners, to create a tomorrow that's better than today and to grant the freedom of movement to more people in more places around the world.
So with that, I'd like to turn this over to my friend and my alliance partner, Dr. Herbert Diess.
Thank you, Jim. Thank you, Jim. Thank you very much. And good morning to everybody also from my side. I'm very happy to be here in New York as we have some great news to share. When we started our collaboration with Ford, we already announced to further expand it. And during the last months, project teams on both sides worked very hard to make that happen. Now we are ready to take the next step.
As Jim said, our joint investment in Argo AI will provide us with a one-of-a-kind self-driving system technology. It will enable Volkswagen and Ford to design and manufacture SDS vehicles based on this technology. From our perspective, this is a win-win situation. The collaboration brings some of the smartest people in the field of autonomous driving together. Software and hardware experts work side-by-side to tackle the challenge of developing a safely deployable autonomous vehicle. And all of them have unparalleled access to the vehicle manufacturing expertise of two of the world's largest automakers.
In return, Volkswagen and Ford get the world's best SDS platform with the most compelling technology. In the past months, we thoroughly evaluated all options for our approach towards autonomous driving. In joining forces with Argo AI, we found the best solution for Volkswagen. We can share significant R&D costs in the high triple digit million-dollar area, and that's for Volkswagen alone. We will accelerate speed to market. Volkswagen will make use of the SDS platform by commercializing it in a vehicle in the early 2020s. Together, we will make the Argo AI platform a global industry standard.
Ladies and gentlemen, this is the strategic logic behind joining our forces. The transaction closing is envisaged for the first half of 2020, subject to clearance by antitrust authorities and other regulatory bodies. Then Argo AI and AID will be able to operationally function as one fully integrated enterprise. Safer, smarter, more convenient, with a digital core, the use cases for self-driving technology and the benefits are numerous across industry and beyond.
In combination with the global trend towards the electric drive, we have a powerful lever for the CO2-free mobility of the future. Now the automotive industry can make a substantial difference. As you might know, at the current point in time, around 14% of CO2 emissions worldwide stem from the transport sector: airplanes, ships, passenger cars, trucks. Volkswagen AG's passenger cars alone are responsible for 1% of global CO2 emissions through the use of their vehicles. We aim to reduce this to zero, not at least because the whole automobile industry needs to comply with strict regulation requirements worldwide. The EU commission has set stricter – very strict CO2 limits. Fleet emissions are to decrease by a further 37.7% by 2030 compared to 2021, and we are still far away from meeting 2021's target. We will make that happen.
However, the requirements entail a fundamental structural change. The electric drive will play the pivotal role in this endeavor. For the foreseeable future, it will remain the best and most efficient way of cutting CO2 in road traffic. Based on the mileage of about 200,000 kilometers or 124,000 miles, an electric car uses around 400 watt hours per kilometer across its entire life cycle, including all the manufacturing and battery manufacturing. This means it is able to operate in a much more efficient way than other alternative drives. The fuel cell or synthetic fuels may gain importance in the medium and long-term, most likely for electrifying heavy and long-distance vehicles. However, we do not foresee greater market penetration even in the light vehicle segment until the middle of the next decade. Neither the fuel cell or synthetic fuels will be available at reasonable prices or at an industrial scale. This is why we are making enormous efforts to expand our already approved e-mobility transformation program, which comprises an investment volume of EUR 30 billion.
Electric cars will have to make up over 40% of our sales in Europe only by 2013. It also makes sense from an economic point of view. Today, powertrain production costs are lowest for ECEs. But many experts estimate that stricter regulations on emissions will necessitate adaption of expensive – very expensive technologies. They expect BEV and ICE powertrains to be at the same level in the next – within the next few years. We, at Volkswagen, embark on this new era with a massive commitment. Already in 2016, we decided to invest over $7 billion to create a radically new and dedicated modular toolkit system tailor-made for the needs of electric vehicles.
Designed as an all-electric platform from the very beginning, it makes optimal use of the latest technologies in terms of customer experience, scalability and versatility, range and also digital services. We aim to make the MEB a new standard for our industry and thus turn the electric car from a niche product into a mass phenomenon. The MEB enables ranges in excess of 550 kilometers or 340 miles in accordance with WLTP.
Application areas for the MEB range from high volume, small city cars and large limousines through the electrically powered camper vans. The platform can also be used to build niche vehicles. The more cars that are manufactured using this platform, the cheaper they become and the faster the penetration of e-mobility is driven. A compelling advantage for customers as well as states requesting more and more cleaner vehicle solutions for their respective cities and, therefore, for the society.
At Volkswagen, we intend to produce around 15 million vehicles on the MEB over the next 10 years. Volkswagen alone is already developing and producing 27 different models on the MEB platform in the first wave, increasing to almost 70 models by 2028. The first model, the ID.3, is going to hit the European streets in 2020. Around 24,000 cars have already been pre-ordered.
Ladies and gentlemen, in March, we have decided to open the MEB to partners as it is of utmost importance to scale the e-mobility as fast as possible. Now ladies and gentlemen, I'm very proud that Ford is going to join us on this wave. Jim, you are the first additional OEM to utilize the MEB platform for high volume European zero-emission vehicle production. We have agreed on supplying 600,000 MEB platform systems, including battery packs and structural parts.
And in addition, we are currently in discussions for an all new supply agreement for a second vehicle already. It could almost double the supply of our MEB platform to Ford, and we hope to reach an agreement in the near future. Without any doubt, this is an important milestone for Volkswagen and potentially for every other OEM. Opening the MEB drives down production costs, creates cost-saving potentials and allows for electric vehicles at an attractive price.
This will lead to a broader global adoption of electric vehicles and, finally, to sustainable and profitable growth whilst keeping our promise to society. At long last, the electric drive is picking up momentum, driving electric will be our future. Also, it is already happening today, paving all the way for the autonomous driving of the not-too-distant future.
