General Motors’ attempts to expand its business into fashionable sectors like ridesharing and other “mobility” ventures or startups have mostly failed to yield positive results since the automaker began investing in these growth areas in 2016.
Cruise, the autonomous vehicle subsidiary primarily owned by General Motors, is now facing a trajectory that suggests it might encounter similar challenges seen in GM’s recent ventures.
Initially hailed as one of GM’s most promising business prospects, Cruise, in which GM holds more than 80% ownership, has encountered a series of setbacks and inquiries following an incident on October 2. In this incident, a pedestrian in San Francisco was dragged by a Cruise self-driving vehicle after being struck by another vehicle.
Since this alarming incident, Cruise’s entire fleet of robotaxis has been halted, awaiting the outcomes of independent safety investigations. The company’s leadership structure has undergone significant upheaval, marked by the resignations of its co-founders and the removal of nine other leaders. Alongside these personnel changes, GM has taken drastic measures, slashing expenditure and scaling back growth plans for the business, including suspending the production of a new robotaxi model. Meanwhile, both local and federal authorities have initiated their own investigations into the matter. Adding to the challenges, the venture is planning to reduce its workforce by 24%.
As with other companies, GM has swiftly pivoted away from focusing solely on growth initiatives aimed at impressing Wall Street, such as the aspiration to generate $80 billion in new businesses by 2030. Instead, the focus has shifted to stabilizing and fortifying core operations to bolster profitability amid prevailing economic uncertainties and concerns about a potential recession.
However, despite these formidable challenges, GM seems to maintain a positive outlook on Cruise’s prospects for the future. During an Automotive Press Association meeting in Detroit on December 4, GM CEO Mary Barra expressed a commitment to “righting the ship” at Cruise.
“We are confident in the team and committed to supporting Cruise as they set the company up for long-term success with a focus on trust, accountability, and transparency,” GM stated in a release regarding the announced layoffs at Cruise, reflecting their ongoing dedication despite the current adversities.
Past projects
Yet, concerns pervade the industry, extending beyond GM and Cruise, questioning the feasibility of autonomous vehicles (AVs) as a profitable business rather than a specialized scientific endeavor.
“Although there has been considerable advancement in AV technology, it’s improbable to generate profits anytime soon, especially not within this decade,” remarked Sam Abuelsamid, principal research analyst at Guidehouse Insights. “If they’re contemplating cutbacks, the robotaxi sector appears to be a prime area for adjustments.”
While some Wall Street analysts maintain optimism that GM and Barra might reverse the situation at Cruise and eventually realign their focus on expanding the business, the Detroit-based automaker has taken a more hands-on approach with the company. Expectations for updates loom at an investor event scheduled for March.
“The measures to pause Cruise operations and curtail spending in 2024 are just initial steps. We anticipate these concerns to be addressed and resolved during the capital markets day in early 2024, but skepticism is likely to persist in the interim,” noted Morgan Stanley analyst John Murphy in a Nov. 29 investor note.
If GM fails to engineer a turnaround, Cruise would join the roster of defunct growth ventures, partnerships, and investments that GM initiated since 2016. These include several endeavors:
- From 2016 to 2020: The “Maven” mobility brand offering carsharing and peer-to-peer services.
- Starting in 2016: Collaborations with Uber and Lyft, encompassing a $500 million investment stake in the latter. (GM gained $78 million from its Lyft investment.)
- From 2017 to 2022: An in-vehicle Marketplace app.
- 2017-2018: “Book by Cadillac,” a vehicle subscription service.
- 2018-2020: Ventures into e-bikes.
- 2019-2021: Partnerships with EV startups Nikola and Lordstown Motors, including equity stakes in deals like the Ohio plant sale and a reported investment in Rivian that did not materialize.
Additionally, GM had discussed the prospects of personal autonomous vehicles by the mid-2020s and had been evaluating the concept of “flying cars” for the mid-2030s, although these initiatives have seen reduced emphasis lately. In 2021, the company mentioned approximately 20 initiatives in its pipeline targeting $1.3 trillion in new total addressable markets.
