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Will General Motors and Ford Spin Off Cruise and Argo AI?

By John Rosevear – Aug 15, 2021 at 10:16AM

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Spinoffs of self-driving companies could unlock a lot of value for big auto shareholders. Are they likely?

Once upon a time, auto investors wondered if the "legacy" automakers would ever be able to muster the software prowess needed to compete with start-ups developing self-driving vehicles. But some of those old automakers -- notably Ford Motor Company (F 1.20%) and General Motors (GM 1.66%) -- answered that question by saying "maybe we can't beat the start-ups, but we can acquire them." GM acquired San Francisco-based self-driving start-up Cruise in 2016 and Ford funded Pittsburgh-based Argo AI about a year later.

Now, both Argo AI and Cruise are widely considered to be among the leaders in the race to deploy self-driving vehicles -- and both have hefty valuations. That has led some Wall Street analysts to ask whether Ford and GM might consider spinning off Argo and Cruise in order to "unlock" those valuations for their own shareholders. In this Motley Fool Live video, recorded on Aug. 5, Industry Focus host Nick Sciple and Motley Fool senior auto specialist John Rosevear consider that question -- and conclude that one of the two might well go public before long. 

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Nick Sciple: You mentioned spinning out the old company and the new company. I'm going to ask my one question which is not in Slido, but one that which I think is interesting and I'd like to get your thoughts on. John, as we've heard a little bit of rumor and innuendo of, is there a chance that GM spins off Cruise, or Ford spins off their stake in Argo AI, these are their Level 5 autonomy, I guess majority-owned subsidiaries. Is that the way you would phrase it? What do you think about that potentiality, and what's the status of development in those arms of those companies?

John Rosevear: They are a little different in that Cruise is really functionally part of GM. I mean, it's a subsidiary. Honda has some interest in it, there are a couple of outside investors that have some interest, but functionally, it's a subsidiary of GM. Argo is a start-up in which Ford invested heavily and transferred some people to, and then Volkswagen came in and matched Ford's investments. So Argo is Ford and VW. I think some people lose track of that. But in terms of being spun out, I will not be the least bit surprised if Argo doesn't IPO at some point, I don't think it will be Ford and Volkswagen selling off their stakes. I think they'll use it to raise some money and maybe give their employees some liquidity on the stock options they've been piling up for a couple of years now. Cruise, I don't know. There is a certain analyst we talk about a lot, Adam Jonas of Morgan Stanley, who thinks it would be a great idea to spin off Cruise and let it soar to the valuations of some of the more speculative electric vehicle and self-driving companies we've seen. I think that's more of a 2020 idea than a 2021 idea. What I think will happen with Cruise is that if GM decides it wants to raise money through an IPO of Cruise or a tracking stock or something like that, it will do it. If it doesn't need to, then it won't do it. I don't think GM will give us much notice either way on that. They tend to answer the analyst's questions on that with this, "Well, we watch the market, Adam, and we see that, too. We have no plans to announce at the present time." Those kinds of answers. So Argo yes, and Cruise maybe not so much.

Nick Sciple has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Volkswagen AG. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Ford Motor Stock Quote
Ford Motor
F
$13.91 (1.20%) $0.17
General Motors Stock Quote
General Motors
GM
$40.41 (1.66%) $0.66
Honda Motor Stock Quote
Honda Motor
HMC
$24.50 (1.64%) $0.40
Morgan Stanley Stock Quote
Morgan Stanley
MS
$92.80 (1.89%) $1.72
Volkswagen AG (ADR) Stock Quote
Volkswagen AG (ADR)
VWAGY
$19.23 (2.45%) $0.46

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