By Paul Lienert
DETROIT (Reuters) - Volkswagen (DE:VOWG_p) AG's $2.6-billion (£2.08 billion) investment in Ford Motor Co's (N:F) Argo AI self-driving unit, announced on Friday, immediately vaults the two-year-old Pittsburgh-based startup into the top ranks in the sector.
Argo said VW was investing $1 billion in cash and contributing its European self-driving unit, valued at $1.6 billion. The investment deal gives Argo a valuation of just over $7 billion, one of the highest in the autonomous vehicles sector.
VW is buying the Argo shares for another $500 million from Ford, which acquired a majority stake in the Pittsburgh-based startup in 2017. VW and Ford then will each have a minority stake, as will Argo founders Bryan Salesky and Peter Rander and a pool of Argo employees.
VW and Ford each will hold two seats on the Argo board -- representing a voting share of just under 30% each -- while Argo will hold three seats, representing just over 40%. The companies declined to disclose their actual stakes in Argo.
Ford previously agreed to inject $1 billion over five years into Argo.
In an interview, Argo Chief Executive Salesky said: "We have two great customers and investors who are going to help us really scale and are committed to us for the long term."
Salesky said Argo would welcome additional strategic or financial investors to help share the costs of bringing self-driving vehicles to market.
"We all realize this is a time-, talent- and capital-intensive business," he said.
The Ford-VW partnership with Argo could help accelerate the deployment timetables of the two automakers who plan to put autonomous vehicles into operation in 2021.
Argo has been overlooked as Waymo, Alphabet Inc's (O:GOOGL) self-driving subsidiary, has deployed its robo-vans, and General Motors Co's (N:GM) Cruise Automation unit has raked in billions of dollars in investments.
With VW, the world's biggest automaker by sales volume last year, Argo is now aligned with a partner with substantial scale and resources. VW also has a broader product portfolio that includes heavy trucks and off-road equipment that could be automated with Argo's help.
"Our platform is scalable to just about any type of vehicle," Salesky said.
The Ford-VW collaboration with Argo could also have broader implications for similar alliances, as well as valuations of related start-up companies.
The value of autonomous-driving startup Cruise jumped to $19 billion earlier this year after it attracted more than $6 billion in investments from SoftBank Group (T:9984), Honda Motor Co (T:7267) and T. Rowe Price (O:TROW).
The value of ride services firm Uber Technologies' (N:UBER) Advanced Technologies Group climbed to more than $7 billion earlier this year after SoftBank, Toyota Motor Corp (T:7203) and Denso Corp (T:6902) invested $1 billion.
Those valuations were dwarfed by the estimates for Waymo, which is widely acknowledged as the sector leader. Morgan Stanley (NYSE:MS) values Waymo at up to $175 billion, while Jefferies values the company at up to $250 billion.
VW reportedly considered a $13.7 billion investment last year in Waymo for a 10% stake that would have valued Waymo at $137 billion.