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Cruise is expected to continue testing its ARS in San Francisco with the commercial launch next year. In 2023, it plans to deploy tens of thousands of Origin autonomous vehicles in San Francisco and other cities. It received $5 billion in financing from GM to fund the costs of these AVs, which will pay for approximately 100,000 ARS vehicles, depending on the final costs. The Cruise Origin is a second-generation AV, explicitly designed for ARS. The all-electric Origin looks similar to an autonomous shuttle, but it doesn’t have any manual controls, such as pedals or a steering wheel, that would allow a human to take control.
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GM, Cruise team up with Microsoft to ramp up self-driving vehicles - HT Tech
GM, Cruise team up with Microsoft to ramp up self-driving vehicles.
Posted: Sat, 20 Jan 2024 08:00:00 GMT [source]
Cruise’s partnership with Microsoft aims to provide benefits for both companies. The new ARS market is yet to start, other than Waymo's initial service in Phoenix. More companies will initiate autonomous ride services in their first target metropolitan markets, expand service in that market, and then enter new metropolitan markets. For the first five years or more, growth will come primarily in the easier to serve metropolitan areas in the southern and western parts of the U.S. In June 2021, it secured a $5 billion line of credit from GM’s financing business to fund the purchase of GM's Origin autonomous vehicles. In the middle of 2021, Cruise began to build 100 Origin AVs for validation testing.
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GM is seeking clearance from federal safety regulators for self-driving cars that do not have conventional controls, such as a steering wheel. As mentioned, Cruise decided to design and build a unique autonomous vehicle for ride services. If successful, it gives Cruise some critical competitive advantages. Vehicle costs are significantly lower because it will eliminate driver controls (steering wheel, pedals, the systems for linking driver controls, mirrors, etc.). However, the risk in this strategy was that it required federal approval to eliminate driver controls. GM's TAM projection estimates the market at $50 billion for the US ride-hail market, increasing to $500 billion with the migration of low-mileage car owners.
A Reminder: The Market for Cruise is Enormous
Activist investor Engine No. 1, which has said it invests in companies that have a positive impact on workers, communities and the environment, disclosed Monday that its stake in GM is passive. They have been heavily investing into the company, which has meant some great progress in developing self-driving cars based on the Chevy Bolt EV. GM's 2025 estimate of 50,000 ARS vehicles would equate to approximately 4.2 billion miles, which would only be a small percentage of the estimated US ridesharing market of more than 200 billion miles. The third level of the business model adds the overall operating expenses for R&D, Sales & Marketing, and General & Administrative costs.
There were social concerns, too, notably fears of increasing social inequality due to the affordability gap between those who could access electricity and those who could not. The sophistication of transformative technology often leads to a perceived loss of control, further fueling skepticism due to fears of unintended consequences. Technological determinism further stirs the debate - the belief that technology steers society in preset directions, often wresting control from individuals and communities. To address this discrepancy, the automaker increased its full-year EPS diluted adjusted guidance by $0.25. The automaker has said it expects Cruise to bring in $50 billion in annual revenue by the end of the decade.
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Its technology facilitates localization and mapping, perception, prediction, planning and control, autonomous driving infrastructure, and more. Cruise plans eventually to expand its offerings beyond San Francisco with four- to six-passenger Origins but needs permission from the National Highway Traffic and Safety Administration to put the shuttle on public roads. The vehicle needs a government exemption because it has no steering wheel or manual controls.
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Market Expansion and Price Sensitivity
Ammann is expected to show how Cruise can increase revenue to $50 billion or more and provide analysts with details on cost per mile to consumers. The presentation will show how some big-name companies took years to get to that kind of revenue, the people said. What would be the valuation of a technology-based company with $30 billion in revenue in a profitable and rapidly growing market? Easily it could be valued at more than $100 billion with an expected value by 2030 of more than $500 billion. In fact, a 10X multiple of revenue would not be out of the question, and this would be $300 billion.
Over time, the introduction of regulations and improvements in automobile design and infrastructure addressed many of these early concerns, paving the way for cars to become a primary mode of transportation. With its rapid communication, the telegraph was suspected of potentially eclipsing traditional, personal communication modes. Television, now an entertainment mainstay, was initially viewed as a potential intellectual drain, pulling people away from 'worthier' pursuits like reading. Let's look more closely at the introduction of two major transformative technologies for the lessons we can learn.
San Francisco is its initial market for ARS, while Phoenix is for autonomous delivery. GM is a profitable company trading at $26.85, a minuscule P/E of 3.8. Sure, there may be more downside with the current turmoil over Cruise, the cost impact of the recent strike, and concerns about auto sales and EVs. Over the longer term, GM has a substantial upside even without Cruise. Adding in the potentially significant value of Cruise, GM provides a genuinely unique long-term investment opportunity today. Let's not forget that this is an inevitable and enormous market opportunity for Cruise.
The timing for the planned announcement on fares makes sense for Cruise. The California Department of Motor Vehicles last week gave the company a permit to charge fees for autonomous vehicle services. That means Cruise can operate delivery services for a fee using its self-driving cars without a safety driver. All autonomous vehicle operators need approval from the Public Utility Commission to charge passengers for rides in the state.
From there, it plans to expand this service to other major cities. Extrapolating this to revenue and profit projection illustrates the significant potential value of Cruise to GM. And on top of this, GM has increased its ownership of Cruise and indicated that it plans to delay any spin-off until it can capture more value for GM shareholders. GM acquired Softbank's equity ownership stake in Cruise for $2.1 billion. GM's ownership in Cruise will now be increased to approximately 80%. While there is some concern that GM bought out Softbank at the initial investment value, 80% ownership is important.
GM reportedly continues to own approximately 70% of Cruise, although this is unconfirmed. Based on these estimates, Cruise would have a value of approximately $20 billion to GM. We will consider the case for each of these as well as the potential impact each has on GM's overall valuation, but first, let's look a little more at autonomous ride services and then Cruise. Additionally, there will be costs for managing the fleet, including dispatch staff, fleet facility costs, support costs, local marketing, etc. For 1,000 vehicles, fleet operations costs compute to be $8 million on fleet revenue of $150 million and a contribution of $90 million after the vehicle costs.
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