Cruise (General Motors) (NYSE:GM) has suffered some significant setbacks recently, just as it was poised to expand its autonomous ridehailing service. It has lost its approvals in California pending investigations, suspended operations to fix problems, started selected layoffs, initiated two independent inquiries, and suspended manufacturing of its still-to-be-approved Origin transport vehicle.
In the face of what I expect will be reader criticism, I still expect autonomous ridehailing services (ARS) to be a vast market and Cruise to be a leader in this market. GM’s forecast of $1 billion of revenue from Cruise in 2025 will most likely be delayed until 2026. Its planned rollout to 10-15 metropolitan areas in 2023 will slip to 2024. The launch of the Cruise Origin will be postponed until 2024. However, its goal of $50 billion in revenue from Cruise is still possible. With its stock price down to less than $27 and a P/E of 3.8X, GM represents a unique long-term investment opportunity, which will pay off multiple times when Cruise is successfully launched.
In this article, I’ll explain what GM Cruise needs to do to recover, and I expect it to pursue something like this. I’ll reiterate briefly why autonomous ridehailing services are an enormous opportunity. But first, a brief history lesson to remind everyone that transformational technology always faces criticisms, opponents, and hurdles.
Criticisms of Transformative Technologies
Transformative technology always faces skepticism and criticism upon introduction. The reasons for this opposition are extensive and varied, stemming from deep human instincts to broad economic impacts.
One predominant factor is the innate human fear of the unknown. As creatures of habit, any deviation from the familiar can be seen as a potential threat to our known way of life. The perceived economic implications can deepen this discomfort. With its potential for improved efficiency and innovation, new transformative technology will render existing jobs or entire industries obsolete, creating anxiety about economic displacement. This is undoubtedly the case with autonomous ridehailing services.
Beyond the economic realm, there’s the looming apprehension about potential misuse. Be it individuals, corporations, or governments, the potential evil applications of new technology can be a significant point of contention. From a societal perspective, new technologies may challenge prevailing moral and cultural norms, igniting debates about their broader implications.
Health and safety are always paramount, and any transformative technology that endangers these fundamentals invariably faces opposition. Safety is a strong argument, even for those with other interests. With Cruise and ARS in general, safety has been the primary argument. Ironically, this comes despite clear logic and experience demonstrating that autonomous vehicles (AVs) will dramatically reduce accidents and save tens of thousands of lives and thousands of serious injuries every year. 90% of accidents are caused by distracted, impaired, dangerous drivers who don’t follow driving regulations. Autonomous vehicles will prevent these accidents.
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.
Historical examples of transformative technologies are full of such early criticisms. The printing press introduced in the 15th century was met with trepidation by religious authorities fearing the unauthorized dissemination of religious texts and potential heresy. Johannes Gutenberg’s invention significantly impacted the spread of knowledge, culture, and religion by making books more accessible and affordable. It played a crucial role in the Renaissance, the Reformation, and the Scientific Revolution, profoundly influencing the course of human history.
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. These examples illustrate that the introduction of automobiles and electricity was criticized and faced setbacks but was not knocked out.
The Introduction of The Automobile
Even the introduction of the automobile in the early 20th century was met with criticism and apprehension. The early models’ lack of sufficient safety features and adequate driving regulations contributed to widespread fears about accidents. The speeds these new cars could achieve were unlike horses and carriages, sparking public concern. This sentiment was echoed in media reports of the era, such as a 1904 New York Times article titled “Automobile Kills a Child,” highlighting the growing safety concerns similar to those raised about modern Cruise AVs.
Health concerns also surfaced regarding the noise and pollution generated by cars. The public worried about the impact of exhaust fumes and loud noises on physical and mental health, with newspapers frequently highlighting the “noxious fumes” and “deafening noise” of these early vehicles.
The rise of the automobile was also viewed as a threat to the established horse and carriage industry. There was widespread fear of job losses among carriage makers, blacksmiths, stable keepers, and others tied to the traditional means of transportation. The decline of the horse-drawn carriage industry was often cited in criticisms of the growing popularity of cars.
Another concern was the damage that early, heavy automobiles caused to roads initially designed for horse-drawn vehicles. This situation led to debates over the financial burden of road maintenance and improvements, raising questions about who should bear these costs.
Furthermore, there were arguments about the negative economic impacts of automobiles. Their high cost and the need for substantial supporting infrastructure initially made them a luxury item, sparking discussions about economic inequality and accessibility.
Despite these initial fears and criticisms, the automobile industry saw continued growth fueled by technological advancements and shifts in social attitudes. 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.