I'm now handing over to AI's CEO, Bryan Salesky, who will take you on a deep dive into Argo AI's – where is he, here, into Argo AI's technology. Welcome, Bryan.
Thank you, Dr. Diess and Jim. Today, marks a major milestone for the Argo AI team. With the addition of Volkswagen as an investor and partner, just like Ford, Argo is now officially a technology platform company. I'm proud of what our team has accomplished. It's been their hard work that has really put us in this position today. You might think this deal took a little bit of time to come together. The reason is because it's a meaningful commitment to deployment with truly defined economics.
Thanks to Ford and Volkswagen, Argo is well capitalized, backed with smart money and people that really share our vision. That vision begins and ends with the customer. We're developing with a customer-first approach with safety, trust and acceptance as our guides. With Ford and VW, we're deploying in a more thoughtful way by ensuring that we're lifting up cities, being a problem solver and making communities safer.
We believe that Argo offers a unique value proposition in delivering on this vision. First, we're building for scale. Everybody says this but few are actually doing it from the beginning. We've architected our software to be production quality, which facilitates speed of development. We're developing automotive-grade sensors and compute. We're tightly collaborating with our partners for a fully integrated product. Our teams work hand-in-hand with the product development teams at our OEM partners.
This was one of the most important aspects of the approach that Pete and I, when we cofounded Argo, decided from the beginning. This is the right way. Even though it's hard, it's the right way to develop self-driving vehicles. And with Ford and VW's global reach and manufacturing capabilities, the scale and potential here is massive. Our multicity testing approach, every city is different, we want our product to deliver on the needs of the community.
So we need to be there to listen, learn, build relationships. These deployments will be city by city, street by street. We're now testing in five very different urban locations, Pittsburgh, Detroit, Palo Alto, Miami, D.C. We hope next year to do something in Europe. We believe our testing area really encompasses the largest geographic urban footprint of any AV developer. This facilitates our self-driving system learning much faster by gathering data from a wide range of road infrastructure, driving behaviors, traffic laws and regulations.
We aren't teaching to just one specific street or a couple of routes, we're getting massive variation and testing across many cities. The result will be a self-driving vehicle that performs more like a human. We call it naturalistic diving behavior. A self-driving vehicle needs to behave like you'd expect it would in that city. City-specific driving behavior is vital for two reasons. It's the only way to navigate city streets. And having the confidence to make decisions is really the difference between – it's a balance between timidness and aggressiveness.
And it's key to a more comfortable and acceptable ride service for our customers. Naturalistic driving is also safer because it helps fit in with other traffic. Self-driving vehicles become an issue if they are outliers from the typical driving norm in that city. Next is the strength of our team. Our team is built around the culture of safety, respect for the complexity and challenge ahead and expertise based on time in the field.
I'm proud that our engineering team averages 10 years of field experience building and launching products in the autonomous vehicle realm. That's on top of 70% of them having advanced degrees, Masters or PhDs. It's a very qualified team. This is what makes the difference in terms of our ability to architect a scalable system, to make rapid progress and to grow as their experience facilitates a strong management structure for the younger talent.
The bottom line is our team executes. This is only going to get stronger as we bring in the AID team, which we're very excited about. This will expand with our – as our – this will expand Argo with Munich becoming our European headquarters. Over 200 people will be joining us from the AID team. We're very excited to have them aboard.
Finally, we’re laser-focused on delivering our self-driving system for Ford and VW. We cannot lose sight of the longer term. We are making investments for the future. And that’s why we’re working with leading universities to continue to train our staff and to conduct a cutting-edge advanced research that’s necessary to build out a pipeline of talent. We have three faculty members on our team serving as principal scientists who are leaders in their field, two from Carnegie Mellon and one from Georgia Tech.
Plus, we announced the formation of the Carnegie Mellon Argo AI Center for Autonomous Vehicle Research, which is a five-year research commitment to support five faculty and their graduate student research. Another key investment is our LiDAR development efforts based on the acquisition of Princeton Lightwave back in 2017. Our in-house LiDAR team is working on advanced sensing capabilities that will go far beyond what is on the market today and is necessary to build a safe driving system in the complex areas that we’re operating in.
Both of these efforts are focused on truly unlocking the potential of autonomous technology by developing the most advanced capabilities that will enable large scale and the global deployment. And thanks to Ford and Volkswagen, our technology could reach nearly every global market, could be applied across multiple brands and to a variety of vehicle platforms. Thank you, and look forward to your questions.
Thank you, Bryan. At this time, we’d like to take questions from the investment community on the phone. But Polly, could you please queue up the questions and start with the first one, please?
[Operator Instructions] Our first question comes from John Murphy, Bank of America Merrill Lynch.
Good morning. This is Aileen Smith on for John. Can you reconciles Slide 8 in the presentation that references independent go-to-market plans at both Ford and Volkswagen versus some of the commentary in the press release that both will be working with Argo AI to introduce autonomous technology in the U.S. and Europe? Specifically, are there parts of the agreement or alliance that protect each of your interest on market opportunity and commercial deployment? And should that potentially be viewed as Ford’s market may be the U.S. and Volkswagen’s may be Europe?
So thank you for the question. So the way the diagram depicts – again, I just want – if we can pull it back up, Mark, is that at the center, this self-driving system has to integrate technically with these vehicle platforms. And so VW and Ford are working very closely with Argo as they look at their respective vehicles that they make the SDS work for. There’s a lot of sensor technology in both vehicles, Bryan can explain, but coming together makes that a simpler and less-expensive task.
The next ring is where there’s vehicles that, as you described, we believe that the sharing potential, respectively, with VW of our platform in the U.S. and Ford of the VW platform in Europe. The outer ring is the go-to-market part. This is where the vehicles will be badged and marketed as they’re known, and lots of other nuances and twists to the way that will utilize the capabilities. So it’s at that point, when we get to the outer ring, where there’s a lot – there’s really dramatic independence in the way we want to interpret this capability.
