A $2.75 billion investment by Walmart (WMT -0.65%) and other institutional investors into General Motors' (GM -0.05%) self-driving start-up Cruise may not be earth-shattering news in the stock market, but it's a big deal for GM, Cruise, and the future of autonomous delivery. The companies have invested billions in autonomous vehicles and are now seeing an enormous opportunity in self-driving delivery.
A Cruise partnership with Walmart could be a win-win, as the former tries to build a business and (ultimately) market share in delivery and the latter tries to reach more customers with its online delivery offerings. Here's why the deal could drive billions in revenue for Cruise and eventually even make GM a growth stock again.
The Cruise Origin. Image source: Cruise.
Walmart's bet on autonomous driving
Walmart has spent years investing in online sales, pickup options, and delivery features for customers. But it hasn't gone all-in on digitization or autonomy for everything. For example, last year it ending a contract with robotics company Bossa Nova Robotics for robots that scanned shelves for inventory levels because it found people could do the job just as effectively (and customers didn't like robots roaming the store).
That's why the investment in Cruise is so notable. We don't know Walmart's exact investment, but as the lead in a $2.75 billion investment round, it's safe to say the company put a significant amount of money into the company. And the goal is to scale Cruise's delivery service to help grow sales.
We know right now that Walmart is planning a pilot of self-driving deliveries in Phoenix, but that could be just the start. Walmart has 11,500 stores in 27 countries, so this could be a big market to step into for Cruise.
Walmart isn't alone in eyeing autonomous delivery either. Startup Nuro has partnered with Domino's to deliver pizzas and CVS to deliver prescriptions, both focused around the Houston area. Nuro also is licensed to operate driverless delivery vehicles in California and plans to expand outside of Silicon Valley to go statewide. Nearly every autonomous driving company has at least some plan for a delivery service and operations are beginning to ramp, but Walmart is clearly placing its biggest bet on Cruise.
Why Cruise delivery makes so much sense
To see why Cruise is interested in delivery, you don't need to look any further than Uber Technologies' (UBER -0.89%) 2020 financial results. The company reported $10.1 billion in bookings from delivery services and just $6.8 billion from mobility, or traditional Uber rides. Of course, rides were down because of the pandemic, but in 2019, bookings from mobility were $13.5 billion. In short, delivery could be a bigger business than mobility in the long term.
Given its ability to build custom vehicles with GM, Cruise could design delivery vehicles that could pick up multiple orders from Walmart, keep them refrigerated if needed, and deliver them to consumers in a locked compartment. This is the same use-case for which Nuro designed its vehicles. Likewise, Intel's Mobileye recently announced a deal with Udelv to build "Transporters" for "last mile" delivery.
Just how big a deal is delivery to Cruise specifically? The economics of delivery aren't known yet, but Mobileye plans to build 35,000 "Transporters" between 2023 and 2028, so there could be a lot of volume. If we just look at four of the biggest brick-and-mortar retailers -- Walmart, Kroger, Costco, and Target -- they make up nearly $1 trillion in sales annually. If Cruise captures even a fraction of their business, it could transform the company's future. Locking up the biggest retailer -- Walmart -- with $559 billion in sales annually is a huge deal for Cruise.
WMT revenue (TTM) data by YCharts. TTM = trailing 12 months.
For retailers, having a self-driving delivery option could help grow their sales as well. They've lost business to Amazon's (AMZN -1.14%) Prime delivery, but if self-driving brings the store to you in a matter of hours, it could change the calculus for online shopping in favor of brick-and-mortar retailers.
Opening up a wider world of self-driving services
What's clear right now is that Cruise isn't leaving anything to chance in its effort to build a self-driving business. The company is building a ridesharing service with the GM-built Cruise Origin as its vehicle of choice and recently announced a deal to test the vehicle in Dubai in 2023. It also recently added Voyage, a small community self-driving fleet company, for shorter trips in contained communities. Add in the potential for a delivery business with the biggest retailer in the world, and the company has its hands in the many of the most exciting markets for autonomous vehicles. But when can millions of customers expect to see the option for autonomous delivery?
Given the fact that Nuro is already doing autonomous deliveries and Cruise is planning pilot tests with Walmart, there could be tens of thousands of people within the range of autonomous delivery this year. And with the Cruise Origin expected to start production next year, including a delivery version of Origin, we could see a ramp in available areas next year. Given the pace of partnerships and development by Cruise, Nuro, Mobileye, and others, I think by 2023 millions of people in the U.S. and potentially around the world will have some form of autonomous delivery available to them.
Given the sheer size of the delivery market, the pace of progress is a very bullish sign for Cruise and, by extension, its majority shareholder General Motors. The company is building a juggernaut in self-driving, and the partnerships with companies like Walmart give the company a big leg up on the competition.
