In this review, we identify the reasons why Argo AI has been able to raise $3.6 billion from Ford and the Volkswagen group within 3 years of its formation. We go in-depth and review the key differentiating points that we believe affected the investment decision. Finally, we understand how future prospectus and business opportunities play a key role in the success of this investment. Let’s review each of these factors one by one
1. Argo AI Review: Huge Addressable Market
The Automated Vehicle (AV) industry has gained a lot of traction over the years. All the big automobile companies have invested billions into developing connected-car facilities. This is majorly driven by increased urbanization of the country leading to higher traffic congestion and accidents. Connected Car facilities can address this challenge and contribute significantly to the overall road safety and convenience of the citizens.
All the tech and Automobile firms are in a race to launch their own SAE Level 4 Automation AVs in the cities. This level of automation requires the vehicle to have the capability to completely take over the driving with the driver having the disengagement option in case of exigencies. This requires extreme testing and adaptations to enforce the ML capabilities of the software.
The entire industry is set to cross $16 billion in the US growing at a CAGR of 48%. We believe the connected car and automated vehicle industry will be the mainstay of the entire automotive industry. We believe that the AV industry will take shape first and foremost in the developed markets of the US and Europe before scaling to other developing markets in the distant future. Companies like Google’s Waymo, Uber, Tesla, etc are all focused on the US market. All these companies have invested billions in R&D. We believe that the market has the capacity to incorporate some big players profitably. Consequently, we don’t think any single player will take away big chunks of market share.
2. Argo AI Review: Global Presence
Argo AI has headquarters both in the US as well as Europe. It incorporated in the AID office of the Volkswagen Group in Munich. It was part of its $2.6 billion investment in the company. Therefore, Argo AI is the only AV start-up that has access to the two biggest markets for connected car technologies. The company has already started its on-road city testing in both the geographies.
Argo AI follows strict safety norms and tests its software to adapt to different conditions of different cities. Therefore, the software will behave differently in New York compared to Texas. And rightly so, the climate conditions, size of the vehicle, driving patterns, road and traffic signals, etc are some of the variables that need to be considered.
The global presence and investments gave Argo AI access to talented software engineers and research specialists. The workforce crossed 1,000 employees in 4 years. In an industry where the average salary paid is around $250,000 per year, Argo AI has established its workforce to compete with others. The association with Ford and VW group helps Argo AI immensely to attract talented people to work with them. We believe this will be crucial going forward to scale the business as quickly as possible.
3. Argo AI Review: High Revenue Growth Opportunities
The investments by Ford and VW group have opened a big revenue stream in the future. Argo AI will develop the software primarily for the vehicles of Ford and the VW group. Ford announced publicly that it will roll out its first SAE Level 4 AV by the end of 2021. And Argo AI’s software will be at the forefront of that launch.
This opens a huge opportunity for Argo AI in comparison to its peers. Google’ Waymo and Uber don’t have an order signed from any big automobile manufacturing company. They themselves do not have their car production lines as well. This demonstrates the traction that Argo AI received especially from big established players. Therefore, the company has incredible growth potential going forward.
The company’s board structure ensures that Argo AI has its own independence. Both Ford and VW have 2 seats each on the board whereas Argo AI founders have 3. In this way, the independence of the company is intact. This reflects in their corporate decisions as well. Argo AI can also license its technology to other automobile players as well in the future. In fact, to facilitate better research, Argo AI started Argoverse. Argoverse collates the map data of the cities and encourages researchers to develop their own individual software utilizing the database. These decisions indicate that the revenue stream will not be limited just to the Ford and VW group. Therefore. in this review, we believe that Argo AI has immense revenue growth potential in the immediate future.
4. Argo AI Review: Scalability Issues
Argo AI is currently testing on a city-to-city basis. It has expanded its on-road testing in 6 major cities of the US and Europe. The company has announced its plans to initially focus on assisting fleets of car-sharing companies and other public transport vehicles. We believe this plan can yield good results because of convenient scaling opportunities. Other AV software start-ups are adopting the conventional way of scaling their business via tie-ups with automobile companies. Argo AI has access to both of them.
Their licensing capabilities can help them grow via car-sharing companies. The advantages and feasibility will get much more visibility through this medium. In fact, it will also take less effort as compared to individual passenger vehicles as the car-sharing fleets will need to have its entire fleet connected in an umbrella. We believe that the scaling opportunities are much better through this medium. Hence, Argo AI is well-placed to achieve quicker scalability in comparison to its peers.
5. Argo AI Review: Strong Competitive Advantage
Argo AI has the backing of 2 automotive giants. It also has a presence in the US and Europe- the 2 biggest markets in the medium-term for AV technology. Correspondingly, Argo AI has built a strong workforce of more than 1,000 employees. This bodes well for its actual plan of expansion and generating revenue. Long-distance trucking, e-commerce deliveries, transporting people along fixed routes in cities, and off-highway applications such as mining. Argo AI looks to employ a revenue-sharing model for its AV services.
No other player in the industry is targeting expansion via this mode. Therefore, the competition is far behind. All of them are heavily focusing on selling their technologies to automakers. Argo AI already has 2 giants and has the independence to pursue its expansion via this mode. Its competitors are late at realizing this. They were initially focusing on deploying robotaxis. Waymo, however, now started working on adapting its ADAS to commercial vehicles, including Class 8 trucks, according to Chief Executive John Krafcik. Therefore, the first movers’ advantage will definitely benefit Argo AI. First movers can quickly complete their testing phase and get quicker actionable insights. This will be absolutely crucial in this industry.
Therefore, according to our review, we believe that Argo AI has all the ingredients to be a big player in this competitive industry. It has the Automakers backing, financial capability, talented employees, and a niche expansion plan focused on scaling its unique business model. The geographical presence and unique testing criteria also bring in differentiation compared to its peers. Having said that, its peers such as Waymo, Volvo, etc have the backing of big software giants with deep pockets. Therefore, nothing is guaranteed in this industry as of now. Industry stalwarts have already made huge investments. We believe, Argo AI will definitely grow up to be a competitive player in this industry in the future. Whether it will be an industry leader or just a player, that’s the main uncertainty.
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