Last October, on the streets of San Francisco, a reckless driver ran into a woman, sending her flying over the hood and landing underneath a nearby car.
It was a classic hit and run. And it could have easily resulted in loss of life.
But the drama didn’t end there.
The woman landed underneath an autonomous car developed by Cruise, which was operating an autonomous ride-hailing service in San Francisco.
The driverless Cruise vehicle sat idle after “seeing” the woman flung under its rear wheel.
And then, after a waiting for a period of time, the car horrifically started driving again with the woman pinned under it, dragging her for 20 feet.
It was a freak accident. A complete outlier. And it was caused by a reckless human driver.
But it’s not something Cruise had modeled into its software. And it didn’t have video coverage underneath the car, indicating that it was not safe to drive.
California regulators pulled Cruise’s permits to operate a self-driving service in San Francisco shortly thereafter. The move wasn’t specifically because the accident took place, but because Cruise didn’t initially disclose details about the accident — namely, dragging the woman 20 feet — to regulators.
Cruise was forced to suspend all autonomous driving services, not only in San Francisco but also in Austin and Phoenix, due to the safety setback.
The founder and CEO of Cruise stepped down over the ordeal. Many wondered if the company would ever be able to recover.
Cruise is a bit of an oddity in the autonomous driving industry.
Founded in 2013, it was an early entrant into the autonomous driving space, which was quickly acquired for an astounding $1 billion by legacy automotive giant General Motors (GM) in 2016.
It wasn’t just the amount of the acquisition that was surprising. It was also the structure of the deal. Cruise became a subsidiary of GM but continued to allow additional outside investment from Softbank and several others.
The corporate structure was designed to enable GM to have control over the assets by owning at least 80%, reduce research and development costs by allowing outside investors, but still give Cruise enough autonomy to innovate and build outside of the bureaucratic auto maker.
The company appeared to be making progress, having launched services in San Francisco, Austin, and Phoenix, three cities that have proven to be open to autonomous ride-hailing services. And where Alphabet’s Waymo is also deployed or being tested.
Then the accident threw a wrench into things.
By December of last year, Cruise plummeted from being one of the brightest spots at General Motors to a massive loss and liability. The company announced that Cruise was cutting 24% of its workforce and pausing the production of its new robotaxi.
And GM’s share price dropped to levels it hadn’t seen since mid-2020.
After all, the global ride-hailing market is already worth more than $150 billion, growing to almost $400 billion by 2031. And GM’s strategy was to use Cruise to develop the autonomous software, and then manufacture the robotaxis for autonomous ride-hailing services. Suddenly, GM was out of the ride-hailing race, hamstrung by Cruise’s struggles.
If the carrot wasn’t already big enough, the market for robotaxis is even larger than the human-driven ride-hailing services. The reason, of course, is that when the human driver is removed, the cost per mile driven declines… a lot.
If we assume the average cost per mile in an Uber or Lyft is around $3 a mile, a fully autonomous ride-hailing service will likely be able to drop costs per mile to a range of $0.30-$0.45. This puts travel within a similar price range of public transportation (buses and trains).
And that means that the addressable market jumps from $400 billion to a multi-trillion dollar opportunity. That could be transformative for a company like GM.
Which explains why General Motors didn’t leave Cruise on the side of the road — for dead.
General Motors just announced that it will pump another $850 million into Cruise, as well as kick off a new round of fundraising from outside investors.
This latest round of investment is on top of the $8.2 billion already spent funding Cruise since the acquisition.
It’s not just the allure of a multi-trillion market that stimulated the additional investment either.
For years, the automotive industry dismissed fully autonomous technology, citing that it would be years into the future. But they’re no longer saying that anymore. Behind closed doors, they are certainly talking about Waymo, which chose a similar technology architecture to Cruise — with detailed mapping and geofencing — which has already had success launching its robotaxi in a few markets.
And of course, there is the giant elephant in the room that they only whisper about — Tesla — which is so close to mastering fully autonomous driving.
Tesla released full self-driving (FSD) version 12.4.1 just a few days ago. It’s significant in that the software is now experimenting with removing the steering wheel “nag,” which historically has required the driver to frequently check in with the software by lightly tugging on the steering wheel to indicate that the driver is still paying attention.
The latest version uses the camera in the cabin to monitor the driver’s attention and focus on the road. If the driver is attentive, no nag. If the driver appears to be distracted or nodding off, the car alerts the driver.
The latest FSD software is mind-blowingly good. I use it and test it all the time. And we can be sure, executives at legacy car companies are, as well. They know how good it is despite their positioning in public. And they are scrambling to either catch up to Tesla, or to figure out who they will partner with in the industry.
The stakes are simply too large.
Other than Cruise, which is closely aligned with General Motors, the major ride-hailing players are:
There are several others with strong ties to China like DiDi and Pony.ai, and a lot of smaller, less well-funded companies operating in the space.
The reality is that this is a business that requires two things: massive amounts of data for training the autonomous driving AI. And money, in excess of a billion if the goal is to make it to fully autonomous software.
GM’s latest investment in Cruise puts it back in the game… for now. And if it can raise additional capital from outside investors, it might just have a shot.
But I can’t help but wonder if GM is buying some time… hoping to find a buyer who can take Cruise across the finish line and commercialize autonomy.
Either way, they’re all chasing the “one” in the lead of the race…
Tesla.
Surely, they must find a way to avoid Tesla dominating the entire robotaxi industry, in a similar way that it has done with electric vehicles.
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