By Jeremy Schneider | NJ Advance Media for NJ.com | Posted July 12, 2019 at 09:30 AM | Updated July 12, 2019 at 11:02 AM
What was once rumored is now official: Ford is going to use VW's electric car platform, called MEB, for some of its own battery-powered vehicles. The announcement builds on the "global alliance" that the pair announced back in January. Ford says it will use VW's MEB to build "at least one high-volume fully electric vehicle" in Europe "starting in 2023." The MEB framework is already being used in a variety of yet-to-be-released EVs by Volkswagen and its subsidiary brands. Ford is the first external company beyond e.GO Mobile AG, a German EV startup, to use MEB, however.
Ford hopes to sell more than 600,000 vehicles using the MEB framework over a six-year period. A second model -- again, designed for Europe -- is under discussion at the company. "This supports Ford's European strategy, which involves continuing to play on its strengths – including commercial vehicles, compelling crossovers and imported iconic vehicles such as Mustang and Explorer," the company said in a press release. VW, meanwhile, has been working on MEB since 2016 and expects to build 15 million cars using the platform in the next decade. These include the camper-inspired I.D. Buzz and the still-under-wraps ID.3 hatchback.
In addition, VW is pouring $2.6 billion into Argo AI, a self-driving startup based in Pittsburgh. Ford has already invested in the company -- today's announcement means both automakers have an equal stake and, combined, a "substantial majority." Both companies plan to implement Argo AI's system into some of their future cars. Together, that should give Argo AI plenty of data to finesse its system and attract more automaker customers. Ford and VW say they will independently design "purpose-built vehicles to support the distinct people and goods movement initiatives of both companies." The specifics are unclear, but "purpose-built" suggests both companies are interested in driverless delivery and taxi vehicles.
Watch out, Tesla?
Volkswagen will sink $2.6 billion into a Pittsburgh autonomous vehicle company that's mostly owned by Ford as part of a broader partnership with the U.S. No. 2 automaker, according to a person briefed on the matter.
The German and U.S. manufacturers will co-operate on the development of electric vehicles, the automakers will announce Friday in New York.
The person says the two will become equal owners of Argo AI, which is developing autonomous vehicle systems. The person didn't want to be identified because the figures haven't been officially announced.
The VW investment includes $1 billion in cash and the $1.6 billion value of VW's autonomous intelligent driving company. Ford already has committed to putting $1 billion into Argo, which the person says is now valued at $7 billion.
Also under the deal, Ford will use VW's new modular electric vehicle underpinnings to build zero-emissions vehicles for the European market, according to another person briefed on the matter who also didn't want to be identified ahead of the official announcement.
The two companies announced plans in January to collaborate on developing commercial vans and medium-sized pickup trucks while exploring electric and autonomous vehicles together. They said Ford would develop larger vans and pickups while Volkswagen would develop a smaller van for crowded cities.
Many automobile companies are joining forces as they face pressure to develop autonomous vehicles and smartphone-enabled transportation services. They're competing with companies such as Waymo and Uber to launch the technology. They're also under pressure to release electric vehicles in markets such as China and Europe to meet tougher pollution limits.
Federal Reserve Chairman Jerome Powell suggested that the central bank has room to ease as the tie between the inflation and jobless rates has broken down.
“The relationship between unemployment and inflation became weak” about twenty years ago, Powell told the Senate Banking Committee Thursday. “It’s become weaker and weaker and weaker.”
The Fed chief stressed at his second day of congressional testimony that the U.S. economy is “in a very good place.” He said the central bank wants “to use our tools to keep it there,” and offset weakness stemming from a global slump in manufacturing and business confidence linked to trade tensions.
“He sent a pretty straightforward signal that they intend to lower interest rates,’’ said Ward McCarthy, chief financial economist at Jefferies LLC.
Neutral Rate
Powell told Senators that the so-called “neutral rate,” or policy rate that keeps the economy on an even keel, is lower than past estimates have put it -- meaning monetary policy has been too restrictive.
“We’re learning that interest rates -- that the neutral interest rate -- is lower than we had thought and I think we’re learning that the natural rate of unemployment is lower than we thought,” he said. “So monetary policy hasn’t been as accommodative as we had thought.”
Federal Reserve officials in fact marked down their estimate of the longer-run policy rate to 2.5 per cent in June, from 2.8 per cent in March.
Investors fully expect a quarter-point cut at the Fed’s July 30-31 gathering, according to pricing in interest-rate futures, though odds were dialed back a bit after a stronger-than-expected U.S. inflation report earlier on Thursday.
At the hearing, Powell received bipartisan support for his independence at a time when the Trump administration is openly attacking the policies of the Federal Reserve. Powell deflected a question about whether this complicated policy making.
Trump discussed firing Powell in late 2018 and asked White House lawyers earlier this year to explore options for removing him as Fed chairman, Bloomberg has reported. When answering a similar question Wednesday during his testimony before the House Financial Services Committee, Powell said he wouldn’t leave even if Trump tries to fire him.
