GM's Cruise robotaxi business is the latest growth initiative to fail

DETROIT – For years, general motors CEO and President Mary Barra has promised a new future for the company, moving away from a stodgy metal-bending automaker and becoming a forward-thinking company driven by technology and poised for growth.

Part of the plan was for GM's innovation division to identify trillions (yes, trillions) of dollars in new market opportunities, such as electric commercial vehicles, auto insurance, military defense, autonomous vehicles and even, eventually, the potential for “automobiles.” flying”. Also known as urban air mobility.

“We are creating world-class technology solutions and services that will change the way people move, along with new fleet solutions and entirely new business models,” Barra said during a virtual CES keynote in January 2022.

While GM has declined to disclose how much revenue such deals have produced, Barra, ending its Cruise robotaxi operations on Tuesday, made clear that the automaker's growth priorities have shifted amid a broader downsizing. across the industry to preserve capital. Companies like GM are now focusing on more “core” operations and adjacent business opportunities, including software, electric vehicles and “personal autonomous vehicles.”

“You have to really understand the cost of operating a robotaxi fleet, which is quite significant and, again, is not our core business,” Barra said during a call Tuesday with Wall Street analysts.

The driverless ride-hailing service was supposed to be the shining star of GM's growth opportunities, and just a few years ago executives referred to it as an $8 trillion market opportunity that the automaker would lead. That included former executives touting $50 billion in revenue by the end of this decade, and Cruise valued at more than $30 billion.

Instead, after spending more than $10 billion on Cruise since acquiring it in 2016, GM is ending the robotaxi business and folding Cruise's operations and an unknown number of its nearly 2,300 employees into the automaker.

As part of the reduction, GM is expected to disclose additional expenses for employee separation packages and buybacks of equity investments from outside investors, among other costs, over the next year.

GM cited the increasingly competitive robotaxi market, capital allocation priorities and the considerable time and resources required to grow the business as reasons for its decision.

The car manufacturer's main competitor was Alphabet-Backed Waymo, which is now the latest entity with notable public operations. Others, especially teslaThey have ambitions for robotaxi businesses, but have so far failed to commercialize those operations.

To GM's credit, Wall Street, which previously fueled these types of growth businesses, applauded the decision to end Cruise's robotaxi ambitions. The company's shares initially rose, before ending the week at the same level as when the announcement was made.

GM, like other companies, has quickly pivoted from trying to impress Wall Street with growth initiatives, including generating $280 billion in new business by 2030, to refocusing efforts on its core business to generate profits amid economic and recessionary concerns.

Analysts largely viewed GM's decision as a positive, saving the automaker more than $1 billion in capital annually, which they hope can be used for additional stock buybacks, including a goal of reducing its outstanding shares to less than a billion.

“It has been evident for some time that most investors have removed Cruise from their GM valuations, so today's news is not a surprise,” Wells Fargo analyst Colin Langan wrote in a note. for investors on Tuesday.

GM will combine majority-owned Cruise LLC with GM's technical teams. Barra said repeatedly last week that the automaker will not give up vehicle autonomy; will focus on autonomous personal vehicles rather than robotaxis.

But it's hard to ignore that Cruise is the latest GM mobility company or growth business to fail or fail to meet expectations.

GM's plans to diversify its business through trendy industries such as ride-sharing and other “mobility” companies – a buzzword previously used by the industry for growth initiatives – or startups have largely failed since the The automaker began investing in such growth areas in 2016.

Earlier this year, the automaker brought its BrightDrop EV commercial trucks to Chevrolet amid lackluster sales. It also did not announce any significant plans for fuel cells for connections to ships, trains and planes, and closed several previous “mobility” deals.

Not all of GM's side businesses launched in recent years have failed. GM Energy and commercial electric vehicle unit BrightDrop continue to operate under the automaker's “Envolve” fleet business.

Meanwhile, GM's financial arm continues to operate an insurance business that launched in late 2020 as part of its growth initiatives with its OnStar data and telematics unit. GM said Friday that operations are now in 12 states and remain “well positioned for long-term success.”

GM also continues to operate a military defense unit and fuel cell business and have recently announced new contracts or partnerships. That includes hundreds of millions of dollars in contracts for GM Defense.

In addition to saving capital, the silver lining for GM in winding down the Cruise robotaxi business was that it sees more promise in continuing to develop its Super Cruise advanced hands-free driver assistance system. That includes more semi-automatic and, eventually, autonomous capabilities.

GM was the first automaker to offer such a hands-free system in 2016. However, it was notoriously slow progress until recently, when the automaker began rolling it out across its lineup. This began in 2021 and has continued to expand to more than 20 models, including high-volume vehicles such as pickup trucks and full-size SUVs.

“The change in strategy demonstrates that GM continues to believe in the potential of AV technology for personal vehicles. Going forward, GM will focus on enhancing SuperCruise capabilities, which will be further facilitated by ongoing technological advances, including artificial intelligence (AI),” said John Murphy of BofA Securities in a note to investors on Wednesday.

On the other side of the coin, Murphy also notes that the move could mean other companies like Waymo and tesla “have better technology and/or that the market may not be attractive to later entrants.”

GM was not expected to be a “later entrant” in robotaxis. In fact, it was the first to offer this type of ride to the public, and many believed it was one of the leaders until last year, when the company suspended its driverless operations in October 2023 after an accident involving a pedestrian. in San Francisco.

The National Highway Traffic Safety Administration fined Cruise $1.5 million after the company failed to disclose details of the accident, which included a pedestrian being dragged 20 feet by a Cruise robotaxi after being hit by another vehicle.

A third-party investigation into the incident ordered by GM and Cruise found that cultural problems, ineptitude and poor leadership fueled the regulatory oversights that led to the accident. The investigation also looked into allegations of a cover-up by Cruise's leaders, but found no evidence to support those claims.

The report describes multiple instances in which then-CEO and co-founder Kyle Vogt, who resigned from the company in November 2023, made final calls to withhold information, specifically about the media.

Vogt was not thrilled with GM's decision to end robotaxi operations. Posted on X after the announcement: “In case it wasn't clear before, it's clear now: GM are a bunch of fools.”

Vogt earlier this year pointed out GM's history of having a first-mover advantage in technology, as it did with Cruise and Super Cruise, and squandering it. GM had a similar path with electric vehicle technology, such as the EV1, a battery electric vehicle produced in the 1990s, and the Chevrolet Volt plug-in hybrid electric vehicle in the 2010s, both abandoned by the company.

GM follows several other companies in abandoning robotaxis, including its closest rival across town. Ford enginewhich closed its Argo AI autonomous vehicle unit with Volkswagen in 2022.

The robotaxi leader in the US remains Waymo, which continues to expand operations of its publicly available fleet 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 of scaling a robotaxi network and the role ride-sharing platforms can play as autonomous vehicles try to commercialize (a bullish indicator), but we believe the most tangible impact at this time is in the partnership ecosystem as Waymo is already scaling despite costs and Tesla has ambitions to do so as well,” Bernstein analyst Daniel Roeska said in a note to investors last week.