GM to scale back spending on self-driving unit Cruise after pedestrian accident
Jamie L. LaReau, Detroit Free Press
Updated 5 min read
General Motors plans to scale back spending on its self-driving subsidiary Cruise after an accident in San Francisco last month left a pedestrian critically injured and led to Cruise halting operations.
Cruise did not immediately respond to requests for comment about the development, but a person familiar with the situation confirmed GM would be reducing its spending on Cruise. The person is not named because they are not authorized to make a public statement.
GM spokesman Jim Cain said Cruise's overall costs are less given it is not operating at the moment.
"We haven't made any announcements about Cruise spending (although Cruise is reducing expenses because their fleet is idle)," Cain said in an email to the Free Press on Tuesday. "But you will recall on our last earnings call, we said spending would rise as Cruise expanded. That expansion is now paused."
Cruise stopped all autonomous operations across various U.S. cities, including testing cars with safety drivers, last month. Tuesday's news, which was first reported by the Financial Times, comes after several weeks of troubles at Cruise. Besides idling its fleet, Cruise's problems led to the resignations of CEO Kyle Vogt and of co-founder and Chief Product Officer Dan Kan earlier this month. The company expects to make layoffs too.
It was unclear by how much GM plans to scale back its funding to Cruise, but the topic could be addressed Wednesday by CEO Mary Barra and CFO Paul Jacobson. The two are to hold a morning conference call with analysts to go over the company's financials following the ratification of a new 4½-year labor contract with the United Auto Workers.
The cost of Cruise
In recent comments to the Free Press, GM has maintained its commitment to Cruise is "steadfast."
"We believe in the profound, positive impact it will have on societies, including saving countless lives," GM said in a statement earlier this month. "We believe strongly in Cruise’s mission and the transformative technology it is developing. Safety has to be our top priority and we fully support the actions that Cruise leadership is taking to ensure that it is putting safety first and building trust and credibility with government partners, regulators, and the broader community. Our commitment to Cruise with the goal of commercialization remains steadfast.”
Cruise leaders had promised to deliver $1 billion in annual revenue by 2025. This past summer, Barra reiterated a forecast that Cruise could generate $50 billion a year in annual revenue by 2030.
But so far the company has delivered only deep costs to GM.
In 2022, GM spent about $2 billion covering Cruise expenses, according to a Free Press report. GM has invested about $8 billion in Cruise since 2016. In the third quarter of this year, GM reported investing $732 million on Cruise, compared with a year ago when GM spent $497 million. Cruise had $1.7 billion in cash as of Sept. 30, about enough to last nine months at the current cash burn rate, Reuters reported.
Dan Ives, managing director at Wedbush Securities
GM is looking at continued big losses "in the many billions of dollars" with Cruise, some analysts have warned.
"GM has spent somewhere between $5 billion and $10 billion on this effort with Cruise," said Sam Abuelsamid, principal analyst for transportation and mobility at Guidehouse Insights in Detroit, in a previous Free Press report. "If they keep going with Cruise and, best case, Cruise gets its act together and can start operating robotaxis again in the next year and do some expansion in Cruise over the next few years, GM is still looking at $10 billion to $20 billion in losses over the next decade.”
"Black clouds" have been forming over Cruise in the eyes of Wall Street for awhile now, Dan Ives, managing director and senior equity analyst at Wedbush Securities, told the Free Press in reaction to Tuesday's news.
"This is now the modus operandi for GM and Barra to first slow down Cruise spending after a nightmare six months," Ives said. "The Street will have a mixed reaction to this slowing down as Cruise is the golden segment within GM."
Cruise troubles
Since June 2022, Cruise has been operating a taxi-like service using the autonomous vehicles with no safety driver in them in San Francisco. It has since expanded the service to Austin, Texas, and Phoenix. It has done testing of the self-driving cars in other markets too.
On Oct. 2, a Nissan Sentra hit a pedestrian, thrusting her in the path of a Cruise self-driving car. The Cruise vehicle hit her, and dragged her some 20 feet.
That accident prompted the California Department of Motor Vehicles last month to revoke Cruise's license to operate, stating that Cruise's cars posed a danger to public safety. On Oct. 27, Cruise suspended all its operations nationwide. As the Free Press reported, Cruise then announced several more moves including suspending all supervised self-driving car trips and expanding a probe into its vehicle safety.
Cruise Origin, a purpose-built electric, self-driving, shared vehicle sits on display before U.S. President Joe Biden speaks at the grand opening of GM's Detroit-Hamtramck EV Factory Zero on Nov. 17, 2021. The president added $7.5 billion to create new electric vehicle charging stations as part of his infrastructure package recently passed by Congress and signed into law on Monday.
Last month, GM hit pause on production of the Cruise Origin, which is a fully autonomous six-seater vehicle built at Factory Zero, which straddles the Detroit-Hamtramck border. The next day, Cruise recalled all 950 of its cars to update software so that the vehicles will remain stationary should a similar incident with a pedestrian occur in the future.
Currently, Cruise uses modified Chevrolet Bolts, which have driver controls and brakes, in its robotaxi fleets. The Origin is not yet deployed on roads. It awaits government approval because it has no driver steering controls or brakes.
Last week, Reuters reported Cruise said it was planning to relaunch in only one city before expanding to others, but it did not name that city. Cruise also said it would use its Bolt-based Cruise vehicles for now.