There is room that Herbert and I have talked about in going to market for commoditized kind of capabilities where we could lower respective costs. And just imagine things like service centers and things like that to help these vehicles stay healthy. There’s all kinds of ideas that sit there in an imaginative way, but we have not tightened any of that down as of this day.
And probably I think SDS development, as Jim said, is really the critical part to make those business models work and it will require enormous amount of resources and speed and the biggest talent. So I think it just makes a lot of sense to bring all the knowledge we have in Volkswagen together with all the knowledge in Ford and combine it with Bryan’s team. I think we will be a very – we will have – we will be very strong on this core asset.
But then when it comes to the outer rings or to the business models, I think it’s more about scaling operations, also very different business models. Branding plays a huge role. And I think we shoot to be flexible there, too, because the world is big for this kind of technology and there’s plenty of room. So there might be synergies as well, which we find on this outer rings over time, but the core is really make SDS work. Yes.
Our next question will come from the line of Patrick Hummel, UBS.
Yes. Good morning, gentlemen. I have a pretty bad eco on the line. So I hope you can hear me well. My first question fairly simple, why is MEB only shared in Europe? Is that because Ford just needs MEB the most in Europe for CO2 compliance win? Or is there any competition consideration why Volkswagens is only willing to share the platform in Europe? So any color on that, would appreciate it. And also, can you clarify how Volkswagen gets compensated or remunerated for producing these [indiscernible] parts? Is it like parts are acquired on a per unit basis or how does that work?
And my second question for Herbert Diess, please. Does that agreement with Ford and Argo AI now mean that all the AV-related development within the Volkswagen Group will stop and will be completely put into Argo AI? And how much of a relief would that be for your annual R&D budget?
Let me take the first one, Herbert?
So the question of the platforms being directed to Europe. First of all, Europe’s moving faster in the mandate for zero emissions. So it’s – we’re being pulled in an important way. So this is really strategic for us. Secondly, Ford in parallel was already working on a bespoke platform for, as I’ve talked about, with this Mustang-inspired SUV and our F-150. So both of those programs are in great shape for North America. And in the case of the Mustang-inspired SUV, it will be exported. But let’s leave the impression that this is a really solid platform and we’re quite intrigued by our teams will start to work with it. And if there’s expanded capabilities, that’s something I’m very open to.
We started the focus for the platform mostly looking into China because China is, for us, it is the biggest market. We have about 18% market share. And China is converging really rapidly into EV technologies where we have a market share of 5%. I just came from a conference last week where the government pronounced that by 2035 they would aim for 50% of electric vehicles, which is probably the most aggressive plan we can see worldwide. And execution so far is, as you know China, it’s really rolled out and you have to comply. And if you’re not complying, you’re out of the game.
Our design for the Chinese cars is mostly European-based. So we share the European or global platforms for China. And – but we right from the start, we sought for a platform which would work within our core segment, which is A segment, B segment, hatches, limousines, SUVs worldwide or globally. So this platform will work in all three worldwide market areas – in China, in Europe and it will come to the United States, which we already decided we also will manufacture this platform in the United States.
May I say that when we discussed where we use it, let’s say, our footprint of our cars is a bit more European, a bit more smaller, a bit more compact. And that makes it probably, this platform, the first choice for, let’s say, the iconic Ford cars in the U.S. American market. But I think it makes a lot of sense for a Ford European cars and the cars we see in China. So this is probably, from my viewpoint, a priority. But I would not exclude that we can offer you something which you might use in other parts of the world.
Second question, R&D budget. Yes, we are really putting all our knowledge, resources from autonomous driving, focused on robotaxis and services into this venture. This is why we fully also include our Munich team, which I think is quite strong. We are also bringing to the party our research and development people, which we have in Wolfsburg, they will be there. We will build up a strong team for the applications in the local markets in Hannover and they will really work hand-in-hand. And there will be no other, let’s say, activities in autonomous within the group. I would exclude, a little bit, China where we have to see what’s going to happen when it comes to regulatory environment.
Although the – let’s say, we will have probably totally different norms and approaches. But we have to look at it and I think we always will share our approaches. So focus is really putting everything into Argo. What we will – what we cannot include is the – also, let’s say, our conventional car lineup is developing new capabilities, lane keeping, next – level 2 driving, German Autobahn level 3 driving, which we have to be in the competition. It’s in the premium segment.
So between BMW, Daimler and us and Audi, we have to succeed as well. We are trying to make every possible synergy between, so we fully share technologies, sensors tech, because there will be technology which can be shared. We bring that to the party. But we focus with Bryan’s teams on really autonomous driving, having the business model of a driverless car in mind, which is totally different to progressively advance our capabilities of the conventional car lineup.
So it’s – I think we can avoid further growth in our R&D budgets by these means and so it makes a lot of sense. But all in all, I think the amount of money we are spending on software will increase in the next years quite considerably. The car will become more and more of a software product. The car will be differentiated with software. We are not only on the driving side but also in the user experience, including services. So I think we cannot expect really to reduce R&D expenditure in that area but I think we are really pushed to use every synergies we can find. And so Argo for us is a very important endeavor to really also keep our R&D levels at a reasonable level. Sorry.
Herbert, there was this question on the compensation on the MEB.
Yes. The – sorry, I forgot. Yes, we agreed on a – basically on a volume and then on a business model, where we – where Ford would pay set by set for it, yes. I think it’s very attractive for both sides.
Okay, next question, please.
Our next question will come from the line of Rod Lache, Wolfe Research.
Good morning, everybody. I’ve got two questions. First, is Ford reducing its spending on electrification from the $11 billion through 2022? Were these savings contemplated in that? And then secondly, on Argo, can you just clarify what the pro forma ownership structure of that business will be between Volkswagen, Ford and the founders? And maybe talk a little bit what the time line – updated time line is for Argo from here in terms of commercialization and you envision this business ultimately remaining integral to Volkswagen and Ford. Or do you ultimately envision separating that entity?
