Ford and Volkswagen have teamed up to invest billions of dollars in developing electric and automated vehicles.

This collaboration will see Volkswagen joining Ford invest in autonomous vehicle platform Argo AI to launch similar technology in the manufacturers’ cars in the US and Europe.

Volkswagen will invest $2.6bn in Argo AI by committing $1bn in direct funding, with $1.6bn going to the Autonomous Intelligent Driving (AID) company.

AID consists of more than 200 employees, with most of them developing self-driving technology for the Volkswagen Group.

As part of the agreement, Ford and Volkswagen will hold an equal stake in Argo AI. Volkswagen will buy shares of Argo AI from Ford for $500m over a period of three years. Ford will invest the remaining $600m of its previously announced $1bn cash commitment in Argo AI.

This deal takes Argo AI’s valuation to more than $7bn, subject to regulatory approvals and closing conditions.

Ford president and CEO Jim Hackett said: “While Ford and Volkswagen remain independent and fiercely competitive in the marketplace, teaming up and working with Argo AI on this important technology allows us to deliver unmatched capability, scale, and geographic reach.

“Unlocking the synergies across a range of areas allows us to showcase the power of our global alliance in this era of smart vehicles for a smart world.”

The vehicle manufacturers predicted growth by finding new business avenues linked to autonomous technology.

Located in Munich, Germany, AID will become Argo AI’s new European headquarters. It will be led by AID’s current CEO Karlheinz Wurm.

Following the addition of AID employees, Argo AI’s global employee count will grow from 500 to more than 700.

Ford also intends to design an all-new, MEB-platform-based EV model, which starts arriving in Germany in 2023.

For this EV model, Volkswagen will supply MEB parts and components under the partnership.

The two firms will also continue to target additional areas where they can collaborate on electric vehicles.

Meanwhile, the two firms announced that they are on track in their earlier announced plan to boost their strengths in commercial vans and medium pickup trucks in important markets.

For the two firms, Ford will manufacture a medium pickup truck for customers in Europe, Africa, the Middle East, Asia-Pacific, and South America. These trucks are expected to be on sale by 2022.

In addition, Ford plans to engineer and build larger commercial vans for European customers starting in 2022. Alongside this, Volkswagen will develop a city van to be sold in Europe and other select markets.