In a bizarre contradiction, today saw MobileEye’s IPO pop from $21 to $29 (as of this writing) after being down-priced in prior weeks, and the announcement that Argo.AI, one of the large automotive OEM-funded startups in the self-driving space shut has shut its doors.
Argo’s assets are being absorbed into its major investors, Ford and VW. In addition, many of the staff have reportedly been offered positions in those companies, and all have received reportedly generous severance offers. For a company failure, it seems not too bad for many of those involved.
Far more interesting is what it means for the industry as a whole. There has been a serious downturn in the industry this year, even worse than the major drop in all of tech. Companies that have relied on external funding have found themselves in tough positions, and some have failed and more will. But Argo had very rich parents who seemed committed, as is the case for Waymo, Cruise, Zoox and Motional.
Ford simply said that Argo could not raise additional money and that now they wanted to focus on ADAS and so-called “level 3” (highway operation with standby driver) offerings, with self-driving now being too far in the future.
But apparently not. No rumors circulated about Argo being shopped around, and if it was shopped, it was without success. A few possible interpretations of this include
- It was shopped, but at a price too high for any of the buyers. Ford/VW had the fallback of absorbing the assets, which might have led them to require a high price from any buyer before letting the tech go. They might have also decided to dilute out the founders, who had managed at the start to retain majority ownership even at the initial billion-dollar valuation first funding — a pretty impressive feat.
- As above, but it simply wasn’t shopped. This would make this more about a restructuring and assumption of control based on the fact that in today’s market, the founders would not be able to raise a counter offer.
- It was shopped at a reasonable price and nobody bit. This is a dark hypothesis, because there are many OEMs and Tier Ones who do not have competitive self-driving efforts, and could have used Argo at a fire sale price as way to change that. Aside from their self-driving stack and experience they also have an impressive in-house LIDAR they acquired and improved from Princeton Lightwave.
All of these, particularly the third, show this downturn is darker than expected. Not long ago, many large companies were desperate for a chance to catch up in this game, and this has diminished quite a bit. A spate of recent press about downturn in the industry hasn’t helped, even though much of this press has ignored the progress taking place at many firms. The auto industry was never happy about the idea of their world being turned upside-down by tech companies, at the speed of tech companies. The arrival of Google’s car shook up most car OEMs and caused a panic and the growth of teams in those companies. None of them liked the idea that everybody was saying Google might be the future of the car, and not them.
They are not against a revolution, but like with electrification, they want it to be done by them and at their slow speed. But if nobody wanted Argo it suggests that there isn’t one contrarian view out there. However, it could be that this speculation is wrong, and Ford and VW did indeed want Argo, but as an internal division, not a somewhat independent subsidiary.
We saw some rumbles of this in the firing of Dan Ammann at Cruise earlier this year, when he had conflict with GM CEO Mary Barra over how much Cruise would work on GM’s projects and whether it could spin out in an IPO. GM wanted to keep Cruise closer to the vest, and perhaps Ford had the same thoughts about Argo.
Everybody expected consolidation, and downturns are times when the warts get uncovered and consolidations happen, but even so, this was a swift death.
For MobilEye, the news is good. Intel bought them for around $16B, paying a premium mostly based on its potential in self-driving. The IPO at the same price suggested that premium had been eroded, and many wondered why they would want to IPO in this market. They have only sold a small fraction of the company, and the large pop in value (which means Intel left a bunch of money on the table) suggests those self-driving ambitions still have some cachet. In fact, as a disclosure, I bought 1,000 shares this morning.
Sources at Argo are tight-lipped, and that’s not very surprising in one way, though sometimes when something is dead there is not much need to keep its secrets. Which could suggest it’s only pining for the fjords for now.