General Motors' (NYSE:GM) self-driving subsidiary has a new investor: Honda Motor Company (NYSE:HMC) is investing $750 million in Cruise, giving the San Francisco-based GM subsidiary a post-funding valuation of $14.6 billion.
Under the terms of the deal, Honda will also contribute $2 billion over the next 12 years toward funding the development and deployment of a new vehicle designed from the ground up as a self-driving vehicle, with no provisions for a human driver.
The first "purpose-built" autonomous vehicle
Cruise has been working since 2016 on its first self-driving vehicle, a heavily modified version of the Chevrolet Bolt EV. Cruise did extensive work to create a self-driving vehicle that could be mass-produced on the Bolt's existing assembly line in Michigan. GM and Cruise are aiming to begin deploying that Bolt-based vehicle in urban ride-hailing services next year.
This deal is the next step beyond that self-driving Bolt. GM, Cruise, and Honda will work together to develop a "purpose-built" autonomous vehicle that isn't constrained by the need to provide for a human driver. That vehicle, the companies said in a joint press release on Wednesday, will "serve a wide variety of use cases and be manufactured at high volume for global deployment."
The partners said that Honda's $2 billion investment toward that vehicle program will be paid over 12 years, but it's not currently clear what the timeline is for getting that vehicle into production. (It's probably quite a bit less than 12 years.)
Why is GM letting Honda invest in Cruise?
GM and Honda are rivals, so why is GM letting Honda buy a stake (of about 5%) in its self-driving subsidiary?
The answer is that GM and Honda have also been partners for several years on a few different future-tech initiatives. Honda and GM have worked together for several years on fuel cells, and Honda signed a deal in June to buy battery packs from GM for use in its own battery-electric vehicles.
Simply put, GM knows its engineers can work well with Honda's, and the two companies have come to trust one another. This investment makes sense for a couple of reasons: It gives Cruise a bigger budget, and it gives Cruise and GM access to more engineering resources around the world.
Why would Honda want to invest in Cruise?
Automakers around the world are scrambling to develop self-driving technology to fend off challenges from upstart high-technology rivals. Already, a tech company appears to have seized the lead in the race to deploy autonomous vehicles: Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary Waymo is in the process of deploying its own self-driving taxi service right now.
Honda's own self-driving development program isn't close to anything like that. The company said last year that it likely won't release its first Level 4 self-driving system until 2025. (A "Level 4" system is one that is limited, typically to areas that have been carefully mapped. You can learn more about the "levels" of autonomous-vehicle technology here.)
GM and Cruise, on the other hand, are close behind Waymo (and probably ahead of just about everyone else.) Investing in Cruise vaults Honda to the forefront of the self-driving race, and gives it the prestige of co-developing what will probably be the first purpose-built self-driving vehicle to be mass-produced.
("Prestige" in this case is about more than bragging rights: Honda's involvement in this project will help it hire and retain engineers with experience relevant to self-driving cars. Those engineers are in exceptionally high demand right now.)
The upshot: A lot of interesting possibilities
With this deal, Honda becomes the second outside investor in Cruise, joining SoftBank Group's (OTC:SFTBF) Vision Fund, which agreed to invest $2.25 billion in Cruise in May. Between the two, about 25% of Cruise is now owned by companies other than GM.
The deal raises a lot of interesting possibilities, including a big one for investors: Will GM spin off Cruise with a public offering at some point, or create a "tracking stock" that will allow investors to participate directly in the company -- and allow GM to realize some of its valuation?
My guess is that something along those lines might well be in the works. Stay tuned.