Cruise secures $ 5 billion in pre-approved financing from GM to buy Robotaxis

One of the reasons I’ve always been deeply skeptical of companies like Uber

, Lyft

and Didi trying to develop their Automated Driving Systems (ADS) is that what comes next is completely antithetical to their current business models. There was no guarantee that the absence of a driver would magically solve their profitability issues (or lack thereof). Uber and Lyft may have given up, but Cruise is moving ahead with his plan to create a robotaxi service with a $ 5 billion line of credit from the parent company, the financing arm of General Motors.

Let’s see why automated vehicles weren’t necessarily the silver bullet that rideshare companies needed. Today, Uber, Lyft, and their competitors are built on a lean business model. Unlike the taxi companies of the past, these 21st century taxi providers do not own any vehicles. They don’t need to put on gas or electricity, or change oil or tires, or clean vehicles. This is all handled by their employees / contractors who bring their own vehicles to the platform and cover all of these expenses, as well as the loan payments on the cars.

The biggest expenses for Uber and Lyft are the marketing and payment of these contract drivers. But if they spent billions of dollars to develop ADS to replace human drivers, they would now have a new expense: paying for the robotaxis. Suddenly Uber and Lyft would have to spend billions of dollars a year to buy or build vehicles and much more to maintain those vehicles. They become heavy on assets and trade an expense for a potentially larger expense. Profitability is by no means guaranteed.

This all brings us back to Cruise. In January 2020, just weeks before the world went into hiding from a virus, I stood in a theater in San Francisco as Cruise unveiled the Origin, his planned robotaxi. The Origin electric battery was developed in partnership with investors, GM

and Honda and will be built at GM’s Detroit Hamtramck assembly plant (aka Factory Zero) alongside the gargantuan GMC Hummer EV.

Cruise is a separate business unit from the rest of GM that owns a controlling stake alongside several other investors including Honda, Softbank, T Rowe Price.

and others. In addition to developing ADS, Cruise plans to operate a robotaxi service, likely starting in San Francisco, but it also has a long-term contract with Dubai starting in 2024.

GM isn’t just going to build Origins and hand them over to Cruise for fun. This is not what the automakers do. Like any other taxi operator, Cruise will have to purchase vehicles for its mobility service, as well as build infrastructure for the service and charging of the fleet. While Cruise has been well funded to date and currently has around $ 5 billion, that will not be enough to establish a solid business activity.

As with many capital-intensive businesses, Cruise sets up a working capital line of credit to help him cope with the ebb and flow of business. The $ 5 billion line of credit announced today by Cruise CEO Dan Ammann will come from GM Financial, the automaker’s banking arm that provides auto loans to millions of consumers and businesses every year.

GM is currently assembling approximately 100 pre-production Origins that will be used for testing and validation of the vehicle and its ADS over the next year. Likely sometime in 2022, Factory Zero will begin shipping the Origins to Cruise production, which will be paid for from that $ 10 billion horde. Sometime after, we’ll start to see if Cruise can be successful in both developing and deploying a robotaxi service while generating more income than expense. It is by no means a safe bet, especially in the early years. However, having a vehicle specifically designed to meet the durability needs of the job can help. Only time will tell.

About Veronica Richards

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