--With assistance from Christopher Condon, Katia Dmitrieva and Ryan Haar.
Oil’s rally stalled as traders weighed the threat Tropical Storm Barry poses to refineries on the U.S. Gulf Coast against prospects of an ongoing trade war and OPEC’s concerns over global demand.
Futures slipped for the first time in six sessions on Thursday, closing 0.4 per cent lower in New York. U.S. President Donald Trump tweeted that China wasn’t living up to promises to buy more American farm products. Meanwhile, more than half the oil output in the U.S. sector of the Gulf of Mexico was shuttered as companies evacuated deep-water platforms. Stocks also erased gains.
Oil has been rising amid growing Middle East tensions, with the British Navy intervening this week to stop Iran from blocking an oil tanker in the Persian Gulf. Yet OPEC on Thursday also released a weak market outlook for 2020, saying the surge in U.S. shale threatens to produce another supply surplus next year.
“We’ve priced in a lot of the concerns about the storm and Iran and the euphoria about the Fed, and I think traders are turning cautious,” said Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago.
OPEC, which recently agreed to extend supply restraints into 2020, said that it’s pumping about 560,000 barrels a day more crude than will be needed next year. Supplies from the group’s rivals will grow by more than twice as fast as world oil demand next year.
West Texas Intermediate crude for August delivery lost 23 cents to US$60.20 a barrel on the New York Mercantile Exchange. Brent for September lost 49 cents to US$66.52 on the ICE Futures Europe Exchange.
“The break above US$60 is likely to attract some additional short-term momentum, but if the storm passes in the Gulf of Mexico, we could see that fade away as the focus returns to demand worries,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen.
Other oil-market news:
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For months now, the Bank of Canada has been publicly defining its interest rate policy as “data dependent.” The phrase indicated that the central bank’s rate decisions would be guided by what the economic numbers said about the evolution of growth and inflation, taking precedent over the many fears, concerns and uncertainties muddying the outlook.
That changed on Wednesday. “Data dependence” has been superseded by “trade war dependence” at the top of the Bank of Canada’s list of what now dominates its rate-policy thinking.
In its rate-decision announcement, Monetary Policy Report and the prepared opening statement of its quarterly news conference, the bank emphasized its deepening concern about the effects of rising global trade discord, especially the U.S.-China trade war.
In doing so, strongly, repeatedly and in considerable detail, the bank signalled there’s a new sheriff in town when it comes to future rate decisions. Even the bank’s revered economic data, despite its clearly improving trajectory, will be viewed through the wary lens of profound and still-rising trade worries.
The bank even dropped the phrase “data dependent” that had appeared in its previous rate announcement in May, saying instead that it will “monitor incoming data” – a subtle difference, but the kind that gets noticed quickly in central bank circles, where the choice of words in formal communications always matters.
Governor Stephen Poloz himself dismissed the significance of the rewording in his postrelease news conference, admonishing central bank watchers and the financial media not to get too hung up on specific turns of phrase.
“We’re always data dependent. There’s no point in having a particular key phrase repeated or not repeated. It’s just a way of saying that you watch the data carefully – we always do,” he said.
Yet there was a sense that perhaps the governor doth protest too much. Even without the change in wording, the overwhelming weight of the bank’s discussion about its trade worries made plain that trade risks now dominated the policy discussion. The downside risks from trade even appear to have coloured the bank’s updated economic forecasts: Its growth projections for the second half of the year now look considerably more conservative than previous projections, and are well below private-sector forecasts. Why Mr. Poloz would be so reluctant to confirm this shift in priorities, when it was written all over the documents the Bank of Canada published Wednesday is a bit of a mystery.
The governor has dedicated a lot of time and effort in persuading financial market participants to do their own analysis of economic data if they want to get a read on the Bank of Canada’s rate direction, rather than waiting for the bank to spell out its intentions in rate announcements and speeches.
It could be that he would rather not dissuade the markets from a data focus, even if the bank’s own decision-making focus has shifted away from data analysis and toward steering around trade risks. Of course, the two are hardly mutually exclusive – in a smallish, open, trade-intensive economy such as Canada’s, shifting trade winds can affect the economic data quickly and deeply.
Regardless, this new emphasis is right in Mr. Poloz’s long-stated wheelhouse as a central bank chief. Pretty much from day one in the governor’s office, he has described his view of the job as being one of risk management – of weighing the bank’s economic outlook against competing risks that could throw that outlook off course, and guiding interest rate policy accordingly. If anything defines his tenure, it has been this emphasis on risk management – both in the way the bank conducts monetary policy, and in its communications with the public and the markets.
Now, his final year on the job – his term expires next June – looks to be all about managing risk. But there’s a problem. This kind of risk is one that monetary policy is distinctly ill-suited to manage.
