F Ford Motor Company

By Mike Colias 

Ford Motor Co.'s expanded alliance with Volkswagen AG will give the U.S. auto maker an important corporate ally in Europe, where tougher emissions rules are raising costs significantly for the auto industry.

The two global car-manufacturing giants agreed Friday to jointly develop an electric car for the European market, using VW's existing technology for battery-powered vehicles. Ford said it would build about 100,000 vehicles a year with VW's electric-car tool kit, starting in 2023.

Separately, VW also will invest $2.6 billion in Ford's self-driving car partner, Argo AI, valuing the Pittsburgh-based startup at $7 billion. Argo will work with both car companies to develop self-driving technology that each can use once they roll out autonomous vehicles in a few years.

Car manufacturers are rushing to bring hundreds of new hybrid and battery-electric cars to market in Europe by next year to meet the continent's new targets on greenhouse-gas emissions, which sharply limit tailpipe pollutants. Analysts say a number of car companies are already at risk of failing to meet the targets and could face hefty fines.

In working with VW, Ford hopes it can develop an electric car for Europe faster and at a lower cost than it could on its own.

"Given the upcoming European regulation shifts, this should help Ford avoid emission fines," said Colin Langan, an auto analyst for UBS Group AG.

Auto makers are pouring billions into electric-car development, even though most executives and analysts say they lose money on each one sold. The technology isn't cheap enough to sell at mass-market prices, largely because of the high battery costs.

Producing an electric car costs $12,000 more than making a comparable gasoline vehicle, and parity is likely still five years off, according to consulting firm McKinsey & Co.

Europe has proved challenging for Ford, which last month laid out plans to close factories on the continent and cut 12,000 jobs -- or more than 20% of its European workforce. The U.S. auto maker, which has struggled to maintain profitability in Europe over the years, also is reducing its manufacturing footprint in the region to 18 plants from 24 by year's end.

For VW, the expanded alliance coincides with the German company's recent heavy investments in electric vehicles. Last fall the Wolfsburg-based auto maker said it would earmark roughly $50 billion over the coming five years for electric cars, autonomous vehicles and digital services.

On Friday, VW Chief Executive Officer Herbert Diess said offering its electric-car technology to Ford would increase adoption of electric vehicles world-wide and give his company added scale.

VW is facing its own troubles. Earlier this year, the auto maker said it would cut 7,000 jobs to trim costs as it focuses on the electric-vehicle market. VW and some of its executives are also facing legal challenges from the U.S. Securities and Exchange Commission as well as German authorities stemming from its 2015 diesel-emissions scandal.

The Ford-VW partnership on electric and autonomous vehicles builds on an alliance struck earlier this year between the two car companies to collaborate on commercial vans and trucks.

--Sara Germano contributed to this article.

Write to Mike Colias at Mike.Colias@wsj.com

(END) Dow Jones Newswires

July 12, 2019 17:07 ET (21:07 GMT)

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