I’m going to let Bryan and Herbert help me with the second question. The first one is, no, Rod, there’s not a change to that $11 billion forecast. But you got to think of this – I was trailing the last question with an instinct to make sure everyone understands how groundbreaking this news today is on the MEB platform because the shared cost to get the penetration that we need in the market for EVs sits in front of us. So the idea we can start to get – as Herbert said, to get the cost of this down so that customers can buy these vehicles at scale is going to propagate ever more investment on the platforms of EVs. I say plural platforms because we have some of our own, so that’s why the $11 billion isn’t walked back. So we are reimagining, as you heard Herbert talk about acceptance of EVs growing. So it’s just more exciting, and we get there faster. So Bryan, I’d let you start with the ownership and then we can talk about the other parts.
Sure. So from an ownership perspective, each OEM takes a minority stake in Argo. There’s a pool also set aside for founders employees, which is important. You talked about timing, which I think is important to note that we’ve committed to Ford for initial commercialization, we call it, by 2021. That has not changed. And then we have lots of plans that are getting formulated obviously with Volkswagen on what might follow that. Nothing specific to announce today, but lots of great ideas on what might – what will come. Do you want to add to that?
Yes. Ownership, I think is something we...
Well, the nature of the ownership was that VW and Ford together collectively have a majority in the way that this falls out. But it is a private company that we’ve taken holdings in. So that’s the kind of circular part of what we’re talking about today. More of this detail comes out as we have to do our equity-based accounting in our 10-Q. So more of that will be disclosed in.
Our next question will come from the line of Tim Rokossa, Deutsche Bank.
Yes, thank you very much. Tim from Deutsche Bank. I’d like to follow up on one the previous questions. And Herbert, you said you basically paid set by set for it, are you happy – or you get paid set by set for it, better to say. Are you happy to give us some indication on the financial details of that? Will you really just provide certain parts? Are you helping Ford to build up the production? Can you ultimately envision to build the vehicles for Ford? Or is this agreement really just you getting money per part, which already by itself is a very good milestone and probably role model for the industry? And secondly, how are you thinking about inviting other OEMs to join this alliance to both of you? Do you see that the complexity for now is probably sufficient to really do this jointly? Or are you openly accepting other guys to join? Thank you.
Yes. As a group, Tim, we are quite experienced in sharing platforms between different brands worldwide. So we’re using, for instance, MQB worldwide scale in different sizes, and we’re deploying on those platforms really different cars for – between Latin America, India, China. And it makes economic sense for us. And with the same idea, we basically developed this EV platform. And you can see a mockup out there. It shows a little bit what it is. And it’s a high value part of the whole vehicle now because all the basic, all the technology comes with the kit. But it’s very versatile, and you will be astonished how different the cars can be on this platform.
There’s a lot of room for really branding, design even more than in the past. This is electric platform now. And we think this is why we are also really pushing that because it – in this electric world, where the drivetrains are becoming more similar than today’s drivetrain, the battery cells are very similar, the performance levels are very similar, it just makes a lot of sense to reduce the cost of the shared components and produce more scale and allow for more differentiation towards the customer.
Yes, it’s basically – I think in our industry, it is very complex to develop a car. So you cannot just sell parts and say, let’s put it together and make it work. There’s always some engineering involved. I think Ford has a very strong engineering team in Germany, and we are really looking forward then to help and make sure that the outcome will be really a Ford product, which helps the brand and they’ll be successful on the market. So it will involve some engineering, which we are working on the contracts and also getting our teams together.
The future perspective is, yes, we are in talks. We are relatively strong, are very strong in China. We have joint venture partners in China. They are asking us for also using that platform, which also would be a breakthrough for us. If we can really remain in the leading volume position in China, that would help us also to be very competitive globally.
So Mark, I’d like to introduce – I have Joe Hinrichs here, President of Ford Automotive. And Joe and Jim Farley who’s head of really the whole new initiative that involves the Auto 2.0, these two executives are key in the – both in the integration of Argo and the VW alliance. And Joe is dealing with this EV platform around the world. So Joe, is there anything you want to add to kind of our appetite for the platform, and in addition, the way we’re thinking about managing the portfolio?
Yes. Sure. Good morning, everyone. So first of all, we’re very excited about using the MAV platform. And as Dr. Diess said, as you look at the future, the electric platforms actually don’t have the same differentiation that traditional transmissions and engines have had in the past. So leveraging the scale of Volkswagen’s capabilities is something very exciting for us. We will design the top hat for the Ford European business in our Cologne, Merkenich engineering center.
It’s actually very helpful to be in Germany, to be so close to Volkswagen as we do that together because, as Dr. Diess said, there’s a lot of work that goes on in developing a vehicle that will have to be done together not just in the design and getting the architecture right, but also design for manufacturing. We will manufacture the vehicle in our Ford Europe manufacturing plant. We’re not announcing which one that is today. But importantly, this is a development we see happening throughout the universe of Ford and the global auto industry moving forward.
As we transition to electrification, as has been discussed greatly by both Jim, Dr. Diess this morning, we are going to see more collaborations because the transition timing is uncertain and the volumes are uncertain, so if we can leverage the scale that all of us have together to make this happen sooner and in a more affordable way for consumers, that’s better for the environment and better for all of our companies.
Thank you, Joe.
So – and just let me do one add-on. We have given a rough sales estimate on Slide 20 in the deck we just showed. So you will find an indication there. Having said that, we are happy to take the next question.
Thank you. Our next question will come from the line of Ryan Brinkman, JPMorgan.
Hi, thanks for taking my question. Given that there has not been a great deal of public disclosure about the progress of different companies’ autonomous vehicle testing and development efforts, perhaps because of the sensitive competitive nature of this information as rival firms engage in what one executive’s called a race to get to the starting line, how do you think about the capabilities of Argo AI relative to other companies working on this technology? And how do you expect the time frame of when Argo AI will be able to enable commercial launch of autonomous vehicles relative to the other automakers and technology companies?
