Tokyo-based Japanese conglomerate SoftBank Group’s $100 billion SoftBank Vision Fund is set to invest $2.25 billion in Cruise – the General Motors-owned autonomous vehicles’ unit, the concerned parties announced Thursday (May 31).
An additional $1.1 billion will be pumped into the venture by General Motors.
“Our Cruise and GM teams together have made tremendous progress over the last two years,” GM Chairman and CEO Mary Barra said in a statement.
“Teaming up with SoftBank adds an additional strong partner as we pursue our vision of zero crashes, zero emissions, and zero congestion,” she added.
The SoftBank Vision Fund will make the investment available to Cruise Holdings LLC in two phases, with the initial amount of $900 million to be made available immediately after the deal is finalized sometime this month.
The second installment of $1.35 billion will be released when the Cruise autonomous vehicles are ready for “commercial deployment.”
In return for the investment, SoftBank is getting a 19.6 percent equity stake in the AV venture.
“GM has made significant progress toward realizing the dream of completely automated driving to dramatically reduce fatalities, emissions and congestion,” said Michael Ronen, SoftBank Vision Fund Managing Partner.
Following the announcement, General Motors’ shares were up almost 13% at the close of play (COP) on Thursday, which is the largest single-day jump the company has witnessed since its re-listing after going bankrupt in 2009.
The investment raises Cruise’s valuation to a whopping $11.5 billion, according to Evercore ISI analysts, including George Galliers; which is a vindication of sorts for the Detroit-based carmaker, as it was heavily criticized for acquiring the start-up at an estimated cost of $1 billion, back in 2016.
Alexander Potter, an analyst at Piper Jaffray, agreed with the Evercore analysts’ $11.5-billion valuation of the GM AV unit, saying that the investment should be sufficient for the initial deployment of some 33,000 Cruise AVs at an estimated cost of $100,000 per vehicle.
“At 20 rides per day, 365 days per year, with a per-ride fare of $12, revenue potential is approximately $2.9 billion,” Potter said.
Since the SoftBank deal makes Cruise a separate legal entity, Deutsche Bank analyst Rod Lache is of the opinion that it will lead to more funding and strategic investments, enabling the company to hire talented professionals, all of which will likely see the company going public.
That said, Cruise had been operating with a great deal of autonomy after the takeover by GM, which was somewhat unusual; however, it hasn’t been all smooth sailing, as Cruise CEO Kyle Vogt said at a Fortune event last year.
“It took us probably six months to a year to really figure out how to work well together and to achieve what we have now, which is mutual respect,” he said.
“As an independent legal entity, [GM Cruise] will have access to private funding based on valuations that are more competitive with mobility/technology peers, will have a valuable currency that can be used to attract and compensate talent, can (and likely will) attract other strategic investors, and we believe that this move also signals a path towards an IPO,” said Lache.
Even though General Motors’ executives have not been very forthcoming on the possibility of spinning-off Cruise, a filing with the U.S. Securities and Exchange Commission does hint that Lache’s prediction of a possible IPO down the line could well come true.
The filing reads that, “If GM Cruise has not completed an IPO, spin-off, sale or dissolution within seven years of the closing, the investor will have the right, subject to certain limitations, to exchange all, but not less than all, of the equity securities of GM Cruise held by the investor for shares of common stock of the company.”
IPO or not, the deal puts GM Cruise in a position to compete with the likes of Tesla and Waymo, to name a couple.
“We have believed that GM has a meaningful seat at the table for shared autonomous vehicles (‘robo-taxis’) and we believe this deal affirms that view,” said Joseph Spak – an analyst at RBC Capital Markets.
That said, Cruise faces several safety and regulatory challenges before it can realize its vision of “zero crashes, zero emissions and zero congestion” to become commercially deployable.
However, in light of the recent crash involving an Uber autonomous vehicle, which resulted in a fatality, it seems like an uphill task ahead of GM Cruise but the company should be up to the challenge, now that it has SoftBank’s strong backing.
“Our ultimate decision to go fully driverless will be gated by safety and whether we’re operating at a certain level of safety,” GM President Dan Ammann said.
“You should assume we have a very deep understanding of what that looks like and how we measure it, but we don’t want to share detail on that at this time,” he added.
SoftBank’s Ronen shares Ammann’s commitment to safety. “This is the first time we’ll all be putting our lives in the hands of robots, literally, daily and if the safety is not there, nothing is going to work, no matter what form you put it in on the road,” he said.
As a matter of fact, SoftBank was drawn to GM because of the carmaker’s commitment to a high level of safety standards and its ability to manufacture at scale and speed.
“We were blown away by the Cruise team’s ability to iterate quickly,” Ronen said.
Ammann said that the company’s immediate priority was to develop the AV technology and ensure an early commercial deployment.
“We’re focused right now on the hardest part of the problem, which is getting self-driving technology to the point where it’s commercially ready for deployment,” said the GM president.
“At that point, we can look at our options for what approach we take to market or approaches. That’ll take shape over the next year or so,” he added.
Both companies are bound by a seven-year deal before either party can cash out.
“We believe that should be a good runway to get even close to maturity,” Ronen said.