“Cruise’s ambitions and expenditures surpass any of those previous programs by a large margin,” Abuelsamid continued. “It’s entirely possible that it could meet an unfavorable fate. … They need to deeply consider their priorities.”
However, not all of GM’s non-core ventures launched in recent years have faltered. GM Energy and the BrightDrop commercial EV unit continue operations, with GM recently integrating BrightDrop as an in-house division, previously a wholly-owned subsidiary.
GM’s financial arm persists in operating an insurance business launched in late 2020 as part of its growth initiatives.
“It’s about reevaluating priorities and ensuring a reduction in unnecessary endeavors,” commented GM CFO Paul Jacobson regarding the company’s overall cost-cutting strategy, including the substantial scaling back of its energy and BrightDrop units, conveyed during a Nov. 30 media briefing.
Jacobson mentioned that the alteration in BrightDrop was aimed at diminishing duplications and trimming expenses, responding to the shifting business landscape. While BrightDrop was anticipated to generate $1 billion in revenue this year, its current status remains unclear.
Jacobson refrained from revealing whether GM might assimilate Cruise into the automaker, which possesses its autonomous vehicle division and recently appointed Anantha Kancherla from Meta Platforms to the newly established role of vice president of advanced driver-assistance systems.
GM persists in operating a military defense unit and a fuel cell business, both of which have recently publicized new contracts or partnerships. However, the company refrains from disclosing revenue or earnings figures for these divisions.
GM affirms its optimism regarding its software initiatives and joint ventures for EVs. For instance, there’s an investment anticipated to exceed $1 billion with POSCO Future M to boost the production capacity of crucial battery components in North America.
Is the feasibility of autonomous vehicles in question?
In 2016, GM acquired Cruise in an effort to allay Wall Street concerns regarding the capability of traditional automakers to compete against rising competition from Apple, Google, and emerging “mobility” firms like Lyft, Uber, and various startups that were anticipated to disrupt conventional car ownership.
However, the commercialization of autonomous vehicles hasn’t materialized as anticipated, proving to be significantly more challenging than prognostications from just a few years ago. These challenges have resulted in sector consolidation following years of enthusiastic predictions that this technology would usher in the next multitrillion-dollar market for transportation companies.
Cruise was regarded as one of the remaining two frontrunners in the realm of robotaxis in the U.S., alongside Alphabet-backed Waymo, which also operates limited self-driving fleets for consumers. Additionally, Amazon-backed Zoox continues its testing of autonomous vehicles across multiple states.
Rivals like Lyft, Uber, and Ford Motor/Volkswagen-backed Argo AI have halted their autonomous vehicle programs, citing the extensive investments required for an unprofitable and untested industry. Stellantis has announced partnerships with BMW and Waymo but hasn’t engaged in ventures akin to Cruise and Argo.
“I’m keen to understand what measures are necessary to resume Cruise’s commercial services for consumers in a safe manner,” remarked Morningstar analyst David Whiston. “Moreover, by suspending consumer operations and potentially limiting expansion into new cities for the time being, how much cost reduction is achievable? The losses have escalated significantly.”
According to annual public filings, GM’s investment in Cruise and its portion of the company’s losses have accrued to over $8 billion since 2016. The losses have been on the rise, reaching $1.9 billion by the third quarter of this year.
Upon acquiring Cruise, GM enlisted investors like Honda Motor, SoftBank Vision Fund, and more recently, Walmart and Microsoft. However, GM purchased SoftBank’s equity ownership stake last year for $2.1 billion.
GM has announced substantial cuts in spending on Cruise. While leading Cruise’s board of directors, Barra abstained from disclosing at the December 4 press association meeting the precise amount the automaker is willing to allocate for Cruise moving forward, pending thorough assessments and a devised plan.
As of the third quarter, Cruise held $1.7 billion in cash, sufficient to sustain operations for a majority of the upcoming year at the prevailing cash burn rate.
Advocates of autonomous vehicles, including Barra, consistently highlight the potential of self-driving cars to significantly reduce accidents and road fatalities while offering transportation options for individuals unable to drive themselves.
“We’re addressing the current challenges at Cruise,” affirmed Barra on December 4. “We need to establish the right strategy.”