Well, I’d like to tee that up because I’m biased, right? I started in June 2017 in the job and Bryan was just arriving at Argo. Pete and Bryan and I had early meetings. One of the first thing we aligned on, it was a very simple sense, and Bryan said Jim, this is a really difficult problem, and he had a lot of history in really the initial evolution of this. And we shared what happened in the computer industry as that capability emerged and you forget, we as all consumers of computing, what it was like at the beginning and where we are today.
So this will follow a similar path. And so I was quite obvious in my first few months in as CEO saying that we are so committed to this, and we’re going to do a great job, and please don’t make it mythical at the beginning because it will ruin the customers’ trust if we overstate the case. So the confirmation for you is pay attention to these cities that Bryan took as the first cities to test. We’re down in Miami. We called it a black diamond relative to the metaphor of skiing because it’s a very difficult city to plan, to have naturalistic driving given all the tendencies that happened in that community. And its’ going extremely well, so well that we’ve expanded to another difficult city. And so Argo is a leading firm in making this happen, making this a reality.
So Bryan, I think you ought to just share why it is a big challenge to do this and where you see us.
Yes. It’s good. Thank you, Jim. I just want to make sure everybody understands that we, from the beginning, have been very open and collaborative and honest with our partners about the challenge of this problem, and we will continue to be honest, right? And so we have – Jim talks a lot about marrying the technical capability with the market opportunity. And I think that we’ve been very, very careful to make sure we marry those up and then put that over a long-term time line. And we’ll be doing the same thing with Dr. Diess and his team.
The markets that we have – or the cities that we’ve entered are extremely challenging. Miami, the driving tends to be aggressive. There’s a lot of what we affectionately call noncompliant vehicles where human behavior isn’t going to change, but we have to be able to safely operate around that human – those human drivers. And so our system has been developed from the beginning with that in mind that we can’t just be this sort of robotic-like, very overly cautious driver because then our customers won’t get to where they need to go.
So the idea of taking this very safe but combining it with this naturalistic driving approach, I think, is part of what makes Argo different. And anybody that was in the event that we did in Miami last year would have seen firsthand that, that sort of naturalistic driving and understand what we’re talking about. The other thing I would say is that we’re very happy and pleased to be with patient investors who are looking at the long-term plan. We’re thinking for very long term. We’re thinking for scale.
We have, from the start, said that this is going to be targeted launches in specific geographic areas, in specific areas of the cities that we go to. That’s why we are testing across really the largest AV testing footprint of any other company because we want to get that variation and make sure we’re not just teaching the system to a particular city or environment. We want to be able to throw as much variation at it as possible, so that we know that we can scale over time.
So those are some of the things that I think makes Argo different and also make this collective partnership different in that we’re looking and planning toward the long term, toward scale, but we know that with that in mind, this is also going to be a city-by-city ramp. It isn’t going to happen overnight, and we’ve said that from the start.
I might add that I was not at all biased, yes? In contrary, I was a bit skeptical. We had the chance to really look at this coming industry for about, I don’t know, 1.5, 2 years or so. I think we took the time because we think we will be faster not to start too early, pick the right partners, look at the right areas and then really put all the resources together. So we had quite a stringent process to, let’s say, checking out who would be best partnering. We knew that we should partner, we should do something in America.
But the question whether we should do something was more the technology start-ups or something closer to OEMs was an open question at the beginning. And we had really very thorough scrutinizing and analyzing all the potentials, the different technological approaches, the teams, the competency of the teams, the background, the commitment. But after this long search period, we found that Argo is the right partner for us, Argo-Ford, I would say, in this combination. Because we think that the technology, which might be fast at the beginning, but the integration into vehicle to make it really safe, to make it really deploy to an industrial level, they will probably, I would say, struggle but – they would have some challenges, whereas this combination between good competent startup team and two strong powerful OEMs probably is a winning team now.
And Bryan, in my earliest interviews, had been in a tech company and his dream was to get next to the automotive manufacturers because you’ve got to understand, this technology is about the vehicle having be able to see where it’s going, a machine and then deciding through algorithms what to do. And then the vehicle has to be directed. The integration of those three layers are very difficult. And I’m excited to say because he had the earlier experience where he was only working on, say, one part of that or two parts of it, he gets to work on all three, I think we’re – to the question that Ryan asked, I don’t think we’re behind anyone. I don’t know how you’re writing it and how the media is writing it, but I haven’t believed that from the time the news is out that Ford’s lagging in any kind of regard. I don’t think anyone really knows. But I think when you see the way we’re approaching the design problem, I think we’re thinking about it in the right way.
Okay. Let’s take one last question from the investment community.
Our last question will come from the line of Stephen Reitman, Societe Generale.
Yes. Good morning everybody. Two questions, please. First of all, the time line for Ford taking the MAV platform. Given the fact you’re talking about 2023, that seems quite a long way off considering the regulatory requirements you need to do that are coming in 2020, 2021 and considering that Volkswagen has been MAV platform already, it seems quite a long time. And the second question is really about what you both
Did you get the second part?
We lost you in the second part.
The capital intensity in this industry is something – main concerns of all participants and really what is the real win you think you can expect made from these collaborative projects? Thank you.
Sorry, you’ve got cut off just a little bit. Could you repeat just the second part of your question?
Yes. I was just wondering also, so this joint collaboration is clearly to be welcomed, could you give any quantification of what you think could things be, what you will not have to spend because of the ability to work together in the fields. Thank you.
Okay. So the first one, again, I’m going to call on Joe because this 2023 date is highly rational and very thoughtful where we are. We have a lot of initiative. Joe, you want to talk about the timing?
