Volkswagen wants to go head-to-head with Tesla…

Volkswagen just announced a pretty bold move in the autonomous driving realm. Volkswagen (VW) Group, which includes iconic brands Audi and Porsche, is taking a page out of Tesla’s playbook.  VW just announced that it plans to design its own artificial intelligence (AI) chips and software for self-driving cars. 

This is a big undertaking with a long-term focus. And it is something of a surprising move.  VW invested $2.6 billion into autonomous driving start-up Argo AI last year. This was to gain access to Argo’s self-driving technology for commercial vehicles. The industry assumed VW would use Argo’s tech for its passenger cars as well. However, this announcement suggests that’s not the case. VW wants to develop everything in-house, just like Tesla. 

To put this in perspective, VW is roughly a decade behind here. Tesla has been iterating and optimizing its AI hardware and software for over 10 years now.  So what’s VW thinking here? Why not partner with early stage companies like Argo AI, which already has working software models? Well, VW has decided to play the long game. The company must realize that this is the only way it can eventually be cost-competitive with Tesla. I don’t think the market realizes this yet, but Tesla has a massive advantage over every other company in this space. That’s thanks to its full stack approach to technology.

Tesla poured billions into research and development up front, choosing to sacrifice profitability for innovation. The company took a lot of heat for its unattractive financials for years.  But now Tesla owns all the intellectual property around both its hardware and software. It doesn’t have to pay licensing fees to use another company’s technology. It has tech that no one else has in the industry. And that allows Tesla to keep its prices lower than all of its competitors and have a competitive advantage. Its cost basis in the industry is unmatched.   

So VW must know that it can never compete with Tesla on price without developing its own technology stack. The company is choosing to forgo immediate results to be a major player eight to 10 years into the future.  I certainly respect VW’s long-term focus here. I hope the company sticks to it. That’s not an easy decision to make. And it will change the dynamics of the industry about a decade down the road.  

VW could become a major player in time if it doesn’t lose its fortitude. There’s certainly a chance VW gets started and realizes that doing everything in-house is too daunting of a task. Or it might have shareholders who become impatient with the lack of progress. There will always be naysayers just as there were with Tesla. That would be a major opportunity for an early stage company like Argo AI to grow its market share. And if VW is successful, the company may become interesting for the right reasons