General Motors (GM) has decided to move on from its Cruise driverless ride-hailing service. The automaker said it will no longer fund its Cruise division’s robotaxi development as it plans to realign its autonomous driving strategy and prioritize development of advanced driver assistance systems on a path to fully autonomous personal vehicles. Commenting on the news, Bernstein says that while this removes a key downside risk to GM cash flows, it also dismantles one of the company’s key strategic pillars and differentiators. The firm views the news negatively for Uber (UBER) and Lyft (LIFT) as it points to a more consolidated autonomous vehicle market.
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ROBOTAXI EXIT: General Motors announced that it plans to realign its autonomous driving strategy and prioritize development of advanced driver assistance systems on a path to fully autonomous personal vehicles. “GM will build on the progress of Super Cruise, the company’s hands-off, eyes-on driving feature, now offered on more than 20 GM vehicle models and currently logging over 10 million miles per month. GM intends to combine the majority-owned Cruise and GM technical teams into a single effort to advance autonomous and assisted driving. Consistent with GM’s capital allocation priorities, GM will no longer fund Cruise’s robotaxi development work given the considerable time and resources that would be needed to scale the business, along with an increasingly competitive robotaxi market,” the company stated.
“GM, which owns about 90% of Cruise, has agreements with other shareholders that will raise its ownership to more than 97%. The company will pursue the acquisition of the remaining shares. Contingent upon the repurchase of these shares and Cruise board approval, GM will work with the Cruise leadership team to restructure and refocus Cruise’s operations. GM expects the restructuring to lower spending by more than $1 billion annually after the proposed plan is completed, expected in the first half of 2025,” the company added.
NOT MUCH CREDIT GIVEN: Morgan Stanley kept an Equal Weight rating and $54 price target on General Motors after the company’s decision to stop funding Cruise robotaxi development as discussions with potential strategic partners “did not prove to be the best option for the business.” The firm contends that most investors had not given GM credit for any positive value of Cruise and would be “largely encouraged” that the company is taking clear steps to mitigate ongoing losses at a time when better capitalized players – like Alphabet’s (GOOGL) Waymo and Tesla (TSLA) – continue to push the L4 autonomous ridesharing/robotaxi market into the next era.
In a research note to investors following the news, BofA said it believes GM’s move potentially implies that other companies such as Tesla and Waymo have better tech and/or that the market may not be appealing for later entrants. Waymo is already offering a robotaxi service across several U.S. cities and Tesla plans to launch its service in 2025. The strategy shift demonstrates that GM continues to believe in the potential of AV technology for personal vehicles. The firm expects this will still require meaningful investments, but GM appears confident that this strategy makes more sense than using AV tech developed externally from companies such as Mobileye (MBLY). Interestingly, GM believes that people still like to drive, and its goal is for the personal AV tech to make driving safer and less stressful. BofA maintains its Buy rating on GM.
NEGATIVE FOR UBER, LYFT: Commenting on General Motors’ announcement that it was “killing the ignition” on Cruise, Bernstein says that while this removes a key downside risk to GM cash flows, it also dismantles one of the company’s key strategic pillars and differentiators. Management did not provide a clear answer on the pending Uber AV relationship that was announced a few months ago, but Bernstein’s read of the situation is that this partnership won’t materialize for now. The firm says that at first glance this seems to put the capital onus on Uber to fund the program even if it is to stay alive, which Bernstein is not sure is realistic/desired from an Uber perspective. This announcement also leaves the firm with too many questions about the readiness of Cruise AV tech. Bernstein views the news negatively for Uber and Lyft as it points to a more consolidated AV market. The firm has a Market Perform rating on General Motors’ shares.
Discussing the possible impact for Uber, BofA notes that this means one less potential competitive AV partner to help drive down near-term AV costs and the announcement underscores the considerable capital needed to create an AV plus ride hailing network service, possibly suggesting a bigger moat for Tesla and Waymo, which are unlikely to be capital constrained. Possible positives for Uber include one less potential ride hailing network competitor in the market long-term, GM decision and commentary illustrating the considerable cost of building, and potential value of, Uber’s ride-hailing network for other AV OEMs, and with GM and likely other automakers focused on achieving L4 driver assistance technology, Uber should be able to finance these vehicles and integrate them onto existing rideshare networks with positive economics and user experiences.
PRICE ACTION: In Wednesday trading, shares of GM have slipped about 2% to $51.93, Uber’s stock has slid over 5% to $61.44 and Lyft’s shares have dropped more than 6% to $15.16.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
