Cruise autonomous vehicle venture in danger of becoming latest GM flop

DETROIT — General Motors‘ plans to diversify its business through trendy industries such as ridesharing and other “mobility” ventures or startups have largely fallen flat since the automaker started investing in such growth areas in 2016.

Cruise, its majority-owned autonomous vehicle subsidiary, is increasingly looking like it might be next.

The unit has quickly gone from one of GM’s greatest business opportunities to a growing liability. Cruise, of which GM owns more than 80%, has confronted a wave of problems and investigations sparked by an Oct. 2 accident in which a pedestrian in San Francisco was dragged 20 feet by a Cruise self-driving vehicle after the person was struck by another vehicle.

Since the incident, Cruise’s robotaxi fleet has been grounded, pending the results of independent safety probes. Its leadership has been gutted, including its cofounders resigning and nine other leaders being ousted. GM is massively cutting spending and growth plans for the business, including pausing production of a new robotaxi. Local and federal governments have launched their own investigations. And the venture is laying off 24% of its workforce.

GM, like other companies, has quickly shifted from attempting to impress Wall Street with growth initiatives, including generating $80 billion in new businesses by 2030, to refocusing efforts on core business to generate profits amid economic and recessionary concerns.

Despite all that, GM appears to believe it can eventually move forward with Cruise. GM CEO Mary Barra said Dec. 4 during an Automotive Press Association meeting in Detroit that the automaker is “very focused on 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 said Thursday in a statement related to announced layoffs at Cruise.

But there’s growing concern across the industry, not just with GM and Cruise, about the viability of autonomous vehicles, or AVs, as a business instead of as a niche science project.

“AV technology, while they’ve made a lot of progress with it, is unlikely to be profitable anytime in the foreseeable future, certainly not this decade,” said Sam Abuelsamid, principal research analyst at Guidehouse Insights. “If they need to make cuts, robotaxis seem like the obvious place to do that.”

Some Wall Street analysts are holding out hope that GM and Barra can turn Cruise around and eventually refocus on growing the business, as the Detroit automaker takes a more hands-on approach with the company. Several are expecting updates at an investor event in March.

“The plan to pause Cruise operations and reduce spending on Cruise in 2024 are only first steps. Once again, we expect these concerns to be addressed and cured at the capital markets day in early 2024 but expect skepticism to remain in the interim,” Morgan Stanley analyst John Murphy said in a Nov. 29 investor note.

If GM can’t turn the operations around, Cruise would join a list of its past defunct growth businesses, partnerships and investments since 2016. They include:

• 2016-20: A “Maven” mobility brand that offered carsharing from the company as well as peer-to-peer
• Starting 2016: Partnerships with Uber and Lyft, including a $500 million investment stake in the latter. (GM made $78 million off its Lyft investment.)
• 2017-22: In-vehicle Marketplace app
• 2017-18: Book by Cadillac, a vehicle subscription service
• 2018-20: E-bikes
• 2019-21: Tie-ups with EV startups Nikola and Lordstown Motors, in which it had an equity stake as part of a deal to sell an Ohio plant, as well as a reported investment in Rivian that ended up not happening

The automaker also has discussed personal autonomous vehicles as early as mid-decade and evaluating “flying cars” for the mid-2030s, among other things that have been de-emphasized more recently. In 2021, the company said it had about 20 initiatives in its pipeline that targeted $1.3 trillion in new total addressable markets.

“Cruise has been both vastly more ambitious and vastly more costly than any of those other programs,” Abuelsamid said. “It certainly could end up on the trash heap. … They’ve got to take a long hard look at what they want to prioritize.”

Not all of GM’s noncore businesses that were launched in recent years have failed. GM Energy and the BrightDrop commercial EV unit continue to operate; however, GM recently brought BrightDrop in-house from being a wholly owned subsidiary.

GM’s financial arm continues to operate an insurance business that was launched in late 2020 as part of its growth initiatives.

“It’s about reprioritizing … and making sure that you’re reducing what you don’t need to do anymore,” GM CFO Paul Jacobson told media Nov. 30 about the company’s overall cost-cutting measures, including “considerably” scaling back its energy and BrightDrop units.

Jacobson said the change in Brightdrop was to reduce redundancies and cut costs, as business cases have changed. BrightDrop was expected to generate $1 billion in revenue this year; it’s unclear where that stands.

Jacobson declined to disclose whether GM could bring Cruise into the automaker, which has its own autonomous vehicle unit and recently appointed Anantha Kancherla from Meta Platforms to the newly created position of vice president of advanced driver-assistance systems.

GM continues to operate a military defense unit and fuel cell business that have both recently announced new contracts or partnerships. The company does not report revenue or earnings for these units.

GM says it remains bullish on its software initiatives and investments in joint ventures for EVs — for example, an investment projected to exceed $1 billion with POSCO Future M to increase production capacity of key battery elements in North America.

GM acquired Cruise in 2016. At the time, the company was trying to quell Wall Street concerns that traditional automakers wouldn’t be able to compete against emerging competition from Apple and Google, as well as emerging “mobility” companies such as Lyft, Uber and a litany of other startups that were expected to disrupt traditional car ownership.