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Interesting. If GM were super optimistic about Cruise's technology based on internal metrics, you'd think they'd invest their own money, or at least take on deb

Interesting. If GM were super optimistic about Cruise's technology based on internal metrics, you'd think they'd invest their own money, or at least take on debt financing at GM's cost of capital. That they are taking outside investment from Softbank and now Honda suggests there is enough uncertainty that they want to limit their downside. A quick search suggests that GM is mostly debt financed, with a weighted average cost of capital of only 5%.[1] [1] https://www.gurufocus.com/term/wacc/GM/WACC-/General-Motors-Co https://www.gurufocus.com/term/wacc/GM/WACC-/General-Motors-...

romed 8y ago
Why does GM need to put up their own money when Japan is falling over over itself to fund their R&D program?
- mikeyouse 8y ago
  Right? Letting your customer fund your R&D in order to better engineer the product that you and them will both use seems like a complete no-brainer.
Fricken 8y ago
Bringing Robotaxis to market is very capital intensive. I don't know how much money GM has to throw around, but I'm pretty sure it's a lot less than their nearest competitor, Alphabet. Waymo announced purchasing orders for 60,000 FCA Pacificas and 20,000 Jaguar IPaces to be converted into robotaxis. If we're to assume a crude ballpark estimate of $150K apiece for those vehicles, then we're talking a $12 billion just for that. GM can't go up against those kinds of capital investments without help. Argo.ai, Ford's answer to GM Cruise, is also seeking partners/funding from outside Ford. Wish them luck.
- mikeyouse 8y ago
  > Waymo announced purchasing orders for 60,000 FCA Pacificas and 20,000 Jaguar IPaces to be converted into robotaxis. If we're to assume a crude ballpark estimate of $150K apiece for those vehicles, then we're talking a $12 billion just for that. You do know that GM makes automobiles right? If GM wants 60,000 Chevy Cruises to use for robotaxis, they can just keep their lines running for a few extra shifts. Their cost for the same vehicles is COGS, which is something like half the MSRP of an automobile. Doing so would actual increase the profit margin on their products that are sold to outside customers. GM also has ~40% more revenue than Alphabet and could easily borrow $12 billion if it were strategically important. Man people really don't understand the weight of traditional autos.
  - hef19898 8y ago
    Also, if you buy 20k cars from Jaguar (mind, 20k iPace is more than a month worth of Tesla Model 3s) you will be paying a lot less than 150k per car.
    - Fricken 8y ago
      There's a lot of extra hardware that goes into a robotaxi. Waymo doesn't just sprinkle pixie dust on them to make them drive themselves. The vehicles, their sensors, compute, adn the 100 miles of wiring needed to hook it all up is just hardware costs. There's all sorts of logistics and real estate that needs to be acquired. Every new area needs to be mapped and tested. They run call centres, and pay thousands of people just to do data annotation. The plan for all these companies is to scale up to deployments of millions of vehicles, they won't see ROI for a decade or more, and that's only if everything works like it's supposed to, it's still technically and unproven business model built on an unproven technology. And sure GM can raise funds if they really want to, but they've gone from 0 to $60b in debt in the last 6 years, with $20 accumulated just over the last year. They have to deal with converting their fleet to electric over the next decade. Very expensive. Lots of risk. GM needs to pick and choose which risks are worth taking.
- tedsanders 8y ago
  GM raised $3B in debt last year at nominal rates of 4%-5%.[1] In real, terms, that's maybe 2-3%. GM can raise billions from banks if it wants to. The fact that it would rather raise money by selling Cruise equity rather than selling bonds indicates that (a) they value Cruise at less than $15B or (b) they are risk-averse or (c) they see some other benefit from bringing equity partners on-board. It's not (d) they have no other good way of raising capital. GM is a huge company with a relatively low cost of capital (~5%). https://www.barrons.com/articles/ge-replaces-ceo-and-investors-cheer-despite-a-profit-warning-and-huge-charge-2018-10-01 https://www.barrons.com/articles/ge-replaces-ceo-and-investo...
- vladislav 8y ago
  "Bringing Robotaxis to market is very capital intensive". With the front and center approaches rooted in the DARPA Grand Challenges yes, with much of that money being spent on propping up simplifying assumptions that break at the tail end and on technologies that will be obsolete in a couple years. HD mapping curated by humans, human annotation for training/testing data, Lidars, and all that superfluous real world testing, will soon be replaced by approaches that are orders of magnitude more capital efficient. The less efficient approaches that currently dominate will sputter at 1% market penetration at best.
devy 8y ago
I would argue taking outside investments to finance Cruise is a great strategy for both Cruise / GM. Because: 1. as a self-driving module supplier, the more adoption from the market the better - it's an endorsement and it helps Cruise to build better products with more data points and more customers. 2. it reduces GM's financial risk if Cruise folds (unlikely); also it also improve Cruise's Survivability if GM is in trouble. As an auto module vendor, diversification is key.
- MBCook 8y ago
  3. The money may help develop the tech faster or make it cheaper than would have otherwise happened - both benefiting GM
joecasson 8y ago
I live in a neighborhood that has Cruise vehicles frequently driving the streets. It's anecdotal, but I've noticed a fairly dramatic decline in the quality of on-road interactions. For example, having a lot of trouble navigating around Lyft/Uber cars pulled over to the side of the road or cyclists in the bike lane. It's interesting to me to see their valuation be so sky high since I feel like it's not manifesting in the streets.
fma 8y ago
The deal was $750 million cash and $2 billion in resources (whatever that means). Looks like it was more to get resource commitments for the launch... And cash because why not.

romed 8y ago

Why does GM need to put up their own money when Japan is falling over over itself to fund their R&D program?

mikeyouse 8y ago
Right? Letting your customer fund your R&D in order to better engineer the product that you and them will both use seems like a complete no-brainer.

