Oftentimes, when you've made a bad decision, the worst thing you can do is double down. The best approach can be cutting your losses and moving forward as well as possible. It's a hard lesson, but extremely valuable, and General Motors (GM -2.52%) is currently in the process of learning it after investing $10 billion in its Cruise autonomous vehicle program.
The Detroit automaker had once vowed not to step off the accelerator of autonomous driving development -- until December, when it announced a near complete reversal of its strategy. Is General Motors' exiting its robotaxi dreams a mistake, or was the venture the mistake?
Time is money
Following in the path of crosstown rival Ford Motor Company, which threw in the towel on its autonomous driving unit Argo years ago, GM announced its Cruise subsidiary is ending its effort to develop robotaxis. General Motors will now combine Cruise and its own teams to further push its efforts in advance autonomous and assisted driving, which would provide more immediate benefits for customers and its finances.
"Given the considerable time and expense required to scale a robotaxi business in an increasingly competitive market, combining forces would be more efficient and therefore consistent with our capital allocation priorities," General Motors CEO Mary Barra said in a call with analysts.
Cruise was once lauded for its potential to become a large part of General Motors. In 2021, the company estimated it would generate revenue of $50 billion by the end of the decade, and only last year it was targeting $1 billion in revenue by 2025. General Motors had even planned for Cruise to pair up with Honda Motor Co. to launch a driverless ride-hailing service in Japan in 2026.
But its robotaxi plans had become a headache. In October 2023, a Cruise robotaxi struck a pedestrian in San Francisco, leading to California stripping Cruise of the permits it needed to operate the robotaxi business. Cruise idled its entire fleet, Kyle Vogt resigned as CEO, and nine other executives were fired. That was perhaps the beginning of the end of GM's robotaxi plans.
It's a change in strategy that General Motors believes will save more than $1 billion annually after restructuring Cruise, which is roughly half of its annual spend on the subsidiary. Those savings become more important when you consider that General Motors, among many in the industry, is losing serious money on developing electric vehicles (EVs), and with the automaker currently restructuring its troubled China business at the cost of $5 billion.
What it all means
While the long-term potential of Cruise and robotaxis is indeed tantalizing, it's not part of General Motors' core business, and tech companies have seemingly pulled ahead in terms of developing robotaxis. General Motors' core business has been performing well, and its cash flow has led the company to buying back roughly $16 billion of shares back since announced in November 2023. It's unclear how much restructuring will cost GM, but without Cruise's losses going forward, or heavy capital investment, the company is even better positioned to reward shareholders in the near-term -- at recent prices, the stock is up more than 45% over the past year.
It's also true that the combination of the Cruise and General Motors teams with a focus on driver assistance technology, such as Super Cruise and other Level 3 autonomous technology, will be more profitable in the near term -- in addition to providing consumers with more benefits and options.
General Motors likely got this one exactly right; sometimes it's best to cut your losses and move forward as best as possible.
