GM Remains Committed To Cruise, For Now
February 4, 2024
This Week in The Autonomy Economy, The Road to Autonomy Index returned 0.81%, Alphabet, Aptiv and GM reported their Q4 2023 earnings and all three companies made news as it relates to autonomous vehicles.
Mary Barra reiterated that GM remains committed to Cruise. Aptiv announced it will not participate in future funding rounds for Motional. This is an expected move as there have been rumblings for months now that Aptiv was looking exit the JV with Hyundai. The questions now become, what will Hyundai do and what is the future of Motional?
Sundar Pichai CEO of Alphabet and Google announced that Waymo has successfully completed over 1 million fully autonomous ride-hailing trips. A major milestone for Waymo as they prepare to expand operations in the San Francisco Bay Area and Los Angeles. Look for more Waymo metrics to be released in future quarters.
Despite the headlines, the autonomy economy is healthy and growing. This coming round of consolidation will create healthier businesses that will create a long-term prosperous market. Over the next few weeks, we will share our thoughts on the current market consolidation and how we see it shaking out in both the autonomous vehicle and truck markets.
Alphabet, Aptiv and GM are The Road to Autonomy Index component companies
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What’s Moving the Markets
GM Remains Committed To Cruise, For Now
On January 30th, GM released their Q4 2023 earnings. GM reported EPS of $1.24, 7 cents above the Bloomberg consensus of $1.17. Revenue for the quarter came in at $43.0 billion with adjusted EBITA of $1.8 billion.
While GM had a healthy quarter financially, what stood out to us was the commentary related to Cruise. In her opening remarks, GM CEO Mary Barra reiterated GM’s commitment to Cruise when she stated the following:
Moving to Cruise, last week we released the results of the third-party reviews, and we’ve already begun to implement significant changes to build a better Cruise.
We are committed to earning back the trust with our regulators and the public through our actions. Our planned 2024 investment in Cruise reflects our more deliberate and cadenced go-to-market strategy, and we are developing new financial targets and a new roadmap.
Spending will be down considerably this year, but we will continue to invest in the people who are advancing the software, specialized hardware, and AI capabilities.
This reflects our commitment to our vision which is to deliver the safety benefits of self-driving technology and a scalable profitable business. I look forward to sharing our timetable for returning Cruise AVs to the road soon.
– Mary Barra, GM Q4 2023 Earnings Call, January 30, 2024
In 2024, GM is committing roughly $900 million to Cruise, down from $1.9 billion in 2023. Committing $900 million to a business ($75 million a month) that is adrift in uncertainty seems imprudent.
During the question and answer segment of the earnings call, Dan Ives, Managing Director and Senior Equity Research Analyst at Wedbush Securities asked Ms. Barra the following question:
So can you just talk about Cruise? What are sort of the targets of this year that we should think about that would just give more confidence that we’ve turned the corner there? I mean, from an investor perspective and how you looking at that long term. And you are committed to Cruise, right? That’s the best way to think about that once to get through some of these situations.
Ms. Barra responded:
Appreciate the question, Dan. We are committed to Cruise. When we look at the technology, the foundational technology is sound. We had already demonstrated and validated externally that Cruise technology is already safer than a human driver. One of the things we’ve learned is humans expect technology computers to be much more safe than their expectations that they have for other people. And with that knowledge, we are already working on what the level of the technology needs to be to meet the consumers’ expectations. We think we can do that, so we are committed, and we are working on the detailed plan right now of how we’ll go forward.
The other big learning was, as you roll out technology that is as transformative as this and has incredible benefits to safety, you have to do it in a way where you’re really working with the regulators at the local, state, and federal level as well as first responders. So as we roll out anywhere, we are going to make sure we build the right relationships, they understand the technology, they understand the benefit of the technology, and that’s what we’ll do. But we have confidence in the underlying technology, and you’ll hear more about our plans for Cruise as we develop the plan in the upcoming weeks.
– Mary Barra, GM Q4 2023 Earnings Call Q&A, January 30, 2024
Mr. Ives was able to get a non-committal timeline from Ms. Barra on when GM will share their plans for rebooting Cruise. When will GM share those plans and what will be in the plans remains uncertain.
From a brand perspective, is the Cruise brand tarnished beyond repair? Bank of America Research Analyst, John Murphy brought this topic up during the Q&A segment of the call with Ms. Barra.
Maybe rebranding Cruise and really kind of taking a new sort of approach to where the company will land in five to ten years to really protect profitability and cash flow from a position of strength instead of maybe a position in five to ten years where it might be a weaker position?
– John Murphy, Bank of America Research Analyst, GM Q4 2023 Earnings Call Q&A, January 30, 2024
Mr. Murphy is correct. GM should explore the potential of rebranding Cruise prior to reintroducing the robo-taxi service to the market.
There are a lot of questions surrounding GM and Cruise. Questions that are only going to grow over time as the window for GM to develop a viable business model for Cruise that satisfies shareholders is waining.