Fricken 8y ago

Bringing Robotaxis to market is very capital intensive. I don't know how much money GM has to throw around, but I'm pretty sure it's a lot less than their nearest competitor, Alphabet. Waymo announced purchasing orders for 60,000 FCA Pacificas and 20,000 Jaguar IPaces to be converted into robotaxis. If we're to assume a crude ballpark estimate of $150K apiece for those vehicles, then we're talking a $12 billion just for that. GM can't go up against those kinds of capital investments without help. Argo.ai, Ford's answer to GM Cruise, is also seeking partners/funding from outside Ford. Wish them luck.

mikeyouse 8y ago
> Waymo announced purchasing orders for 60,000 FCA Pacificas and 20,000 Jaguar IPaces to be converted into robotaxis. If we're to assume a crude ballpark estimate of $150K apiece for those vehicles, then we're talking a $12 billion just for that. You do know that GM makes automobiles right? If GM wants 60,000 Chevy Cruises to use for robotaxis, they can just keep their lines running for a few extra shifts. Their cost for the same vehicles is COGS, which is something like half the MSRP of an automobile. Doing so would actual increase the profit margin on their products that are sold to outside customers. GM also has ~40% more revenue than Alphabet and could easily borrow $12 billion if it were strategically important. Man people really don't understand the weight of traditional autos.
- hef19898 8y ago
  Also, if you buy 20k cars from Jaguar (mind, 20k iPace is more than a month worth of Tesla Model 3s) you will be paying a lot less than 150k per car.
  - Fricken 8y ago
    There's a lot of extra hardware that goes into a robotaxi. Waymo doesn't just sprinkle pixie dust on them to make them drive themselves. The vehicles, their sensors, compute, adn the 100 miles of wiring needed to hook it all up is just hardware costs. There's all sorts of logistics and real estate that needs to be acquired. Every new area needs to be mapped and tested. They run call centres, and pay thousands of people just to do data annotation. The plan for all these companies is to scale up to deployments of millions of vehicles, they won't see ROI for a decade or more, and that's only if everything works like it's supposed to, it's still technically and unproven business model built on an unproven technology. And sure GM can raise funds if they really want to, but they've gone from 0 to $60b in debt in the last 6 years, with $20 accumulated just over the last year. They have to deal with converting their fleet to electric over the next decade. Very expensive. Lots of risk. GM needs to pick and choose which risks are worth taking.
tedsanders 8y ago
GM raised $3B in debt last year at nominal rates of 4%-5%.[1] In real, terms, that's maybe 2-3%. GM can raise billions from banks if it wants to. The fact that it would rather raise money by selling Cruise equity rather than selling bonds indicates that (a) they value Cruise at less than $15B or (b) they are risk-averse or (c) they see some other benefit from bringing equity partners on-board. It's not (d) they have no other good way of raising capital. GM is a huge company with a relatively low cost of capital (~5%). https://www.barrons.com/articles/ge-replaces-ceo-and-investors-cheer-despite-a-profit-warning-and-huge-charge-2018-10-01 https://www.barrons.com/articles/ge-replaces-ceo-and-investo...
vladislav 8y ago
"Bringing Robotaxis to market is very capital intensive". With the front and center approaches rooted in the DARPA Grand Challenges yes, with much of that money being spent on propping up simplifying assumptions that break at the tail end and on technologies that will be obsolete in a couple years. HD mapping curated by humans, human annotation for training/testing data, Lidars, and all that superfluous real world testing, will soon be replaced by approaches that are orders of magnitude more capital efficient. The less efficient approaches that currently dominate will sputter at 1% market penetration at best.

devy 8y ago

I would argue taking outside investments to finance Cruise is a great strategy for both Cruise / GM. Because: 1. as a self-driving module supplier, the more adoption from the market the better - it's an endorsement and it helps Cruise to build better products with more data points and more customers. 2. it reduces GM's financial risk if Cruise folds (unlikely); also it also improve Cruise's Survivability if GM is in trouble. As an auto module vendor, diversification is key.

MBCook 8y ago
3. The money may help develop the tech faster or make it cheaper than would have otherwise happened - both benefiting GM

joecasson 8y ago

I live in a neighborhood that has Cruise vehicles frequently driving the streets. It's anecdotal, but I've noticed a fairly dramatic decline in the quality of on-road interactions. For example, having a lot of trouble navigating around Lyft/Uber cars pulled over to the side of the road or cyclists in the bike lane. It's interesting to me to see their valuation be so sky high since I feel like it's not manifesting in the streets.

fma 8y ago

The deal was $750 million cash and $2 billion in resources (whatever that means). Looks like it was more to get resource commitments for the launch... And cash because why not.