In part because of these criticisms and other factors, the advancement of automobiles was slow. In 1901, the automobile market was emerging, with only a few hundred cars sold yearly. Companies like Oldsmobile, which started mass production in 1901, were among the few making significant sales. Through 1905, there was only a gradual increase in sales as more companies entered the market and production methods improved. Oldsmobile, for example, sold over 600 units of its Curved Dash model in 1901, which grew to several thousand units annually in subsequent years. By 2008, Automobile sales continued to increase steadily. More manufacturers were competing in the market, and the number of automobiles in the United States was estimated to be in the tens of thousands by 1908. The introduction of the Ford Model T in 1908 marked a significant boost in automobile sales, with sales in the thousands significantly contributing to the overall market. By the end of 1910, it’s estimated that there were about 200,000 automobiles in the United States, indicating significant growth in sales from 1900. One hundred years later, the automobile is an embedded part of our society and culture, with more than 275 million registered cars in the U.S.
Though transformative, introducing autonomous vehicles may also be slower than expected, even though technology diffusion is much faster today.
The Introduction of Electricity
The introduction of electricity is another early example of the fear and criticism often directed at transformative technologies. Initially, electricity encountered many complaints and concerns, prominently centered around safety. The public feared electric shocks and fires resulting from faulty wiring or equipment, a fear intensified by notable accidents that frequently made headlines, including fires and electrocutions. A particularly dangerous scenario was in theaters and other public spaces where high-heat electric bulbs, flammable draperies, and inadequate safety standards often led to catastrophic fires. Several theater fires were traced to electrical faults during the late 19th and early 20th centuries.
Electrocutions were another concern, affecting workers installing electrical systems and the general public. These incidents were due to a then-limited understanding of electricity’s dangers and a lack of safety equipment and procedures. For instance, linemen working on early electric street lighting faced electrocution risks due to insufficient insulation and safety protocols.
Beyond physical safety, there was widespread apprehension about the potential health impacts of electricity. People feared everything from the effects of electromagnetic fields on physical health to the possibility of nervous disorders, fears magnified by the era’s limited scientific comprehension of electricity’s effects on the human body.
Electricity also faced skepticism as a viable alternative to existing technologies, such as gas lighting. This skepticism was rooted in the early electrical systems’ unreliability, frequent outages, and the high initial costs of electrical infrastructure and consumption.
Resistance to adopting electricity was also partly due to the disruption it brought to established industries, such as gas lighting and manual labor, and the significant changes in infrastructure and daily practices. 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.
However, as electrical technology improved and understanding of its applications and safety grew, many of these initial criticisms and fears waned. This evolution led to the widespread acceptance and reliance on electricity we experience today.
What GM Cruise Needs To And Will Do
Cruise must heed the lessons of history and adapt its approach in rolling out its Autonomous Ridehailing Services (ARS), learning from its mistakes and criticisms just as Thomas Edison did with the introduction of direct current (DC) electricity.
Edison’s initial foray into DC electricity faced challenges, notably its limited capacity for long-distance power transmission. This issue became more pronounced as demand for electrical power grew and the need to transmit over greater distances arose. Similarly, Edison’s DC system encountered stiff competition from Nikola Tesla and George Westinghouse’s alternating current (AC) system, which was more efficient over long distances. This rivalry led to the famed “War of Currents,” compelling Edison to adapt his strategies and launch public campaigns underscoring the perils of AC to defend his DC system. In the modern context, Cruise and Waymo face similar issues in technological competition with Tesla.
Safety improvements were paramount for Edison as early electrical systems, including his own, were plagued with safety hazards such as fires and electrocutions. This necessitated continual refinement and enhancement of safety features, a lesson Cruise must also embrace. The public must understand that iterative improvements are part and parcel of introducing transformative technologies and stopping sensationalist stories of negligence.
Edison was forced to adapt his business strategies as the electricity market evolved. He grappled with challenges in commercializing electricity, including establishing power stations, addressing patent issues, and navigating the complex dynamics of a burgeoning electrical industry. Cruise, too, must adjust to the intricate market dynamics as it introduces ARS into new municipalities.
Facing criticisms in the press during the “War of Currents,” Edison employed various strategies to counter these challenges. He conducted public demonstrations to prove the safety and efficacy of his DC system, countering the growing popularity of the AC system. He also launched a public campaign to highlight the risks associated with AC. In a similar vein, perhaps Cruise needs to highlight the risks associated with human drivers.
Edison’s engagement with the media was also strategic; he frequently gave interviews, wrote articles, and made public statements to defend his electrical system and counter criticisms. This proactive media engagement is a tactic that GM and Cruise could benefit from emulating more effectively.
