By Mike Colias
Volkswagen AG agreed to invest around $2.6 billion in Ford Motor Co.'s autonomous-vehicle partner, Argo AI, in a deal that values the startup at $7 billion.
Ford has been the majority shareholder of Pittsburgh-based Argo since early 2017, when it agreed to invest $1 billion.
Under the agreement with Volkswagen, reported Thursday by The Wall Street Journal and announced by the companies Friday, Argo would develop autonomous-driving technology for VW and eventually supply systems for commercial use, while continuing its development work with Ford.
The $2.6 billion investment in Argo includes $1 billion in capital funding as well as the value of VW's 200-person autonomous-driving division in Munich, which the companies placed at $1.6 billion.
That group, called Autonomous Intelligent Driving, is run by VW's Audi luxury-car unit and will form the foundation of Argo's presence in Europe, according to people familiar with the matter.
Major auto makers have been consolidating efforts as they race to develop driverless and electric cars and build business models around them.
General Motors Co.'s San Francisco-based Cruise subsidiary is developing an autonomous-driving system with Honda Motor Co., which has agreed to invest $2.75 billion in Cruise.
The startup has attracted more than $6 billion in outside investment and was valued at $19 billion after its latest financing round in May, GM has said.
VW and Ford scheduled a news conference Friday to provide details of further cooperation between the German and U.S. auto makers. Earlier this year, the companies agreed to jointly develop and build commercial vans and trucks. They are expected to outline plans to work together to develop electric vehicles.
Ford and VW began talks last year that led to the January deal to work together on vans and trucks for markets around the world. The idea to work together on electric and self-driving technology grew from those earlier talks. Both sides have said they aren't interested in any cross-ownership deals with each other.
The race to develop self-driving cars has spawned numerous partnerships between car companies, auto suppliers and tech firms -- all with the goal of solving what GM Chief Executive Mary Barra has called "one of the biggest technical challenges of our time."
German luxury-car rivals Daimler AG and BMW AG are working together to develop driverless cars and smartphone-based mobility services.
Alphabet Inc.'s Waymo unit, considered by many analysts to be furthest along in technical development, is working with several big auto makers, including Fiat Chrysler Automobiles NV, France's Renault SA and its alliance partner, Japan's Nissan Motor Co.
Consulting firm AlixPartners LLP forecasts that about $45 billion will be spent on developing autonomous vehicles globally by 2025.
Write to Mike Colias at Mike.Colias@wsj.com