Shifting Alliances Hint At New Balance Of Power In Autonomous Cars

Once upon a time, autonomous drive developers could dictate terms to automakers but that seems to be changing.

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It's been a busy week in the world of autonomous drive technology, as a frantic burst of dealmaking reshuffled the landscape of partnerships in the space. Much of the news focuses on Aurora, a "full stack" autonomous drive developers started by Google veteran Chris Urmson and former Tesla Autopilot chief Sterling Anderson, but this tumult appears to be the product of trends that are much bigger than any one company. 

Things kicked off on Monday, with news that Fiat-Chrysler had signed an agreement with Aurora intended to "lay the groundwork for a powerful partnership in self-driving commercial vehicles." A day later, the Financial Times reported that Volkswagen was breaking off its partnership with Aurora in favor of negotiating a deal with Argo AI. Then, on Wednesday, Hyundai-Kia deepened its alliance with Aurora by joining Amazon and others in the firm's $600 million Series B round. 

On one level, what we're seeing in these deals is simply consolidation. With the timelines for autonomous vehicle deployment being pushed back and the auto industry increasingly anxious about a global cyclical slowdown, pressure is growing to partner up in order to share the eye-watering cost of AV development. That in turn is creating a poker-table dynamic, characterized by Softbank Vision Fund partner Michael Ronen as "not just an intellectual capital game but a financial capital game... I don’t think it’s winner take all but it’s a big boys’ game."

Ronen's ominous message, delivered at The Information's Autonomous Vehicle Summit, could hint at one possible explanation for some of the recent moves. Softbank is uniquely positioned in that it has made massive investments in two of the sector's heavyweights: Cruise, which is majority-owned by General Motors and partnered with Honda, and Uber's Advanced Technology Group which has been moving increasingly into Toyota's orbit through a combination of investments and partnerships. If, and it's certainly a big "if" for a number of reasons, Softbank were able to broker a consolidation between GM-Cruise and Toyota-ATG it would create a game-changing behemoth that would transform the sector's strategic landscape. It could also help reinvigorate ATG, which has been massively set back in the wake of its fatal 2018 crash, and Cruise, whose struggles have been the subject of several devastating reports by Reuters and The Information.

As speculative as such a scenario is, high-stakes showdowns like this one tend to fuel paranoia and even the possibility of such a tectonic shift could prompt companies to take defensive action. Volkswagen would be the most paranoid about any possible alignment between its two biggest rivals in the traditional auto industry, and thus far its dysfunctional post-Dieselgate internal politics have created an indecisive strategy that's seen it spread its bets between its Aurora, Audi's Autonomous Intelligent Driving subsidiary, a partnership with Mobileye in Israel, and potentially even a German super-group with BMW, Daimler, Bosch, ZF and Continental. 

By focusing its autonomous efforts into Argo, Volkswagen would not simply be judging one company's technology over another's but would be deepening an alliance with Argo's main investor and partner, Ford. In the course of ongoing negotiations the two automakers have already agreed to cooperate on commercial vehicles and are rumored to be seeking common cause on electric vehicles as well as autonomous technology. Both companies are already partnered with Microsoft on connected car cloud services, and if (for example) VW rolled AID into Argo and Ford bought into VW's modular electric platform (both options that have been rumored in media reports) the two automakers could help defray each others most significant future technology costs and form an autonomous heavyweight that could stand up to any future consolidation among competitors.

This kind of speculation about consolidation is exciting, but what tends to get lost in the shuffle is the bigger picture. Once upon a time, the conventional wisdom in the AV space was that the widely-acknowledged technological leader Waymo (known in this time frame as Google's "Chauffeur" Self-Driving Car program) would simply strong-arm an automaker into building its vehicular hardware, reducing it to the status of a handset manufacturer for its Alphabet sibling Android. What we've seen emerge is very different: a whole new generation of AV startups, many formed by Chauffeur veterans, now offer a variety of options to the major automakers.

As a result of this "Xerox PARC" scenario, predicted by Tim Lee of Ars Technica, the AV developer space has become much more of a buyer's market for the automakers. This in turn seems to be creating a situation where the major strategic developments are driven as much by auto industry factors as by dynamics in the high tech sector, such as the emergence of an undeniably dominant technological leader or a vibrantly profitable ride-hailing sector. Meanwhile, Tesla's struggles have dramatically demonstrated just how challenging auto manufacturing really is, forcing Silicon Valley to accept more equal partnerships with automakers than the "software eats the world" pundits had predicted.

Only two of the most marginal automakers, Fiat-Chrysler and Jaguar Land Rover, have accepted Waymo's conditions for partnerhood, which are rumored by people familiar with its negotiations to be as unequal as the old Foxconn analogies might suggest. Now, with Fiat-Chrysler branching out to partner with Aurora, it seems that even the bottom of the auto industry barrel may have more autonomous options than mighty Waymo once anticipated. 

Under these circumstances, only one more development would confirm that the auto industry has become an equal power in the autonomous vehicle wars: if Waymo entered into a more equal partnership with an automaker. On that point, the rumor-mill offers intriguing whispers of continued secretive talks (first reported by the Nikkei in February) between Waymo and the Nissan-Renault-Mitsubishi Alliance, the fourth great power in the global auto industry. If those talks bear fruit, it will almost certainly be in the form of a far more equal partnership than Waymo's previous deals, and would create another global juggernaut to match VW-Ford-Argo and Hyundai/Kia-Amazon-Aurora. 

In that scenario, all eyes in the space would shift back to Softbank and the potential for a fearsome GM-Cruise-Toyota-ATG combination. Only Apple and Zoox  would be left pursuing a go-it-alone strategy, raising questions about their plans for manufacturing, maintenance, infrastructure and all the rest of the increasingly-appreciated value that major automakers can bring to an autonomous mobility service. Software may be eating the car, but the long-awaited collision between "Detroit" and "Silicon Valley" is definitely trending away from conflict and toward the kind of cooperation that Argo and Ford have been modeling for some time.