Why Volvo and Autoliv Are Teaming Up on Self-Driving Cars

Volvo is already providing cars to Uber's self-driving test program. Now it's teaming up with giant supplier Autoliv to create its own fully self-driving system. Image source: Volvo Cars.

Volvo Cars and giant auto supplier Autoliv (NYSE: ALV) said on Tuesday that they are creating a new joint venture to develop advanced software for self-driving cars.The joint venture will be headquartered in Volvo's Swedish hometown of Gothenburg. It will begin operations early next year with about 200 employees coming from both Volvo and Autoliv.It's the latest entry in the worldwide race to perfect systems for fully autonomous vehicles. But what does it mean for Volvo, Autoliv, and their rivals?

What Volvo and Autoliv said about this new joint venture

The companies said in a statement that the new joint venture will develop advanced driver-assistance systems (ADAS, in the industry jargon) and fully autonomous drive systems. The systems will be used by Volvo and made available to other automakers by Autoliv. The plan is to have the first ADAS products available by 2019, with the fully autonomous system coming to market by 2021.

Autoliv is already a major supplier of vehicle safety systems to automakers around the world. That, plus Volvo's long-standing record as a leader in vehicle safety, made the match-up between the two Swedish companies a natural one, executives said.

"There are no two companies that can claim to have done more for automotive safety worldwide than Autoliv and Volvo," said Autoliv CEO Jan Carlson in a statement. "This new company is a recognition of the fact that autonomous driving is the next step to transform road safety."

Volvo is bringing in some help to keep pace with rivals...

Volvo, which is owned by China's Geely Automotive Holdings, has recently been seen as a leader among automakers rushing to develop self-driving systems. The company announced last month that it will partner with ride-hailing giant Uber on a pilot test of Uber's prototype self-driving system. Uber is equipping specially modified Volvo XC90s with its self-driving system and adding them to its ride-hailing fleet in Pittsburgh.

But this latest move suggests that Volvo thinks it needs extra muscle to keep up with recent announcements from rivals. General Motors (NYSE: GM) and Uber rival Lyft are known to be close to a similar pilot test in which self-driving electric Chevrolet Bolts will ferry Lyft passengers in a major U.S. city. Ford (NYSE: F) recently said that it expects to mass-produce a fully self-driving vehicle starting in 2021, and all three of Volvo's German luxury-car rivals are known to be working on self-driving systems.

... and Autoliv is pushing to get into the self-driving game

For its part, this move is probably part of Autoliv's response to last month's blockbuster announcement by rival auto supplier Delphi (NYSE: DLPH) and Israeli ADAS specialist Mobileye (NYSE: MBLY). The two said that they will work together to develop a full self-driving system that will be available to most automakers starting in 2019.

Simply put, Autoliv needs to develop a rival system as quickly as possible. This new joint venture will let Autoliv add its already-deep ADAS expertise to the work that Volvo has already done on full self-driving systems.

The upshot: Racing to develop what could soon be a commodity

The market for self-driving technology is likely to be huge, at least for a while. But with so many players in and outside of the auto industry plowing big resources into developing the systems, it might soon become something of a commodity. It's very possible that in 10 or 15 years, nearly all new cars -- at least in Western countries -- will come with self-driving capabilities.

Some of the world's automakers will be able to develop their systems largely in-house. Assuming that their systems are competitive, they could offer unique features and realize advantages in cost. But there will be quite a few that won't or can't develop their own systems. For them, Autoliv will join Delphi in offering a complete self-driving solution that will let them get into the game -- at a cost.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends Autoliv and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.