If you are interested in learning more about the current situation at Cruise, we would recommend the following The Road to Autonomy podcast:
- What is The Future of Cruise?, A Conversation with David Welch, Detroit Bureau Chief, Bloomberg (December 26, 2023)
Our take: There are more questions then answers. Over the coming quarters GM is going to have share their long-term plans for Cruise with the market.
What could a rebooted Cruise 2.0 could look like? What are the operational plans? What is the business model? Who’s in-charge? Who makes the deployment decisions? Who makes the regulatory/law enforcement interaction decisions?
These are questions that GM is going to have to answer if Cruise is to once again become successful.
GM is a The Road to Autonomy Index component company
Way Mo Miles
During Alphabet’s Q4 2023 earnings call, Sundar Pichai CEO of Alphabet and Google announced that Waymo has successfully completed over 1 million fully autonomous ride-hailing trips.
As Waymo expands commercial operations, the losses in Other Bets is slowly being to decrease. In Q4 2023, Alphabet reported Other Bets revenue of $657 million with a loss of $863 million. This is a quarter-over-quarter increase in revenue of $360 million and decrease in loss of $331 million.
How much of this revenue can be attributed to Waymo is unknown, but there is a clear correlation between Waymo expanding commercial operations and Other Bets revenue increasing.
As Waymo prepares to expand their service area to Los Angeles (250 square miles) and the San Francisco Bay Area (160 square miles), revenue should accelerate further closing the gap between revenue and losses in Other Bets.
Could Waymo have figured out the robo-taxi business model? If they have, does Waymo potentially look to increase revenue by licensing the Waymo Driver?
In a January 30th research note, RBC Capital Markets analyst Brad Erickson wrote the following:
For transportation, we think Waymo has an opportunity to potentially be the operating system for the presumptive autonomous driving applications of the future. We like the company’s focus on software with OEM, tier-1 supplier, and mobility network partnerships where core competencies of each can be leveraged vs. OEMs trying to handle software development technology that goes beyond their domain expertise.
– Brad Erickson, Analyst, RBC Capital Markets | GenAI bear thesis building its case; adjusting estimates report, January 30, 2024
If Waymo does indeed license the Waymo Driver, the question becomes what are the financial terms of the license? We have always believed that at some point, Waymo would license the Waymo Driver. Perhaps that scenario is closer then we think.
We will learn more over the coming quarters as Waymo prepares to expand robo-taxi operations. As Waymo expands, we will be watching to see if Other Bets revenue continues to increase.
If you are interested in learning more about Waymo’s approach to autonomous ride-hailing, we would recommend the following The Road to Autonomy podcasts:
- Waymo’s Rider-Only Experience, A Conversation with Sonca Nguyen, Product Manager, Waymo (July 19, 2022)
- Waymo’s Layered Approach to Safety, A Conversation with Francesca Favarò, Safety Best Practices Lead, Waymo (October 25, 2022)
Our take: Waymo is in the drivers seat. All eyes now turn to Ruth Porat and Alphabet. Will Alphabet continue to invest in Waymo? This is the biggest risk that Waymo is currently facing.
Waymo parent Alphabet is a The Road to Autonomy Index component company
Motional’s Uncertain Future
On January 31st, Aptiv announced that they are “planning to not participate in Motional’s capital increase; pursuing alternatives to reduce Aptiv interest” as part of their Q4 2023 earnings release.
During the quarter, Aptiv reported an equity loss of $73 million on their Motional JV with Hyundai. On the earnings call, Joseph R. Massaro, CFO stated the following about their planned divestment of Aptiv.
Aptiv will not participate in future funding rounds. Despite the continued progress made by the Motional team on their technology road map, given the push-out of the commercialization of the Level 4, 5 robo-taxi business model, we no longer believe capital allocation to Motional is appropriate for Aptiv.
In addition, we are also exploring steps to reduce the significant portion of our common equity holdings working within the construct of the joint venture agreement, we will look to sell or otherwise reduce our holdings during 2024, reducing the dilutive earnings per share impact of the Motional losses on Aptiv’s earnings.
Given that the exact timing of the reduction in shareholdings is not yet known, we have included the expected full year impact of Motional’s losses in our current outlook, a noncash equity loss of approximately $340 million or $1.20 of earnings per share.
– Joseph R. Massaro, CFO, Aptiv, Q4 2023 Earnings Call, January 31, 2024
The questions now become; Does Aptiv look to sell their entire stake which RBC Capital Markets analyst Tom Narayan has assigned a $1.4 billion valuation? Could Hyundai look to potentially capitlize on the market conditions and buyout Aptiv’s share of the JV at a diminished valuation?
If Hyundai does buyout Aptiv, do they shut down Motional to focus on developing autonomous driving technology for personally owned autonomous vehicles?
If you are interested in learning more about Motional’s commercialization strategy we would recommend the following The Road to Autonomy podcast:
- Scaling Motional, A Conversation with Akshay Jaising, VP of Commercialization, Motional (March 21, 2023)
Our take: The move by Aptiv, while not surprising, will lead to further consolidation of the robo-taxi market.
Aptiv is a The Road to Autonomy Index component company
BYD Introduces “Navigation on Autopilot”
BYD, Tesla’s biggest global competitor is working on its own version of autopilot called Navigation on Autopilot. Thesystem was first introduced in early January 2024 in Shenzhen, China.
