Investing in General Motors (GM +3.35%) today is increasingly becoming an investment in the future of electric autonomous driving through its majority ownership of Cruise. Late last week, GM announced it was buying out SoftBank's stake in Cruise for $2.1 billion and will take on a $1.35 billion investment tranch that's due now that Cruise is reaching commercialization.
For GM, the investment could be a fortuitous opportunity. SoftBank was due to get a big bill at a time when it was trying to sell assets, not buy more. Time will tell if this was a sale at depressed prices for Cruise, but if you're a believer in autonomous ride-sharing, it increases GM's stake in the company to over 80% and could eventually be a massive asset for the automaker.
Image source: Cruise.
Cruise is taking steps toward maturity
The reality on the ground is that Cruise is getting ready to take off as a company. It has a permit in California to perform fully autonomous rides for select customers and can now charge for rides in a vehicle with a safety driver. If the current momentum continues, it will be a matter of months before it can begin charging for rides with no driver in the car.
Next on the list is launching the Cruise Origin (shown above), a specially designed vehicle for the autonomous ride-sharing market. There's no driver, and passengers will face each other, maximizing rider space in the vehicle. The launch of this vehicle will take billions of dollars and be high-risk, which is what SoftBank's $1.35 billion investment would have been used for. Now, GM is responsible for the investment and will take even more control over Cruise.
NYSE: GM
Key Data Points
GM's Cruise strategy
It's clear now that GM is extremely bullish on Cruise's future, despite the fact that the company will likely need billions of dollars to get its service to a sustainable point financially. GM has already given Cruise a $5 billion line of credit to assist in deploying autonomous ride-sharing vehicles. Now, it's going a step further by taking an over 80% stake in Cruise.
Critical to this strategy is that GM is still allowing Cruise to operate as a separate company. GM is providing investments, financing, and contract manufacturing for Cruise Origin, but it's not folding Cruise into the broader General Motors.
This is an intentional strategy because it allows Cruise to continue operating like a start-up while still having GM's backing. And Cruise doesn't need to get bogged down by GM's legacy business.
Cruise could be investors' upside
General Motors, the automaker, is a tough company to invest in today. It has legacy challenges like dealers and unions to deal with that new EV makers don't have bogging them down. But it's still profitable today and can use some of those funds investing in a disruptive company like Cruise.
The market is only valuing General Motors at $65 billion today, but Cruise's last fundraising round put a $30 billion valuation on the start-up. Given that GM now owns over 80% of Cruise, there's potentially a huge chunk of GM's value locks up in Cruise today.
If autonomous ride-sharing starts to take off in the next few years, I could see GM's stake in Cruise being worth far more than GM itself is worth today. That's the upside for investors. If you think the future of transportation is autonomous vehicles, GM is a great bet, and it's the company's continued bet on Cruise that will make the autonomous business possible.