Yes. Sure. So as you might imagine, working closely with Volkswagen is going to take us some time to work through the top hat development and the architecture development. But four-year time frame feels right given the work ahead of us. I will say that – and I will second what Dr. Diess said that there probably isn’t anybody better in the auto industry at making use of a platform across multiple brands than Volkswagen, so we’re encouraged by how fast we can go to make that happen. But four-year time frame – because we also have to convert our plant over to be able to convert – to build this architecture. So that takes some time as well.
I want to be clear for all of us that this is not the only part of our climate and expectations and commitments in Europe. Obviously, our – we’ll be compliant in 2020 with our portfolio. So we have a number of other initiatives going on in our Ford Europe business to meet the requirements that start to ratchet up next year and beyond. Those will be an important part of our strategy going forward for the medium to the long term. But 2023 is very rational. Four years is about the right time to be able to do a top hat right, work with a partner to get the infrastructure right and convert the plant over.
Anything on the savings.
Well, we’re not being specific today. We’ve talked in the past about some of the opportunities, the other work we’ve done together on commercial vans and midsized trucks. So you can think about the magnitude of that. Dr. Diess said for Volkswagen, it’s in the hundreds of millions of dollars. As you can imagine over time, we have a similar type of savings opportunity.
Okay. Great. We’d now like to take some questions from the media, here in the room and also please dial in if you want to try to get a question on the phone line. Starting with Paul.
If I can ask you both – if I can ask to each one question. Before anything else, I want to clarify one thing. You mentioned 50 million vehicles, your target in the coming decade for electric in Europe – or worldwide. I thought you had said you were increasing that to 22 million recently?
It depends on time spent. We see in the next 10 years, we have 50 million. And if you extend that, there might be some more.
So, if I can talk about this. Jim, you have already made two commitments. You have the architecture going into the SUV, you have Rivian coming on board. Now you have an MAV. That seems to be moving sort of away from the levels of efficiency that this industry is going for. VW, for example, has just two electrified platforms – primary platforms. MAV and, of course, one for the high-end products. It would seem like, number one, you’d be wanting eventually to have a lot of vehicles on fewer platforms, not more platforms, and yet you’re moving in that direction. So can you talk about that? And then Dr. Diess, can you talk about the peculiar nature of collaborations, which seem to be very non-monogamous in this industry. These are marriages that seem to encourage a lot of playing around.
So let me – I’m glad I get to answer the first one. I’ll let Dr. Diess talk about the second one. So in a literal way, there are two platforms that we’re working on as well in that the work that we had already started in our internal Ford work is how we’re getting this bespoke Mustang- inspired SUV out. The MEB is the second one. This third JV with Rivian has got an expanded kind of appetite for us. They’ve been working on a brand-new electric architecture along with a skateboard. So I’d like you to hold that outside kind of the question of whether we’ve gotten lazy in the platform management. So I totally subscribe to what you’re talking about. In fact, the inspiration to do the MEB is that discipline.
The thing to understand about platforms though is that if you had an extreme version of that – we just lost an icon in the auto industry in Lee Iacocca, and he was building the K-car structures. I mean he learned a valuable lesson when I talked to him about, if you make that too – you’re too diminished in the number of platforms, you don’t have enough diversity of options for customers. So that’s the hall-of- fame business balance is how expensive can you make optionality and at the same time get the most efficiency. So I want you to expect that we’re really managing that with some mastery.
So I’ll let you talk about that.
Yes. Partnering, I think if you look at Volkswagen, we have economies of scale inside, sharing between the brands. We are relatively strong in many areas of the world. So it’s not the first thing we look at because, at the end, it adds complexity. We’d have to negotiate contracts, and it’s – it adds complexity to a business and it might make you slower. But the times we are facing, we will get into resource problems because all becomes really, really expensive now. Autonomous becomes expensive. We have to invest in electric cars, and also the environmental standards are really being tightened on a worldwide scale. So software is something we have to learn – really ramp up.
So there’s a huge amount of new tasks, also new business models coming when it comes to mobility services, which we have to – and everywhere, we have to put resources. And the markets are still very competitive in some areas of the world. So it will be a constraint. Even for a big company like Volkswagen, there will be constraints, and it just makes sense to act together. One of the areas is, for instance, light commercial vehicles. I think we have – relatively strong in Europe, but combining our resources only in Europe makes us the strongest player in light commercial vehicles. I think for both sides, it makes a lot of sense. Our platforms are very close. We can use each other’s platforms and manufacturing facilities in Europe and in many places of the world, South Africa, Latin America.
So it just makes sense for us. It makes both companies stronger. It saves money, which we would have invested into smaller quantities. I think self-driving speaks for itself. A huge amount of money is still being put in until we get something out of it. We have to be, I think, conscious of this. It’s a long way to go. And Bryan indicated that it’s really long way to go until we really come to build – which makes a lot of sense to combine forces and go the long way together.
So why Ford? Ford for us makes a lot of sense – and we’ve – I think we felt that over the last year or so negotiating, there’s a lot of shared values we have in both companies. We used to work together also in the old days in Europe. There was a company called Autoeuropa where we built cars together, designed cars together. We used to work in Latin America in Autolatina together. One plant still is there, which is only, let’s say, separated by a fence. So – and I think it was fruitful for both companies. Then we split, yes, for a while, but I think we like to work with Ford because we have a lot of shared values and both companies are very complementary. We are very strong in Europe, also in China. Ford is – we are very weak here in the United States, I might say and in many other areas. It’s just very useful for both companies to combine some of the resources to make both companies stronger. And we have high respect for our Ford colleagues in what they’re doing and how they’re doing the work.
So we think Ford makes a lot of sense for us, and we don’t look for too many partners more. Marc?
So we have Ian Thibodeau from the Detroit News in the line, and then next question in the back.
Our next question will come from Ian Thibodeau from Detroit News.
Hi, there. Thank you for taking my question. I think I have a pretty quick one, guys. Is this the end of the partnership discussions here? Are there more things, more places in the business that you are talking about partnering on moving forward?
