By Nora Eckert and David Shepardson
DETROIT (Reuters) -General Motors needed to exit its Cruise robotaxi business, most Wall Street analysts agreed on Wednesday, but the automaker's decision to do so was still a disappointing end for an operation that GM had touted as a potential $50 billion revenue generator by 2030.
The largest U.S. automaker on Tuesday pulled the plug on Cruise after evaluating the continued investments needed in a competitive space, executives said, adding they intend to fold some of Cruise's talent into GM to continue development of driver assistance systems.
"We consider the news a step in the right direction for GM, as we think investors were losing patience with its hefty spending (~$10B) related to robotaxi development with very little to show for its investment," Garrett Nelson, analyst at CFRA Research wrote.
GM shares jumped 3% after-hours on Tuesday immediately after the announcement, but gave back those gains during Wednesday's regular session and closed down 1.3%.
Nelson said the announcement was "a black eye for the credibility of GM management that, as recently as last year, told investors the Cruise business could generate $50 billion in annual revenue by 2030."
Speaking with reporters Wednesday evening, GM CEO Mary Barra explained why the automaker had been bullish on Cruise.
"At the time we really felt we'd be rolling our vehicles more quickly than we were," Barra said, adding "there was definitely a regulatory component where we didn't build the right relationships with our regulators."
Cruise came under scrutiny after an October 2023 crash in which one of its robotaxis in San Francisco struck and seriously injured a pedestrian after she was hit by another vehicle. Last month, Cruise admitted to submitting a false report to influence a federal investigation and agreed to pay a $500,000 criminal fine as part of a U.S. Justice Department deferred prosecution agreement.
For the year to date, GM has far outpaced its competitors. Its stock is up 45% for 2024, while Ford (NYSE:F)'s is down 14% and Stellantis (NYSE:STLA) is down 37%.
"I hope you see we're being proactive in making decisions," Barra said as she also faced other questions on cost-cutting moves the automaker is taking as it navigates turbulence in EV demand, changing technology and a new presidential administration.
GM recently scaled back plans for electric vehicles, sold a stake in one of its joint venture battery plants and recorded a $5 billion loss on its China business as it restructures. GM is now doubling down on its core business: making gasoline-powered pickup trucks and other large vehicles.
Cruise's competitors - including Alphabet (NASDAQ:GOOGL)'s Waymo, Baidu (NASDAQ:BIDU) and Tesla (NASDAQ:TSLA) - are well funded, and may have better technology, analysts said. Waymo, which is expanding its autonomous ride-hailing services, is still losing billions of dollars per year.
Barclays (LON:BARC) noted Alphabet, which has over $100 billion in earnings annually, can absorb costs associated with Waymo's development. GM, however, is expected to record earnings of $14 billion to $15 billion for 2024.
"It’s clear from Waymo that an AV robotaxi business is best owned by an entity with deep pockets," Barclays said.
CHINA, TRUMP AND ELON
Separately, Barra said GM has a future in China, and that it can be profitable with its Buick and Cadilla portfolios there.
She also discussed Tesla CEO Elon Musk and president-elect Donald Trump, saying that she hopes the pair will help establish a federal framework of autonomous regulations.
"I think a federal framework will allow everybody to be more efficient. I think there's an opportunity there," Barra said.
Barra will once again have to interact with Trump, who has publicly bashed her in the past for GM's layoffs and plant closures in the U.S. Barra said she hopes the president elect will be open to discussing how some of his proposed policies, such as axing EV tax credits or increasing tariffs on Mexico and Canada, would affect the automaker.
"My experience has been that he listens intently," she said.
Separately, Microsoft (NASDAQ:MSFT) said on Wednesday it expects to record an impairment charge of around $800 million in the second quarter of fiscal 2025 related to GM's Cruise decision.