GM’s cruise robo-taxi business is stalled by recent growth strategy

DETROIT — For years. general motors CEO and Chairman Mary Barra has promised a new future for the company, from a scrappy metal-bending automaker to a forward-thinking, technology-driven company with an eye on growth.

As part of the plan, GM’s Innovation Division will generate trillions of dollars in new market opportunities, including electric commercial vehicles, auto insurance, military defense, self-driving cars, and ultimately the possibility of “flying cars.” , was supposed to identify trillions of dollars. Also called urban air mobility.

“We are creating world-class technology solutions and services that are changing the way people move, as well as new fleet solutions and entirely new business models,” Barra said during his virtual CES keynote in January 2022. .

GM has declined to disclose the amount of revenue generated by these businesses, but Barra said Tuesday it will end its cruise robotaxi business amid broader industry-wide downsizing aimed at preserving capital. reveals that automakers’ growth priorities are changing. Companies including GM are now focusing on more “core” businesses and related opportunities, such as software, EVs and “personal self-driving cars.”

“We need to have a good understanding of the cost of operating a robotaxi, which is significant and, again, not our core business,” Barra said on a conference call with Wall Street analysts on Tuesday. said.

Driverless ride-hailing is supposed to be a bright star of GM’s growth opportunity, with executives talking about it just a few years ago as an $8 trillion market opportunity for the automaker to lead. That includes former executives now touting $50 billion in revenue by the end of this decade, valuing Cruise at more than $30 billion.

Instead, GM, which has spent more than $10 billion since acquiring Cruise in 2016, plans to end its robotaxi business and integrate Cruise’s operations and about 2,300 unspecified employees into the automaker. .

As part of the downsizing, GM is expected to disclose additional costs next year from employee turnover and stock buybacks from outside investors.

GM cited the increasingly competitive robotaxis market, capital allocation priorities, and the significant time and resources needed to grow the business as reasons for the decision.

The car manufacturer’s main competitors are alphabetIt is backed by Waymo and is currently the last entity with significant public work. Other things worth noting are: teslahas ambitions to launch a robotaxi business, but has so far not been able to commercialize it.

To GM’s credit, Wall Street, which has historically pushed such growth businesses, applauded the decision to end Cruise’s robotaxi ambitions. The company’s stock price initially rose, but ended the week at the same level as when the announcement was made.

GM, like other companies, is looking to impress Wall Street with its growth strategy, which includes generating $280 billion in new business by 2030, as it seeks to generate profits amid economic and recession concerns by focusing on core businesses to generate profits amid economic and recession concerns. There was a rapid shift to refocusing on

Analysts generally viewed GM’s decision positively, saying it could save the company more than $1 billion in capital per year and use it for additional share buybacks, including a goal to reduce the number of outstanding shares to less than 1 billion. I expect that it will be possible.

“It’s been clear for some time that most investors have excluded Cruise from their GM ratings, so today’s news is not much of a surprise,” Wells Fargo analyst Colin Langan said in an investor note Tuesday. No,” he said.

GM will combine its majority-owned Cruise LLC and GM technology teams. Barra reiterated last week that automakers are not giving up on making their vehicles autonomous. Focus on personal self-driving cars, not robotaxis.

But we can’t ignore that the Cruise is GM’s latest mobility venture or growth business that doesn’t live up to or fails to live up to expectations.

GM’s plans to diversify its business through fashionable industries such as ride-sharing and other “mobility” ventures (once a trendy term used in the industry for growth strategies) are a sign that the automaker said it would do so in 2016. Since we started investing in growth areas, things haven’t gone exactly as planned.

Earlier this year, the company withdrew its Bright Drop EV commercial van to Chevrolet amid sluggish sales. It has also failed to announce any meaningful plans for fuel cells to partner with ships, trains and planes, and has shuttered several previous “mobility” businesses.

Not all of the noncore businesses GM has launched in recent years have failed. GM Energy and BrightDrop commercial EV divisions continue to operate under the automaker’s “Envolve” fleet business.

Meanwhile, GM’s financial division is continuing the insurance business it launched in late 2020 with its OnStar Telematics and Data division as part of its growth strategy. GM said Friday that its operations now operate in 12 states and remain “well positioned for long-term success.”

GM also continues to operate its military defense forces and fuel cell businesses, for which it recently announced new contracts and partnerships. This includes a multi-million dollar contract with GM Defense.

The silver lining, other than capital savings, for GM discontinuing its Cruise robotaxi business was that it believes it has more promise to continue developing Super Cruise’s hands-free advanced driver assistance system. This includes more semi-automated and eventually autonomous capabilities.

GM was the first automaker to offer such a hands-free system in 2016. But it wasn’t until recently that automakers started rolling them out across their lineups, and their adoption has been notoriously slow. It began in 2021 and continues to expand to more than 20 models, including high-volume vehicles such as full-size pickup trucks and SUVs.

“This shift in strategy shows that GM continues to believe in the potential of AV technology for private vehicles. Going forward, GM will focus on improving the capabilities of SuperCruise, which will include artificial intelligence (AI). “This will become even more possible as a result of continued technological advances,” John Murphy of BofA Securities said in an investor note Wednesday.

On the other side of the coin, Murphy also said the move could help Waymo and tesla “They may have better technology or the market may not be attractive to late entrants.”

GM was not expected to be a “late comer” to robotaxis. In fact, the company was the first to offer such vehicles to the public, until last year, when the company discontinued driverless operations in October 2023 following an accident involving a pedestrian in San Francisco. Many believed it to be one of the leaders.

The National Highway Traffic Safety Administration fines Cruise Corp. $1.5 million for failing to disclose details of the accident, including a pedestrian being dragged 20 feet by the Cruise robo-taxi after it collided with another vehicle. did.

An independent investigation into the accident ordered by GM and Cruise found that cultural issues, incompetence and poor leadership contributed to regulatory oversight that led to the accident. The investigation also looked into allegations of a cover-up by Cruise’s leadership, but found no evidence to support those claims.

The report identified multiple instances in which then-CEO and co-founder Kyle Vogt, who resigned from the company in November 2023, made final decisions to withhold information, particularly from the media. Outlined.

Vogt was not enthusiastic about GM’s decision to eliminate its robotaxi business. “It was unclear before, but now it’s clear: GM is a bunch of dummies,” he posted on X after the announcement.

Earlier this year, Vogt pointed to GM’s history of gaining first-mover advantages in technology and squandering them, as was the case with Cruise and Super Cruise. GM has followed a similar path with EV technology, including the EV1, a battery electric vehicle produced in the 1990s, and the Chevrolet Bolt plug-in hybrid electric vehicle in the 2010s, both of which were abandoned by the company. .

GM follows several other companies, including its closest crosstown rival, in abandoning robotaxis ford motorclosed its Argo AI self-driving car division with Volkswagen in 2022.

Waymo remains the leader in robotaxis in the United States, continuing to expand its fleet of public vehicles in Los Angeles, Phoenix, and San Francisco, and will soon debut in Miami, Atlanta, and Austin, Texas.

“In many ways, this announcement highlights the economic challenges in expanding robotaxi networks and the role that ride-sharing platforms can play (a bullish indicator) as AVs attempt to commercialize, but Waymo is currently addressing Considering that “We think the real impact will be on the partnership ecosystem, which has already scaled despite the costs and Tesla has ambitions to scale as well,” Bernstein analysts said. , Daniel Loeska said in a note to investors last week.