Ian, it’s Jim. This is as much as we’ve announced today because this is what we’ve been working on. In fact, in January, remember in that press conference, I said don’t make the assumption that we’re done because we knew we were working together. And we’ve made a commitment to each other that there’s still opportunity. I mean because that the time is short, I don’t want to tree off into a lecture about vertical integration, but Henry Ford had control of the whole supply chain. And the way that it’s evolved today in 2019, if you map the supply chain – the suppliers, by the way, you tend to have higher P/Es than the OEMs. So this – the way this is starting to transact today, I think, is a modern version of when you have technologies that aren’t proven yet or the acceptance in the market isn’t as high as you need it to be. These are really smart ways for shareholders to make sure that companies are evolving but not taking too much risk. So there's – Ian, there's other categories like that, that sit out there. And so those are open as well.
The next question.
Wait for the mic, would you?
Given the troubles with the Renault, Mitsubishi, Nissan alliance and the collapse of the FCA-Renault merger recently, these sort of alliance structures seem to be a little bit out of fashion in the industry. So you guys look like the marquee example of potentially how to do this moving forward, and you seem fairly happy about how it's going. So is this going to sort of form a model, do you think, in terms of how these kind of ventures can be undertaken moving forward in the business? Or you have a kind of maybe collaboration and competition intention as we dealt with an earlier question about that slide that showed your sort of ring strategy?
Yes. I wouldn't – it's – I'm not the one who can really say how is this going to work out in the future. I think we will see some more consolidation happening because size will become even more important than today when we're going into the software world. Because building up a future software stack for a car might cost a few billions and maintain it will cost you a few billions per year. This game will change, so economies of scale will be important. Being a global player will be very important. So I think sharing technology, using standards, will be important to succeed in the future. And there might be, too, models we find that our approach to – where project by project look for the benefits and, let's say, getting it into a balance of projects where the benefits are on both sides is our way forward, collaborate. But I think in the industry, consolidation will happen, yes.
And I want to confirm, Thomas is here and John. You guys turn up – stand up and wave to the – John Lawler and – these are the Ford, VW people that work together, and they've done a great job. I just want to confirm what you said. It looks like it's going well. It really has gone very well. Well, because the notion of fitness that I've been talking about is that you've got to think of these kinds of mutations as a way to win. And I found an intellectual alignment. Dr. Diess has had a lot of experience in this industry. And I came from outside the industry, so we had discussions about this. And we both agree that the coopetition or holding these two thoughts in parallel, that you're aligned here and you're competing there, is able to happen. So yes, I'm very happy about it.
So, I think we had a question from Astrid from Handelsblatt over here.
Thank you so much. This is for Jim in that spirit. The diesel scandal has shook the auto industry in Germany and beyond. So was reputational risk a consideration before doing this alliance?
Well, and I – again, coming from outside the industry, I wasn't as – I mean, of course, I was a consumer of that information, but I wasn't a part of it. So maybe my objectivity was higher in the sense of learning about this man on my right. And I know that Bill Ford and I spent a lot of time at the beginning just confirming about the cultures of the two company and the way we think about that. And Herbert, this is – you can think about – one of the reasons he's here is – and the way he's been asked to rebuild the VW culture and it's gone really well. So that was one of the first things that we kind of put on the table, and I'm really confident that that's been addressed. Listen, in everybody's life, in business, I had this before, you learn lessons from mistakes like that and you either get better or you get worse. And I would say VW has gotten better from that scandal.
I think we have a question on the call, Holly, from – Peter Campbell from FT.
Our next question will come from the line of Gary Gastelu, Fox News.
Hi, Jim or Joe, regarding the Flat Rock EV project, can you update that at all and explain how it ties in technically with the performance crossover and the F-150? And then on the autonomous side, does VW-Ford now have any sort of time line on the Level 5 vehicle or you think a consumer version of the Level 4?
So Joe, you want to take the Flat Rock and EV commitment?
Yes. This doesn't have any effect on – am I on? Doesn't have any effect on the Flat Rock investment that we announced previously. That will be a Ford platform that will be for North America market. And as we said, the initial application that we've committed to with Volkswagen is in Ford Europe. So no changes to the Flat Rock. That's our next-generation electrical platform we're developing internally in Ford that we'll roll out in North America. It doesn't affect the F-150 program because that's a separate program, not regarding Flat Rock.
So, on the technology, do you want to take a swing at that Herbert?
Well, the technology, the promise of this is Level 5 and, in fact, backwardly being integrated in Level 3 kinds of architecture. So I've been talking to suppliers who are all betting whether the Level 4 actually happens and will Level 3Cs kind of what we would you say the normal customers, you've got to believe that all of that is still really possible. And so we have lots of room for that. Bryan, I don't know if you want to add?
Sure. Maybe, to start, I'll just make sure everybody understands the difference between Level 4 and 5, because it's sometimes conflated. So Level 4 is a self-driving vehicle that does not require any intervention from a human, but it operates in a very specific geographic area. We call it a geofence. Level 5, as is defined by the SAE levels, is a car that can operate anywhere, no geographic limitation. We're of the belief because we're realistic that Level 5 is going to be a very long time before it's possible.
The way we're choosing to deploy for the foreseeable future is our Level 4 vehicles, which will be in a prescribed, specific geofence area from one city to the next. That's the right way to do it because it makes it much easier to validate the technology because you know what you're testing against. I'm not saying Level 5 isn't possible, but it is something that is way in the future. In terms of the consumer or not, we're a believer that because of the initial cost of the technology, it makes a lot more sense for it to be part of shared, managed fleets. Fleets that will be managed and owned by the OEMs. And that just makes the most sense for the consumer because that cost could then be spread across the lifetime of the vehicle asset. And then eventually, as those fleets get deployed, we get volumes up, costs will come down naturally and then allow us to have entrance points in personal vehicles.
