Investors pull away from GM's Cruise bet
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[November 10, 2023] By
Joseph White and David Shepardson
DETROIT (Reuters) - General Motors' bet that its Cruise robo-taxi unit
will deliver $50 billion in revenue by 2030 is facing its toughest test.
GM Chief Executive Mary Barra has stuck with Cruise in the face of
skepticism from investors, arguing that Cruise technology will save
lives - and become a significant source of new profit for the automaker
in the future.
But right now, the unit's operations are shut down as regulators
investigate the safety of Cruise's self-driving vehicles. Cruise has
nine months of cash left, and one major investor, Honda Motor, said on
Thursday it does not plan to put up more money. Layoffs have started as
Cruise reviews its operations and management.
Cruise has lost more than $8 billion since 2017, including $728 million
lost in the third quarter of this year, according to GM financial
disclosures. Cruise had $1.7 billion in cash as of Sept. 30, enough to
last nine months at the current cash burn rate.
As Cruise's troubles intensified, investors on Thursday sent GM shares
down more than 3% to $26.65, its lowest closing price since August 2020.
In addition to the problems at Cruise, GM last month agreed to a costly
new contract with the United Auto Workers, and scaled back plans to
expand electric-vehicle production.
"I think it's a bit of a black hole," said Pzena Investment Management
analyst Lawrence Paustian. "It wasn't too long ago people were really
hyped about autonomous and they saw Cruise as this valuable asset. Now
everyone's looking at it as a liability."
Barra told investors last month they could "rest assured we do have
funding plans that will support Cruise's expansion." She did not provide
details. Barra has stood by Cruise and her forecast that the robo-taxi
business could generate $50 billion in revenue by 2030.
GM said in a statement on Thursday that its "commitment to Cruise with
the goal of commercialization remains steadfast.”
Safety "has to be our top priority, and we fully support the actions
that Cruise leadership is taking to ensure that it is putting safety
first and building trust and credibility with government partners,
regulators, and the broader community," GM said.
Cruise is conducting a search for a chief safety officer and has hired
law firm Quinn Emanuel to conduct an outside review.
A senior executive at Honda Motor said on Thursday the Japanese
automaker had no plan to invest more in Cruise. But Honda Chief
Operating Officer Shinji Aoyama said there is no change to Honda's plan
to begin a driverless ride service in Japan in 2026 through a joint
venture with Cruise and GM.
In October 2018, Honda invested $750 million in Cruise, valuing the
operation at $14.6 billion. GM has not released a more recent valuation
for Cruise.
'PROBLEM OF PERCEPTION'
GM shareholders contacted by Reuters had divided views on Cruise.
"It's always been my hope that they would spin Cruise out," said Kyle
Martin, Westwood Group analyst, whose firm owns GM shares. "We always
knew the technology was going to be challenging, but now I think there's
questions about the leadership there."
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A Cruise self-driving car, which is owned by General Motors Corp, is
seen outside the company's headquarters in San Francisco,
California, U.S., September 26, 2018. REUTERS/Heather Somerville
Martin questioned whether any third party would invest further in
Cruise.
Other investors said Cruise remains a valuable asset.
"There's a future there. It's a problem of perception," said Jason
Petitte, senior research analyst at Kovitz, an asset management firm
in Chicago that owns GM shares.
"The dollars are worthwhile in Cruise. Nobody really questions
Google for their investment in Waymo," added Petitte, referring to
Google parent Alphabet's investment in the U.S. self-driving car
company. Petitte's firm recently reduced its stake in GM and is
weighing what to do with the remaining shares.
Cruise's robo-taxis have been sitting idle since last month when the
company halted operations nationwide following an incident in San
Francisco in which a pedestrian was hit by another car, then struck
and dragged along the street by a Cruise robo-taxi. California
regulators suspended Cruise's license to operate, and have accused
Cruise officials of misrepresenting information about the incident.
Cruise has said it showed officials of the California Department of
Motor Vehicles the complete video of the accident multiple times and
provided a copy to officials. Cruise has since launched an internal
review of the response to regulators and company's automated driving
system.
GM Chief Financial Officer Paul Jacobson told analysts on Oct. 24
that Cruise's $700 million in expenses during the third quarter
would continue at that quarterly rate "as they balance expanding
operations with further efficiencies."
This week, Cruise began taking new steps to trim costs, even as
costs related to the unit's regulatory problems mounted.
Cruise on Thursday confirmed it has begun furloughing temporary
workers who cleaned, charged and maintained its driverless electric
robo-taxis.
On Wednesday, Cruise recalled 950 vehicles because the collision
detection subsystem of the Cruise Automated Driving Systems (ADS)
software may respond improperly after a crash.
On Monday, GM temporarily stopped building Cruise Origin vehicles.
Those multi-passenger vehicles were designed to have no human
drivers or traditional controls such as a steering wheel. The U.S.
National Highway Traffic Safety Administration has not approved
Cruise's request to deploy up to 2,500 Origin vehicles.
Cruise's plans to expand operations in San Francisco have run in to
opposition from local officials and citizens. The pressure
intensified on Thursday as a group of more than two dozen labor
unions urged the Biden administration to launch an industrywide
investigation of driverless vehicles. The unions cited the
investigation into Cruise.
(Reporting by Ben Klayman and Joseph White in Detroit and David
Shepardson in Washington; Editing by Matthew Lewis)
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