Argo AI, the autonomous vehicle company backed by Ford (F  ) and Volkswagen (VWAPY  ) (each hold 42% ownership) is being disbanded, Ford executives announced. The endeavor has been less profitable than originally projected, with profitability farther out in the future. As a result, the automotive giants are looking to cut their losses and instead transition their focus to partially automated driver-assist systems which require human oversight.

Argo was co-founded in 2016 by Bryan Salesky, former head of Google's (GOOGL  ) autonomous vehicle hardware development team, and Peter Rander, previous engineering lead for Uber's (UBER  ) self-driving division. Argo has been testing its technology on public roads in the U.S. (D.C., Miami, and Austin) and Germany. Argo previously also partnered with Walmart (WMT  ) to launch a driverless delivery service.

So what ultimately went wrong? For starters, autonomous vehicle technology requires a lot of testing before vehicles can be deployed widely. In 2020 Uber sold its autonomous vehicle unit after one of its semiautonomous test vehicles hit and killed a woman in Arizona. The company poured billions into this unit prior to when this happened, and despite that, there were several similar incidents of Uber's autonomous vehicles hitting pedestrians. Ultimately the cars were deemed unsafe and unreliable to drive on the streets.

Further, it is very difficult to scale autonomous vehicle operations while keeping prices affordable. Self-driving cars require high-tech laser and radar sensors which are very expensive. Despite the technical problem, it is also a problem of cost. The softening economic environment has exacerbated this situation. Demand for new and used vehicles has been weakening and overall sentiment is low. Higher European energy prices, increased interest rates, and generally tightening consumer wallets have made vehicles much less affordable.

On top of that, the timing of the decision was also in part due to struggles with attracting investors. The Company originally anticipated that its autonomous vehicles would see broad based adoption by 2021, which of course did not occur. Argo raised over $3.6 billion since its inception ($1 billion from Ford and $2.6 billion from Volkswagen).

This made it even more difficult to raise money for the autonomous vehicle unit. In a recent earnings report, Ford announced that it recorded a "$2.7 billion non-cash, pretax impairment on investment in Argo AI, resulting in an $827 million net loss for Q3" and has made the "strategic decision to shift its capital spending from the L4 advanced driver assistance systems being developed by Argo AI to internally developed L2+/L3 technology". L2 / L3 technology refers to the aforementioned driver assisted technology.

Argo AI employs more than 2,000 people. Some employees will receive offers to move to Ford or Volkswagen while others will receive severance packages. Ford did not specify which divisions or how many people will be absorbed into one of the two automakers. Argo conducted a round of layoffs earlier this year, a clear sign that things have not been going well for some time.

This is a particularly tough market, especially for technology that hinges on future performance and far-reaching goals. Like many other companies looking to protect their bottom line in this environment are refocusing and cutting their losses. That's not to say that Ford and Volkswagen will not explore autonomous vehicle technology in the future. However, as we see, many companies have taken on the endeavor but few (if any) have been successful in this space.