Keith Naughton from Bloomberg, I think. Keith Naughton Bryan touched on this a bit, but I was hoping Dr. Diess and Jim might be able just to speak to the difficulty of making this deal come together. Volkswagen and Ford have been competitors for decades and decades. You had to really open up to each together to get this done. Could you just talk about actually how difficult it was to come together? And secondary question, the vehicle, the 2023 vehicle in Europe, Ford's committed to go more commercial in Europe. You have a commercial alliance together already. Will this be a commercial vehicle?
On the vehicle, you have to comment. How we got started is basically with our light commercial vehicles where we are in a strategically complicated situation, at least in Europe, I would say. And we have been talking to other potential partners option as well. We decided that Ford would be a priority. And then we got in – the team got in contact. And let's say, starting with this topic, we got into more platforms, cars, more potential, and this is how we got here.
Yes. And we have lots of people calling on us, trying to sell us technology. And I think what made it easy to have a dialogue is the ambiguity of when it's coming and how it's all going to work. As businesspeople, these are the hardest decisions, how much do you invest, what kind of risk do you take. So you imagine we aligned very quickly around those questions about the ambiguity, so – versus the people that – not Bryan, but the others that are trying to sell us on the technology had a certainty that both of us were skeptical about. So I think you just – you would find that we aligned in a common way around that. Now the second part of your question was…
Commercial for the first EV.
Yes. Go ahead Joe.
It will be a passenger vehicle.
Okay. I think we have a call on the line. Holly, do we have any more callers on the line?
Yes, we do. Our next question will come from the line of Peter Campbell, Financial Times.
Good morning, gentleman. And thank you very much for taking my questions. Jim, I just want to pick up when you said there are other categories that sit out there, things will come together. Can you give us a sense of what that is? Is that more joint vehicle investment? Is that involvement in VW's kind of other upmarket electric platform? Could you – is that joint procurement in the future? What sort of things are you thinking of?
Well, I'm not sure I want to cede that for everyone to know. But Herbert gave you a hint when he said – when you think about the nature of the vehicle and the way it's effectively becoming a rolling computer, there's a lot of investment in those kinds of future technologies that will have kind of base standards that are commoditized. And so we could share some of that investment. Software would be an area where you could see some interest. But that – there's more to it than that. This is such a transformative technology that it gives both companies such opportunity to be different in the way they interpret it and ways to join and trying to mitigate the cost and get it to our customers sooner.
Back in the left from El Pais.
Thank you very much. First question for Jim. You mentioned the cartoons. In the future, in the cartoons, the cars look all the same. Is this kind of ventures killing the differentiation of the product in a way that is the way to get consumers buying the new cars? And for you, what do you see in Argo that you didn't see in Waymo or in Aurora that you exited? I mean there have to be something more than the fact that Ford is a big company.
So if you – let's imagine a world more dystopian where they all look the same. Where I went to college in Ann Arbor, the students would take those and spray paint their own versions, like the California surfers change vehicles in America where they started to change the language, right, for their style of living. So no, they're not all going to look the same.
What we see in Argo is that, and we had a very – we had wide range of contacts. We wanted to come to America because we think this technology will be deployed first in American cities, in this kind of environment, also because the technology teams are all working here. We look for the – let's say, best talent, best track record, best technological road map, what we can see, where would they go, how they work, what are their next steps, how is their judgment of the progress. And you find people, which are very optimistic in that area and people more reasonable.
We found that their approach was right. And what was also for us very much convincing is we think that integration into the vehicle will play a major role. Let's say, to make a test vehicle drive around, have a nice showcase, that's relatively easy. But to make a viable product, which is safe, which runs under certain environmental conditions, it's a different story. So we think that only a combination with a strong OEM and a strong start-up culture based, really one of the best teams in the world with the best track record also, it has to be brilliant people, many PhDs, many, many thoughtful people is the winning combination, and that is why we think that joining this team makes sense for us.
Okay. Let's take a couple more starting – I think we have one on the call, please. Holly?
Our question will come from the line of Stephen Wilmot, WSJ.
I had a question about purchasing cost. And typically with these alliances, they make a lot of – out of – joint purchasing costs and that is the principal way they add value. You haven't talked at all about that. I don't know to what extent joint purchasing costs are embedded in the principal platform sharing. Perhaps you can speak a little about that and also whether that could be a future area for collaboration and extracting more value from this alliance.
Yes, this is really the basis. This is where we started when it comes to our light commercial vehicle platforms. And we found out there is some substantial benefits for both sides in, and it goes so far that we mutually use our manufacturing sites in Europe, which brings better occupation and better use of capital. We create economies of scale. We use platforms from Ford and from Volkswagen, and the savings are significant. And also – but even in this partnership, the main driver was the effort, the onetime spending we have to put in those vehicles because of the transition.
We need plug-in hybrids even in this segment. We need electric vehicles in this segment. And the amount of investment going into this amount of sales of cars is just so much that the savings, I would say, on the onetime expenditure side are even higher than on the purchasing bill of material side, but they are – on both sides, they are substantial that motivates us. In the later, the two things we're talking here, it's mostly combining resources. We think we can get faster, faster in time-to-market and also reduce the onetime expenditures in our balance sheets, yes.
Okay. Let's take one more. Ma'am? Just wait for the mic, if you would.
Hi. I'm Cathy Bussewitz from AP. I wanted to ask whether either company is considering manufacturing the other one's vehicles in their factories and also just whether this partnership could lead to a broader alliance or merger someday down the road.
Your first question, yes. Yes, on the commercial vehicle side, we are fully making use, so we have shifted Volkswagen vehicles into Ford plants and vice versa. This is the base of the plan, which makes a lot of sense. And the second question was, sorry?
Whether you are going to do…
No, I don't think we don't need any capital, let's say, any stake holding in each other's – it works on mutual benefit, yes.
Okay. Thank you very much for joining us. That's the end of our Q&A session and our press conference. We have plenty of folks from the Ford communications team, VW, Argo and others that can answer your questions afterwards. So thanks, again, and have a great day. Thanks for joining us.