$General Motors(GM)$
Cruise said it is not only pulling all fully autonomous vehicles from roads (which happened on October 26, 2023), it is pulling all vehicles from public roads. This is huge news and calls into question the future of Cruise itself. Here’s some background and what I think about Cruise and GM stock now.
What Happened at Cruise
I highlighted the accident that caused this pullback in an article here, so go through that article if you aren’t aware of the accident and Cruise’s response.
What has changed is the scope of Cruise’s response and GM’s role in the company. I’ll start with the pause of operations:
That’s not all. GM and third-party experts are taking a much more active role in overseeing Cruise’s operations.
Craig Glidden to assume the role of Chief Administrative Officer for Cruise - Glidden is GM’s Executive Vice President of Legal and Policy and Cruise board member and he will “be expanding his support of Cruise and working closely with Cruise CEO Kyle Vogt and the Cruise Senior Leadership Team to oversee the workstreams around Transparency and Community Engagement.“
Retention of an independent expert to conduct a comprehensive safety assessment - Cruise will hire independent experts to “perform a full assessment of Cruise’s safety operations and culture.“
Expansion of Exponent’s scope - Exponent is a third-party engineering consulting firm hired to investigate the October accident and the scope of their work was expanded to “include a comprehensive review of our safety systems and technology.“
Everything is under review and GM is taking a very watchful eye. I have to wonder if Cruise and GM’s initial review uncovered more safety concerns or even culture concerns than they knew about before.
What is the Future of Cruise?
The simple answer is, that we don’t know.
Cruise was one of only two companies with real Level 4 autonomous driving technology in the field at scale (Alphabet $Alphabet(GOOG)$ $Alphabet(GOOGL)$ ’s Waymo is the other) and from the outside, it appeared Cruise was more problematic on San Francisco’s streets than Waymo (something I overlooked). Riders loved the service, but vehicles were often confused during edge cases and took preventative safety measures that left traffic stopped.
It was a safety maneuver to get the Cruise vehicle off the road that led to the vehicle dragging the person ~20 feet in October.
I don’t think Cruise or GM give up on more than a decade of work and millions of miles of autonomous driving overnight, so I don’t think this is the end for Cruise. But will expansion plans slow? Will Kyle Vogt be replaced? Will GM take a more meaningful role or ownership stake? We don’t know yet.
Cruise can use this as a moment of crisis or a moment of opportunity to adjust the culture and focus of the company on safety and reliability. If it does the latter, Cruise could be a better, more valuable company from this learning experience.
Or it could collapse.
Asymmetric investing involves risk and Cruise was absolutely a risk. But buying Cruise through GM means we also have some protection because GM’s core business is trading for single-digit earnings multiples. An analyst even asked on the last conference call what GM was going to do with Cruise because it seemed to have $0 or negative value in GM’s stock price. So, from a stock price perspective, I don’t see Cruise’s current situation as a negative.
I’m not going to miss the upside of autonomous driving because of a moment of crisis. Some of the best success stories in investing have crises that seem insurmountable (Netflix $Netflix(NFLX)$ with Qwikster or Apple $Apple(AAPL)$ nearly going bankrupt in 1997 are perfect examples). It’s how these moments of crisis are answered that determines the future.
I still see an asymmetric upside in Cruise, but I’m well aware that the company may fail to produce any meaningful results.
If Cruise closes up shop, I’ll sell my GM stock, but we aren’t there yet.
https://asymmetric-investing.beehiiv.com/p/cruise-shutdown
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