Navigation on Autopilot will first be available in the Denza N7 and Yangwang U8 vehicles. It is expected to be made available in the new Han and Tang models later this year.
Navigation on Autopilot will be equipped as standard configuration on all BYD electric vehicles priced north of RMB 300k ($42,220). For vehicles priced between RMB 200k-300k ($28,147 – $42,220), the system will be available as an optional add-on for BYD electric vehicles.
The initial rollout of Navigation on Autopilot will be limited to highway driving until Q2 2024. During Q2 2024, BYD plans to introduce a city driving version of Navigation on Autopilot. Later in 2025, Navigation on Autopilot will be available across the entire line of BYD electric vehicles (both highway and city).
Bernstein Research Senior Analyst – Asian Autos, Eunice Lee took a test drive in Shenzhen and reported on her experience in a January 22, 2024 research note.
The ride was generally smooth, but certain decisions (e.g. crossing intersections, overtaking cars) appeared to err on the side of caution. We also found BYD’s self-parking features to be very impressive.
– Eunice Lee, Senior Analyst – Asian Autos, Bernstein Research | BYD: The roadmap for vehicle intelligence report, January 22, 2024
The Navigation on Autopilot system requires drivers to touch the steering wheel every 15 seconds. Touching the wheel every 15 seconds will become a nuisance as drivers begin to use the system on a regular basis. Opening the debate around driver monitoring and if a DMS (driver monitoring system) should be required for SAE Level 2 vehicles.
While that debate will continue for years, we did host Paul McGlone, CEO, Seeing Machines on The Road to Autonomy podcast where he discussed the the various use cases for driver monitoring systems.
If you are interested in learning more about driver monitoring systems, we would recommend the following The Road to Autonomy podcast:
- In-Cabin Sensing Technology, A Conversation with Paul McGlone, CEO, Seeing Machines (October 10, 2023)
Our take: In 2008, Berkshire Hathaway invested $225 million into BYD Company Limited in exchange for a 10% stake. Today, Berkshire still owns 8.054% of the company after trimming its stake several times.
The investment in BYD as yielded billions in unrealized capital gains for Berkshire Hathaway and the late Charlie Munger once stated “I have never helped do anything at Berkshire [Hathaway] that was as good as BYD and I only did it once”.
A bold statement from an investing legend. Now BYD is developing an autonomous driving system that will directly compete with Tesla Autopilot and FSD (Full Self-Driving).
Will the introduction of Navigation on Autopilot lead to BYD’s own version of FSD? Only time will tell, but we do know is that BYD is coming. It is only a matter of time until BYD vehicles are driving on the roads of America. The time to get prepared is now.
Berkshire Hathaway and Tesla are The Road to Autonomy Index component companies
Social Buzz
Back on the Streets in Q4 in Houston and/or Dallas?
Could Cruise vehicles end up back on the road in Q4 2024? That is what Reuters is reporting as Cruise appears to not be leaving their heart in San Francisco. Dallas and Houston are reportedly the cities where GM will look to reboot Cruise.
At this time, it appears premature for GM to share an internal timeline for relaunching Cruise. GM has not completed their plan regarding how they will go forward with Cruise.
Our take: Only time will tell, what direction GM takes with Cruise. If GM does indeed reboot Cruise without rebranding, will the public trust the service?
GM is a The Road to Autonomy Index component company
Optimus Takes a Walk
Robots will play a large role in the warehouses of the future. Automated warehouses are one of the most interesting segments of autonomy today.
Our take: We will be watching to see how Tesla plans on commercializing Optimus.
Tesla is a The Road to Autonomy Index component company
Waymo Turns 15
15 years ago, Waymo was born as “Project Chauffeur”. It is truly remarkable how much Google/Alphabet has been able to accomplish over these last 15 years. Now just imagine what Waymo will be able to accomplish over the next 15 years.
Our take: DARPA incubated an industry, Google/Alphabet made it a business.
Waymo parent Alphabet is a The Road to Autonomy Index component company
The Road to Autonomy Index® / Weekly Performance
The Road to Autonomy Index® is a high-definition lens into the emerging world of autonomous vehicles. It is the world’s first and only pure-play index designed to measure the performance of the autonomous vehicle/truck market.
For the week of January 29, 2024, The Road to Autonomy Index returned 0.81%, the S&P 500 returned 1.27% and the NASDAQ 100 returned 0.94%. The Road to Autonomy Index underperformed by the S&P 500 by 0.46% and underperformed the NASDAQ 100 by 0.13%.
The top performing stocks in The Road to Autonomy Index this week were:
- GM returned 10.60%
- NVIDIA returned 8.40%
- Amazon returned 7.98%
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The Road to Autonomy podcast hosted by Grayson Brulte is a podcast featuring unconventional conversations about the future of mobility and the emerging autonomy economy. New episodes every Tuesday.
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May Mobility investor Toyota is a The Road to Autonomy Index component company
Subscribe to This Week in The Autonomy Economy™
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