The Journal. - Why GM Is Giving Up on Cruise Robotaxis

Episode Date: December 17, 2024

After nearly a decade and $10 billion in development, General Motors is ending its robotaxi program. WSJ’s Christopher Otts explains why Cruise wasn’t working for the legacy car company. Further Reading: -General Motors Scraps Cruise Robotaxi Program  -GM’s Self-Driving Car Unit Skids Off Course  Further Listening: -How Waymo Won Over San Francisco  Learn more about your ad choices. Visit megaphone.fm/adchoices

In the transportation industry, there's a dream some people have. Robo taxis. Self-driving cars that people can just call up and that'll take them wherever they need to go. Yeah, it's been a big aspiration and it has huge implications for the traditional auto industry. Our colleague Chris Otz covers the auto industry. And he says that maybe someday, if this technology gets good enough,

people won't even need to own cars anymore. If you think about it, your personal vehicle is idle the vast, vast majority of the time. If you have reliable self-driving cars, that changes the entire paradigm in terms of what the auto industry is. You could have cars that are owned centrally by a fleet instead of people owning personal vehicles. So to move into a world where you have on-demand transportation that could totally upend transportation as we know it. One of the companies that's been trying to do that is called Cruise. It's owned by General Motors.

Cruise is an autonomous vehicle startup that General Motors bought and has invested heavily in over the last decade, billions of dollars. General Motors, you know, only a few years ago predicted that Cruz would generate $50 billion a year in revenue by the end of the decade. And GM had hoped that Cruz was a big part of its future. But last week, GM said that after investing $10 billion over the last decade, it's killing its robotaxi program. Cruise, the autonomous vehicle company, they're pulling their cars from the streets.

General Motors, which owns Cruise, says it's moving away from the robo-taxi business. The whole question for GM is what is the future? Where is the growth? Cruise was a big part of the moonshot future growth story for General Motors. And now they're admitting that those aspirations of this legacy car company owning a big robo-taxi business that's ferrying everyone around are not going to come true. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Tuesday, December 17th. Coming up on the show, why GM is slamming the brakes on cruise. I learned it from my adoptive mom.

Hold my hand. You hold my hand. Learn about adopting a team from foster care at adoptUSkids.org. You can't imagine the reward. Brought to you by AdoptUSKids, the U.S. Department of Health and Human Services and the Ad Council. In 2016, General Motors Company, known for its SUVs and pickup trucks, paid a billion dollars to acquire something totally different. The autonomous vehicle startup, Cruise. It was founded in 2013 and based in San Francisco. Why would a company like GM be interested

in a self-driving, robo-taxi car company like Cruise? If you see the future of your industry looking vastly different than it looks today, if people no longer need to personally own vehicles because they can hail a robot that will take them anywhere that they need to go, that certainly looks like an existential threat for a car company. So in some sense, cruise was a hedge for GM against the future. If that's really where the world is going, GM probably felt that they were better to be taking part in that rather than displaced by it.

Remember that General Motors had to be bailed out by the taxpayers in the Great Recession. So they went bankrupt, a century-old company, this big turning point. They were headed in a new direction under Mary Barra, who became CEO in 2014. And they were getting their feedback under them

and then trying to look at how do we participate in where the industry is evolving. Self-driving cars and robo-taxis seemed like one of the answers, but creating self-driving technology is hard. So for GM, acquiring one of the top startups made a lot of sense.

It would be extremely difficult for a company like General Motors to come up with this self-driving technology in-house. This is a wholly different business than GM is in. So it was much simpler for GM to just spend a billion dollars and acquire this technology than it would be for them to try to build it themselves. In late 2021, GM launched a small fleet of cruise robotaxis in San Francisco.

One of the people who took a ride was GM CEO Mary Barra. Plant a little camera here. Starting your trip. Let's cruise. Oh my gosh. This is incredible. Here we go. Cruise is one of several startups working

on RoboTaxis at the time. The other main player was Waymo, which is owned by Google's parent company, Alphabet. Did it look at that point that Cruise was doing well? It had a chance to compete or even win against the race against Waymo? Cruise and Waymo were neck and neck, essentially, for a while in the race to really commercialize this technology.

It wasn't at all clear that one company or the other company was ahead at that time. They were both, you know, putting more cars out on the road and slowly rolling this out to customers. Even though both companies had RoboTaxis on the road, perfecting the technology for a wider rollout was still a challenge. In part, because of the way its artificial intelligence worked. Sometimes, when the car found itself in an unusual situation,

it didn't always do the right thing. It is all of the unforeseen edge cases that make self-driving such a thorny problem to solve. Can you, you know, pre-program that your self-driving vehicle may end up behind another vehicle that is transporting stoplights that have not been installed yet, but are on the way to where they're going to be installed and to understand that these are not traffic lights that the vehicle needs to pay attention to. There's all kinds of situations where humans can reason through what is going on in front of them

that are a challenge for artificial intelligence. And one of those unusual situations that AI wasn't quite ready to solve happened last fall. A woman is hospitalized in serious condition after being hit by an autonomous car in San Francisco. Rescuers were able to lift the car off the victim, In October 2023, a pedestrian was hit by a car, which was driven by an actual human driver, and was thrown into the path of a cruise vehicle. And at this point, the cruise vehicle did what it was programmed to do, which is slowly pull over and wait. However, it didn't recognize that the woman was pinned underneath the vehicle, and it ended up dragging this pedestrian about 20 feet.

