If General Motors (GM 3.05%) is going to be a great investment over the next decade I don't think it will be because people buy electric trucks or the company develops a compelling electric SUV. The company's long-term future is tied to Cruise, the autonomous ride-sharing company GM bought in 2016.
Cruise is the first company in the state of California to get a permit for commercial ride-sharing vehicles without a safety driver. It can't charge customers for the service yet and there are limits on where it can operate, but it's clear that Cruise is moving closer and closer to operating a fully autonomous ride-sharing service in the U.S. If it succeeds, it could upend transportation as we know it, and GM will be both a big help and the main beneficiary of its growing business.
Image source: Cruise.
The latest news
To advance autonomous ride-sharing, Cruise and GM designed the Cruise Origin (shown above), which is a driverless ride-sharing vehicle. Unlike today's ride-sharing vehicles, the passenger space is designed to be shared and social. Passengers face each other, more like a bus, and the design is intended to feel more like a living room than a passenger car.
Origin took a big step forward this week because GM said it is beginning pre-production of the vehicle, and GM's financial arm has provided a $5 billion line of credit to Cruise to fund the vehicle's production.
Cruise is currently testing its technology on modified Chevy Bolts, but Origin will integrate all of the sensors and controls the vehicle needs to operate. Testing is planned to begin in 2023 in Dubai, but that could expand to places like California as regulators give Cruise more leeway to operate.
A symbiotic relationship
Earlier this year, I wrote that the fit between GM and Cruise is extremely natural given the strength of each business. GM is the auto manufacturing expert with a massive financing arm. Cruise is a fast-moving start-up with autonomous driving technology and the ability to build a ride-sharing business without the bureaucracy of a big company.
In an ideal state, as Cruise moves closer to launching a commercial ride-sharing product, its strategy could likely play out like this.
- Cruise raises the money it needs to fund research and grow vehicle production, led by General Motors' balance sheet. (check)
- GM and Cruise design and build a next-generation ride-sharing vehicle and it's GM who handles the production as a supplier to Cruise. (pre-production beginning now)
- Cruise leans on GM's finance division to get low-cost funding to build an autonomous vehicle fleet. (see $5 billion line of credit above)
- Cruise builds a ride-sharing business with the custom autonomous vehicle fleet. (very small scale commercial operations are beginning in California)
If Cruise Origin is successful, both technically and commercially, as a vehicle and customers are willing to utilize the service at a profitable price point, the company can expand relatively quickly. And it can lean on both its own growing balance sheet and a steady stream of financing from GM to make the autonomous ride-sharing vision a reality.
Cruise is off to the races
The autonomous vehicle business is moving quickly toward the mass market and Cruise is leading the way. It already has a permit to operate commercially without a safety driver in California, is in pre-production with a custom vehicle, and is building international growth plans.
As Cruise moves closer to the consumer market, it could offer a number of benefits to users. It should have lower costs as a result of the elimination of the driver and a move to the Cruise Origin, which is specifically designed to be cost-efficient for ride-sharing. As Cruise put it, "It's engineered to include everything you need and nothing you don't.", eliminating bells and whistles in vehicles that only offer value to a subset of drivers. Management predicted that eventually an average San Francisco household driving or using traditional ride-sharing could save $5,000 per year with Cruise. If those economics work out, Cruise could have an enormous market on its hands.
As the majority owner of Cruise, GM is well-positioned to be a leading company in autonomous vehicles, and it's my top electric and autonomous vehicle stock for the decade.