As Mr. Poloz and his chief deputy, Carolyn Wilkins, said during their news conference, an all-out global trade war would threaten to simultaneously slow the Canadian economy and drive up inflation (as rising tariffs increase prices while slowing commodity demand weakens the Canadian dollar). In such an event – known as stagflation, which crippled economies in the 1970s – the central bank would be between a rock and a hard place. If it increased rates to fight the surge in inflation – which, its analysis suggested, could be as much as three percentage points in a worst-case scenario – the move would effectively toss an anvil to a sinking economy. If it cut rates to help stimulate the economy, it would pour gasoline on the inflation fire.
As far as risk-management challenges for Mr. Poloz, this could be a doozy. If he can deftly steer policy through the trade uncertainty minefield – while vigilant of the data, but not dictated by it – it may prove to be his greatest achievement.
Ford Motor and Volkswagen officially announced the expansion of their global "collaboration" Friday morning, adding autonomous and electrified vehicles to the list of projects that began with January's announcement of a joint venture covering commercial vehicles.
The expanded alliance now will add two of the most significant, albeit costly, technologies expected to dramatically reshape the global auto industry over the coming decades. The high costs involved in the development of self-driving and battery-electric vehicles already have fostered a series of joint ventures and other collaborations across the auto industry, often involving traditional competitors like General Motors and Honda, as well as BMW and Daimler.
Ford and VW will remain "independent and fiercely competitive in the marketplace," the Detroit automaker's CEO Jim Hackett said in a statement released ahead of a joint Friday morning news conference in New York City. However, Hackett added, "Unlocking the synergies across a range of areas allows us to showcase the power of our global alliance in this era of smart vehicles for a smart world."
What one Ford official described as "the big deal" involves the development of autonomous vehicles, a technology proving more difficult to bring to market than many experts anticipated just a few years ago, said Sam Abuelsamid, a principle researcher with Navigant Research, a high-tech consulting company. It's also proving far more costly than expected, according to a study by AlixPartners released last month that estimated industry-wide spending on self-driving vehicles will climb to $85 billion annually by 2025.
Ford has already invested billions by, among other things, setting up an outpost in Silicon Valley to tap that region's know-how. In February 2017, it announced an investment of $1 billion in Pittsburgh-based Argo AI, a self-driving vehicle start-up.
Argo, which operates as an independent enterprise, focuses on what is known as "Level 4" autonomy, vehicles capable of operating without a driver, albeit in "geo-fenced" areas with well-marked roads and in reasonably good weather conditions. Argo already has test fleets operating in five U.S. cities, including Pittsburgh, Palo Alto, Detroit, Miami and Washington, D.C.
Volkswagen, according to a joint statement outlining the details of the expanded VW-Ford collaboration, "will invest $2.6 billion in Argo AI by committing $1 billion in funding and contributing its $1.6 billion Autonomous Intelligent Driving (AID) company." That's the automaker's in-house autonomous vehicle development unit which currently has 200 employees. VW will also purchase $500 million in Argo shares over the next three years.
In turn, Argo will now set up operations in Europe that will include localized testing.
"This is a real validation of what Argo is doing," said analyst Abuelsamid, since VW could have continued focusing on in-house development efforts. The German automaker recently ended its relationship with another self-driving start-up, Aurora.
Several senior executives who have discussed the Ford-VW plans in recent days said there were a number of potential advantages to the collaboration. Sharing costs is seen as a major plus, as is the scale of their combined operations which, in 2018, sold about 18 million vehicles worldwide.
There's also the global footprint of the two companies, noted Argo CEO Bryan Salesky, who said in the joint statement his company's "technology could one day reach nearly every market in North America and Europe, applied across multiple brands and to a multitude of vehicle architectures."
Friday's announcement also highlights the way Ford and Volkswagen plan to work together on the development of battery-electric vehicles, an area in which global automakers are expected to invest $225 billion from 2019 to 2023, according to the AlixPartners study.
VW so far has committed 9 billion euros, about $10 billion, to EV development. CEO Herbert Diess earlier this year upped his sales forecast for the coming decade from 15 million to 22 million battery-electric vehicles (BEV). The German company plans to have about 50 BEVs in production by 2025.
Ford, meanwhile, plans to invest $11 billion over the next five years, launching its first long-range BEV, a high-performance SUV, later this year. A mix of plug-in hybrids and all-electric models will follow. That now will include "at least one high-volume fully electric vehicle in Europe by 2023," the joint statement noted, based on the modular MEB platform VW developed to underpin the majority of its future battery cars.
Abuelsamid said he believes that is "just the beginning," and expects Ford will use the MEB "architecture" for still more products moving forward to gain even further economies of scale.
As is the case with so many of the current wave of auto industry joint ventures, alliances and other collaborations, the ones pairing Ford and VW won't be monogamous. Ford, for one thing, will move forward with a separate partnership with Rivian, a suburban Detroit battery-electric vehicle start-up in which it announced in April a $500 million investment.
