Volkswagen is reportedly preparing to pull the plug on its self-driving joint venture with Robert Bosch, a partnership that has already consumed roughly €1.5 billion in investment. According to a report from German newspaper Bild, the automaker and its software subsidiary Cariad plan to end the 2022 agreement after the technology failed to deliver the expected results.
The news marks a significant setback for Volkswagen's autonomous driving ambitions and highlights the immense difficulty and cost of developing fully self-driving systems. For everyday investors, it's a reminder that even the world's largest automakers can struggle to turn futuristic promises into profitable reality.
What Went Wrong?
The partnership, announced in 2022, aimed to combine Bosch's automotive expertise with Cariad's software capabilities to create a unified self-driving platform. The goal was to accelerate the development of Level 2 and Level 3 autonomous driving functions—systems that can handle steering, acceleration, and braking under certain conditions, but still require driver oversight.
However, the technology reportedly fell short of the ambitious targets set by both companies. Sources told Bild that the software and hardware developed under the partnership did not meet the required performance benchmarks, leading to frustration within Volkswagen's leadership. The decision to walk away comes after significant financial outlay, with the €1.5 billion spent representing a substantial portion of the automaker's R&D budget for autonomous driving.
This is not the first time Volkswagen has faced challenges with its self-driving efforts. The company's Cariad unit has been plagued by delays and cost overruns, contributing to the ouster of former CEO Herbert Diess in 2022. The unit has since undergone a restructuring, but the latest setback suggests deeper issues remain.
What It Means for Investors
For investors, the potential dissolution of the Bosch partnership raises several important questions. First, it underscores the high-risk nature of autonomous driving investments. Developing self-driving technology requires billions of dollars and years of work, with no guarantee of success. Even industry giants like Volkswagen and Bosch are not immune to failure.
Second, the news could signal a shift in Volkswagen's strategy. The automaker may choose to focus on less ambitious driver-assistance features, or it could seek new partners. Some analysts have speculated that Volkswagen might turn to Chinese technology companies, which have made rapid progress in autonomous driving. Indeed, Volkswagen has already deepened ties with Chinese firms, including a partnership with XPeng to develop electric vehicles. Volkswagen's home state leader has urged the company to use China-developed models in Germany to save jobs, highlighting the growing influence of Chinese technology in the automotive industry.
Third, the €1.5 billion spent on the Bosch deal is a sunk cost. While it's a large sum, it represents a fraction of Volkswagen's overall R&D spending, which exceeded €15 billion in 2023. The company's financial health is not in immediate danger, but the failed partnership could weigh on investor sentiment and raise doubts about management's ability to execute on its technology roadmap.
For Bosch, the end of the partnership is also a blow. The supplier had hoped to use the collaboration to strengthen its position in the autonomous driving market, which is expected to be worth hundreds of billions of dollars in the coming decades. Bosch will now need to reassess its own strategy, potentially seeking other partners or doubling down on internal development.
Broader Industry Context
The Volkswagen-Bosch saga is part of a wider trend in the autonomous driving industry. Many companies have overpromised and underdelivered on self-driving technology. Waymo, a subsidiary of Alphabet, has made progress but remains limited to specific geographies. Tesla's Full Self-Driving system has faced regulatory scrutiny and safety concerns. And startups like Argo AI, backed by Ford and Volkswagen, were shut down in 2022 after burning through billions.
The industry is now in a phase of consolidation, with companies focusing on more realistic near-term applications, such as automated parking and highway driving. The Volkswagen-Bosch deal's failure could accelerate this trend, as other automakers and suppliers reassess their own partnerships.
Investors should also watch for potential ripple effects. If Volkswagen scales back its autonomous driving ambitions, it could affect suppliers and technology partners. Conversely, it could create opportunities for companies that have successfully developed self-driving systems, such as Baidu's Apollo unit. Baidu's AI chip arm Kunlunxin is targeting a $50 billion Hong Kong IPO, a sign of the growing importance of autonomous driving technology in China.
What to Watch Next
Volkswagen is expected to make an official announcement in the coming weeks. Investors should pay close attention to any details about the company's revised autonomous driving strategy, including potential new partnerships or a pivot to less ambitious features. The fate of Cariad, which has already undergone significant changes, will also be closely watched.
For now, the €1.5 billion spent on the Bosch deal is a costly lesson in the challenges of autonomous driving. It serves as a cautionary tale for investors betting on the technology's rapid adoption. As the industry continues to evolve, patience and realistic expectations will be key.
