GM’s cruise robotaxi business is the latest growth initiative to disappoint

DETROIT – Over the years, General Motors CEO and Chair Mary Barra promises a new future for the company, poised to grow away from a metal-bending automaker into a technology-driven, forward-thinking company.

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, “flying cars.” Also known as urban air mobility.

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

While GM declined to disclose how much revenue such businesses generated, Barra, which ended its cruise robotaxi operations on Tuesday, made it clear that the automaker’s growth priorities have shifted amid a broader, industrywide contraction to conserve capital. Companies including GM are now focusing on more “core” operations and adjacent business opportunities, including software, EVs and “personal autonomous vehicles.”

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

The driverless ride-hailing service was supposed to be the shining star of GM’s growth opportunities, with executives touting it just a few years ago as an $8 trillion market opportunity that would lead the automaker. Among those former executives brokered $50 billion in revenue by the end of the decade, and Cruise is worth more than $30 billion.

Instead, after spending more than $10 billion since acquiring Cruise in 2016, GM is ending the robotaxi business and folding Cruise operations and its roughly 2,300 employees into the automaker.

As part of the wind down, GM is expected to disclose additional costs from employee severance packages and repurchasing equity investments from outside investors, among other costs, over the next year.

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

The automaker had its main rival the alphabet-backed Waymo, which is now the last entity with any significant public operations. Others, most notably TeslaThere are ambitions for the robotaxi business, but so far have failed to commercialize those operations

To GM’s credit, Wall Street, which had previously pushed for such a growth business, applauded Cruise’s decision to end its robotaxi ambitions. Shares of the company were initially higher, before ending the week level when the announcement was made.

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

Analysts largely viewed GM’s decision as positive, saving the automaker more than $1 billion in capital annually, which they expect can be used for additional share buybacks, with a goal of bringing its outstanding shares below $1 billion.

“It’s been clear for some time that most investors have removed Cruze from their GM valuations, so today’s news comes as little surprise,” Wells Fargo analyst Colin Langan wrote in an investor note Tuesday.

GM will combine majority-owned Cruise LLC with GM technical teams. Barr has repeatedly said over the past week that the automaker isn’t giving up on car autonomy; It will focus on personal autonomous vehicles rather than robotaxis.

But it’s hard to ignore that the Cruze is GM’s latest mobility initiative or growth business that may or may not meet expectations.

GM’s plans to diversify its business through fashionable industries like ridesharing and other “mobility” ventures — a term formerly used by the industry for growth initiatives — or startups have largely fallen flat since the automaker began investing in such growth areas in 2016.

The automaker folded its BrightDrop EV commercial vans into Chevrolet earlier this year amid sluggish sales. It has also failed to announce any meaningful plans for fuel cells for tie-ups with boats, trains and planes, and it has shut down several earlier “mobility” businesses.

Not all of GM’s non-core businesses launched in recent years have failed. GM Energy and BrightDrop commercial EV units continue to operate under the automaker’s “Envelope” fleet business.

GM’s financial arm, meanwhile, operates an insurance business that was launched in late 2020 as part of growth initiatives with its OnStar telematics and data unit. GM said Friday that the operations now span 12 states and are “well positioned for long-term success.”

GM also operates a military defense unit and fuel cell business, both of which recently announced new deals or partnerships. This includes a multi-million dollar contract for GM Defense.

In addition to saving capital, GM’s silver lining in canceling the Cruise robotaxi business is that it sees more promise in continuing to develop its Super Cruise hands-free advanced driver assistance system. It also includes more semi-automated and eventually, autonomous capabilities.

GM was the first automaker to offer such a hands-free system in 2016. However, it’s been a notoriously slow ramp up until recently, when the automaker started rolling it out across its lineup. It launched in 2021 and has expanded to more than 20 models, including high-volume vehicles such as its full-size pickup trucks and SUVs.

“The strategy shift shows that GM continues to believe in the potential of AV technology for personal vehicles. Going forward, GM will focus on improving SuperCruise’s capabilities, which will be further enabled by ongoing technological advances, including artificial intelligence (AI).” John Murphy of BofA Securities said Wednesday in a said in an investor note.

On the other side of the coin, Murphy also noted that the move could mean that other companies like Waymo and Tesla “There are better technologies and/or the market may not be attractive to later entrants.”

GM is not expected to be a “later entrant” into robotoxy. In fact, it was the first to offer such rides to the public and many believed it was one of the leaders until last year, when the company grounded 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 involved a pedestrian being dragged 20 feet by a Cruise robotaxy after being struck by a separate vehicle.

A third-party investigation into the incident directed by GM and Cruise found that the accident was caused by regulatory oversight caused by culture problems, incompetence and poor leadership. The investigation also investigated allegations of a cover-up by cruise leadership but found no evidence to support those claims.

The report outlines multiple instances where then-CEO and co-founder Kyle Vogt, who resigned from the company in November 2023, made the final call to shut down information, particularly about media.

Bhagat wasn’t enthusiastic about GM’s decision to kill off robotaxi operations. “If it was unclear before, it’s clear now: GM is a bunch of dummies,” he posted on X after the announcement.

Vogt earlier this year highlighted GM’s history of having a first-mover advantage with technology, as it did with the Cruze and Super Cruise, and trashed it. GM has had a similar path with EV tech, with the EV1 – a battery-electric vehicle produced in the 1990s – and the Chevrolet Volt plug-in hybrid-electric vehicle in the 2010s, both of which were abandoned by the company.

GM follows several other companies in abandoning Robotaxis, including its closest Crosstown rival. Ford Motorwhich shuts down its Argo AI autonomous vehicle unit with Volkswagen in 2022.

The robotaxi leader in the US remains Waymo, which continues to expand operations for 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 rideshare platforms can play as efforts to commercialize AVs (a bullish indicator), but we think the more obvious impact right now is on the partnership ecosystem provided by Waymo. Despite the costs already is scaling and Tesla has ambitions to do the same,” Bernstein analyst Daniel Roeska told an investor note last week. do