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Ford takes a $2.7 billion hit for dropping its efforts to develop fully self-driving cars

Ford takes a $2.7 billion hit for dropping its efforts to develop fully self-driving cars


New York
CNN Business

Ford is essentially pulling the plug on an effort to develop its first fully self-driving car, and it’s going to cost the automaker $2.7 billion to walk away.

The company announced on Wednesday that it would no longer provide financial support to Argo AI, a technology company for self-driving cars. invested $1 billion in back in 2017.

Rather than let Argo develop self-driving car technology for cars without steering wheels, brakes, or accelerators – known in the industry as Level 4 or L4 technology – Ford will instead strive to develop a lower level of automated driving technology in-house.

The level it will now only pursue, known as Level 3 or L3, allows a driver to ignore the road in certain circumstances, such as on the highway, but he would expect a driver to be sufficiently aware to quickly check the car if necessary.

The decision means that Argo AI will be discontinued. And the depreciation of Ford’s investment in Argo caused a $2.7 billion write-off in the just-completed third quarter. That resulted in a loss of $827 million in the period.

Even excluding special charges for Argo and other items, Ford reported adjusted earnings per share of 30 cents, down from the 51 cents it earned a year ago on that basis, but a slight improvement from of the 27 cents forecast by analysts by Refinitiv .

Ford reported $37.2 billion in auto sales, up $4 billion from a year ago and $1 billion more than analysts’ forecasts. Sales were aided by a $3.4 billion increase in vehicle prices.

Ford had some issues in the quarter beyond the charges it took to shut down Argo. It said that due to a shortage of inventory at the end of the quarter, there were about 40,000 vehicles in inventory that were being built, but awaiting the necessary parts before they could be shipped to dealers.

It was also hit with $1 billion in higher-than-expected supplier payments and a $1.5 billion increase in raw material costs.

And it had a smaller profit and margin in its core market in North America because of those higher raw material costs, and a loss in China because of costs related to electric vehicle development.

While higher vehicle prices helped the European unit turn a small profit in the quarter compared to a small loss a year ago, CEO Jim Farley admitted: “Our performance in China and Europe is not nearly as healthy as we are. would like to be.”

Good news: Ford raised its target for year-round cash generated by the company to between $9.5 billion and $10 billion — from $5.5 billion to $6.5 billion — based on the strength of its automotive business. Company.

Shares of Ford

(F)
fell 1% in after-hours trading following the earnings news.

But in the end, the big news from the earnings report was a major shift toward self-driving vehicles.

The company insists it still expects fully self-driving vehicles in the future, just not fast enough to make the investment such technology requires today. It said it decided it would be better to invest in driver assistance technology that is closer to vehicle deployment today and that customers want from their new cars, rather than a fleet of robotic axis with no drivers on board.

“We are optimistic about a future for L4 ADAS [advanced driver assistance systems]but profitable, fully autonomous vehicles on a large scale are still a long way off and we don’t necessarily have to make that technology ourselves,” said Farley.

Farley said he expects to be able to find work for many of the Argo employees at Ford by having them switch to develop L3 driver assistance features.

“In many ways, that’s really the decision that drives what we’re doing here at Argo… we’re very passionate about the L3 mission,” said Doug Field, Ford’s chief advanced product development and technology officer.

He said there is only so much talent available to develop the various driver assistance and self-driving features.

“So this is the way we want to use that talent,” he said.