Unfortunately, the woman did survive, but this incident really ended up being a turning point for Cruz. At the time, a representative for Cruz said, quote, our heartfelt concern and focus is the well-being of the person who was injured. The company pointed out that the initial cause of the accident was the human in the other car, not Cruz, but said it would conduct a safety review. What happened after that accident for Cruz and GM? That's next. After the accident, the state of California revoked Cruise's permit to operate, which meant the company had to shut down its robo-taxi service in San Francisco. Pumping the brakes on autonomous vehicles operated by Cruise, effective today, California's

DMV has suspended the company's deployment and testing of self-driving cars. A serious roadblock. So Cruz had to go on pause, go dark for several months and then had to come crawling back, get permission to operate once again. And they did do that. But by this time, it was becoming clear that Cruz was a cash drain on GM at a time when they're also rethinking a number of approaches in the company and trying to be what they call more capital efficient.

Which is a way to tell investors, we're not going to spend so much money. Yeah. So every dollar they put into Cruz and other long-term investments is a dollar that they don't have to share with investors. Over the last three years, GM has spent nearly $20 billion buying back its own shares as a way to boost its stock price. And the company has also been cutting costs. GM is clearly pivoted towards more of a short-term oriented focus on returning cash to investors.

And clearly they've decided that they would rather save about a billion dollars a year, which is what they say they're going to save by folding crews into the larger company. A GM spokesman said there was no connection between the recent surge in share buybacks and its decision to stop funding crews as a robotaxi business. One thing GM has emphasized is that a robotaxi fleet is a pretty expensive proposition. You have to own the cars and they have to sit on your balance sheet. You have to do the maintenance. Right. You have to do the maintenance. I mean, GM's in the business of making cars and then selling them. And so one of the things that they've been saying is, well, you know, owning

a fleet of vehicles and renting them out as taxis is not our core business. While GM is pulling back on Cruz's RoboTaxi program, Waymo at Alphabet is still forging ahead. Chris says that's because Alphabet has several advantages in the RoboTaxi race. The first is money. While GM's market cap is just over $55 billion, Google's is almost $2.5 trillion. For a tech company with a very generous valuation like Alphabet has, there's a lot more room to do experimentation and aspirational projects like self-driving.

And then the other aspect of this too is the artificial intelligence that powers the brains of these self-driving cars, the cloud infrastructure that is needed to develop this AI. All of those are obviously where Google's core competencies are more aligned with this enterprise than General Motors. General Motors never got to the part where they really have the inherent advantage, which is building the car. In other words, it seems like if you're a robotaxi company, it might be better to be

owned by a tech giant than a car company. Exactly. So GM is not a tech company. GM is not in the cloud business. That was another thing that they recognized in making this decision that they don't have any special advantage when it comes to compute power and cloud infrastructure. So that sets them a little farther behind the competitors who are in this space. Jem says that while it's stepping back from the robotaxi business, it's still working on self-driving technology

for personal cars, an area the company says is a more promising business opportunity. They say that everything they spent on cruise was not for naught. Like they're still going to salvage this technology and it's going to make their personal vehicle autonomy efforts better and faster. But, you know, it's clear that it's a far, far cry from the ambitions that they had. If the idea that fleets of robotaxis are an existential threat to a car company,

where does that leave GM if they're no longer saying that they're going to be in that business? Most of the industry is stepping back from this. GM's ultimate competitor, Ford, Crosstown rival, they got out of the autonomous driving game in 2022. They were part of a startup called Argo AI and decided that that was beyond their desires and capabilities. Other automakers are also not pursuing the robotaxi business. Some auto executives, Mary Barra included, are saying things now like, people are always

going to want to have their own vehicles. They're always going to want to own, you know, even if the vehicle can drive itself, personal vehicle ownership is not going away anytime soon. — Does this story say more about GM, or about how hard it is to create a fleet of autonomous robo-taxis? — Well, it's a harder problem than many people may have assumed several years ago. And it's definitely too soon to say that it will not happen. But, you know, certainly GM didn't see a path to commercialization in a way that made sense for them to keep investing in the idea.

But again, like fundamentally, GM has for a decade been exploring different ways that it can evolve beyond being a pickup and SUV company for the United States. And this was one of the ways that they were hoping to evolve into the future, and now it's off the table. That's all for today, Tuesday, December 17th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Ryan Felton, Megan Bobrowski, and Mike Kalais. Thanks for listening.

See you tomorrow.