A $2.75 billion investment by Walmart (WMT 1.31%) and other institutional investors in General Motors' (GM -2.25%) self-driving start-up Cruise may not be earth-shattering news in the market, but it's a big deal for GM and Cruise long term. The companies have invested billions in autonomous vehicles and are now seeing the enormous opportunity in self-driving delivery.
Cruise partnering with Walmart could be a win-win as the former tries to build a business and (ultimately) market share in delivery, and the latter tries to reach more customers with its online and delivery services. Here's why the deal could eventually drive billions in revenue for Cruise and make GM a growth stock again.
The Cruise Origin. Image source: Cruise.
Walmart's bet on autonomous driving
Walmart has spent years investing in online sales, pickup options, and delivery features for customers. The investment in Cruise will take that investment to the next level and could bring Walmart to a customer's doorstep.
We know right now that Walmart is planning a pilot of self-driving deliveries in Phoenix, but that could be just the start. Walmart has 11,500 stores in 27 countries, so this could be a big market to step into for Cruise.
Cruise delivered
To see why Cruise is interested in delivery, you don't need to look any further than Uber Technologies' (UBER 1.63%) 2020 financial results. The company reported $10.1 billion in bookings from delivery services and just $6.8 billion from mobility, or traditional Uber rides. Of course, rides were down because of the pandemic, but in 2019, bookings from mobility were $13.5 billion, so delivery could be a bigger business than mobility in the long term.
Given its ability to build custom vehicles with GM, Cruise could design delivery vehicles that could pick up multiple orders from Walmart, keep them refrigerated if needed, and deliver them to consumers in a locked compartment.
Just how big a deal is delivery to Cruise? The economics of delivery aren't known yet, but if we just look at four of the biggest brick-and-mortar retailers -- Walmart, Kroger (KR 0.37%), Costco, and Target -- they make up nearly $1 trillion in sales annually. If Cruise captures even a small fraction of their business, it could transform the company's future.
WMT revenue (TTM) data by YCharts. TTM = trailing 12 months.
For retailers, having a self-driving delivery option could grow their sales as well. They've lost business to Amazon's (AMZN -1.44%) Prime delivery, but if self-driving brings the store to you in a matter of hours, it could change the calculus for online shopping in favor of brick-and-mortar retailers.
Opening up a wider world of self-driving services
What's clear right now is that Cruise isn't leaving anything to chance in its effort to build a self-driving business. The company is building a ridesharing service with the GM-built Cruise Origin as the vehicle of choice, but it recently added Voyage, a small community self-driving fleet company, and is now developing a delivery business with the biggest retailer in the world.
These are all very bullish signs for Cruise and, by extension, its majority shareholder General Motors. The company is building a juggernaut in self-driving, and the partnerships it's adding along the way could build an impenetrable competitive moat.