Furthermore, Edison’s strategy of seeking collaborations and forming partnerships with key industry players helped him maintain a strong market and media presence despite criticisms and competition. This is an area where GM Cruise is participating but could potentially expand.
Lastly, Edison’s continuous innovation and adaptation of his technologies in response to market needs and criticisms helped maintain his reputation as a leading inventor. Similarly, Cruise needs to be flexible and responsive in its approach to introducing ARS, adapting to the evolving technological and market landscape.
Here are a few specific recommendations for Cruise:
- It must work with local fire and police departments to instruct its vehicles to avoid and bypass any location with a fire or accident. It can simply use software to notify all vehicles to change their routes or not accept rides in an area with active fire or rescue activity.
- It must avoid dispatching its vehicles to chaotic locations such as a massive concert. It did that in San Francisco and found out that its AVs couldn’t handle mobs of people in the streets.
- It should slow its deployment in each new city. Start slow with ten or fewer vehicles doing easy routes, then build up gradually, creating excitement and unfilled demand while avoiding quick criticism and too many early problems.
- Build more robust early public support in every new metropolitan area. Take more time. Promote early successes. Get the press on your side.
In conclusion, by following these recommendations and learning from Edison’s experiences, Cruise can effectively navigate the complexities of introducing and establishing its ARS in the contemporary market.
Autonomous Driving Has Strong Opposition with Vested Interests
In 2022, there were an estimated 6.7 million car accidents in the United States, according to the National Highway Traffic Safety Administration (NHTSA). Car accidents can have a devastating financial impact on individuals and families and cost society a significant amount of money each year. As previously stated, autonomous vehicles will drastically reduce car accidents.
Although the introduction of autonomous vehicles has the potential to save 40,000 lives, eliminate more than 2 million serious injuries, and save more than $300 billion annually, there is, unfortunately, opposition. The $300 billion in savings comes at a cost to those who prosper from auto accidents, primarily the auto insurance companies and auto accident attorneys.
They use their financial resources, political connections, and lobbying to hinder the introduction of autonomous vehicles. The next time you read about political opposition to the introduction of autonomous vehicles or a sensational article criticizing AVs over something trivial, ask yourself who may be behind it.
In addition, unions can be generally against autonomous vehicles because they fear that the number of cars needed will decline and jobs will be lost. Uber, Lyft, and DoorDash drivers are against them because they will undoubtedly lose jobs. Others find that writing sensational articles generates readers.
Cruise, as well as Waymo (GOOG) and others, must not underestimate this opposition. It can’t simply rely on the logic of its better solutions. It needs to fight more aggressively against the opposition.
A Reminder: The Market for Cruise is Enormous
Let’s not forget that this is an inevitable and enormous market opportunity for Cruise. Autonomous Ridehailing Services have a significant cost advantage over current ridesharing services provided by Uber and Lyft. Initially, ARS will compete with Uber and Lyft and then expand the market as the cost per mile comes down through economies of scale. This will create a market opportunity of hundreds of billions by 2030 and trillions after that.
For anyone interested in the specific costs, comparative advantages, and details of market opportunity, I refer you to my August article GM/Cruise Is Off And Running. Get Onboard. I set out Cruise’s strategy in that article, but now it needs to change based on current events, and it is probably set back almost a year.
The Long-Term Investment Thesis for GM
Despite these setbacks, or maybe even because of them, the long-term investment thesis for GM is unique. In August, when I recommended the stock, GM had a market cap of only $47 billion, yet today it’s down to $37 billion. This is either an indication that my investment thesis is incorrect or that it is an even better long-term investment opportunity.
General Motors owns 80% of Cruise, while Honda, Microsoft, and Walmart own the remaining 20%. GM carried Cruise with a goodwill value of $574 million on December 31, 2022, and 2021 in its 10-Ks. Despite these recent setbacks, GM’s CEO has stated confidence in Cruise and assured that they have a sufficient financial path forward.
Cruise has the potential to be worth more than GM is today. I won’t try to estimate a specific value or timeframe, but I want to emphasize the substantial long-term potential. What’s the value of a technology-based company with recurring revenue that is the market leader with tens of billions in highly profitable revenue doubling or tripling annually?
Uber (UBER) has a market cap of over $100 billion, has barely made a profit, may never make a significant profit, and will be cannibalized by Cruise, Waymo, and others. It’s worth three times as much as GM. Go figure. Historically, a technology/capital-intensive business model always wins over a labor-intensive competitor.
GM is a profitable company trading at $26.85, a minuscule P/E of 3.8. Many analysts are optimistic about GM. On October 25, BofA had a $75 price target. 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.
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