How bad of a situation is Cruise in?
It isn’t looking good. It has been 4 months since their epic disaster of seriously injuring a pedestrian, misinforming regulators and the public, and shutting down service nationwide. They have pushed out almost all of their executives and a quarter of their staff. And they do not appear to have a recovery plan. Things do not look good. In fact, things look Ford/Argo bad.
One has to expect Cruise to be sold in a fire sale or simply abandoned by the end of 2024.
This post covers a few recent factors that point in this direction.
Hiring, or lack thereof
Cruise hired a new head of safety, but their head of hardware resigned. They have not, at least publicly hired key execs, like CEO, to replace those who were fired or resigned. Their engineers are surely looking elsewhere.
Not replacing key executives
When key executives leave an organization their replacements are named as quickly as possible in order to convey that there is a steady hand guiding things. Yet there is not even an acting CEO in place. There are two Co-Presidents, but that is not the same role. And one of the Co-Presidents, Craig Glidden, is also the General Counsel of GM, has been brought in just to clean up the mess. Glidden also has the title Chief Administration Officer for Cruise and is clearly the person responsible for the future of the company. But this all implies that GM management won’t be resurrecting Cruise, which would take a strong and experienced CEO. Instead, GM will just clean things up and sell or shut down Cruise.
There also appears to be no motion with respect to replacing other key executive positions, including CFO (was Bill Nash until October ’23, but at least there is an interim CFO since someone has to make sure the bills get paid), COO (Gil West), Chief Legal Officer (Jeffrey Bleich), Chief Product Officer (co-founder Daniel Kan resigned), Head of Government Affairs (David Estrada), VP of Global Government Affairs (Prashanthi Raman), and more.
For months now Cruise has been a big ship without a rudder. This lack of management is quite anomalous and disturbing.
Senior VP of Hardware resigns
To compound problems, on 2/15/24 Carl Jenkins resigned from the key position of Senior VP for Autonomous Vehicle Platforms. Jenkins had held this key position for over 6 years, and grew the hardware team from 20 people to 650 and was eventually responsible for 1/4 of the Cruise workforce. Jenkins also had key experience from being a senior manager at the Google self-driving car program.
(Jenkins also worked at Hyperloop One for a short time, but hey, everyone is going to something ridiculous once in their career. Can just chalk this one up to Elon Musk fanboyism gone wild. And to think that Hyperloop One was going to “reinvent transit”!)
Mo Elshenawy, Cruise Co-President, had some not very encouraging words about Jenkin’s departure. Somehow I don’t think the engineers remaining at the company are going to be excited by this “transitional period” being “an incredibly exciting place”. Engineers would rather do engineering than be in a transitional period with no positive outcome.
“I recognize that this came as unexpected news. While we’re in a transitional period right now, all of us here at Cruise are getting to define what comes next – that’s an incredibly exciting place to be“
the autonomous vehicles platforms team was crucial for Cruise’s future and “central to our ‘Back to the Mission’ work, to improving our detection systems, compute and sensor suites for current and future programs so we can return to the road as soon as possible.”
Mo Elshenawy – Cruise Co-President
Chief Safety Officer hired
After months of silence, on 2/12/24 Cruise announced the hiring of Steve Kenner as Chief Safety Officer. This doesn’t represent a significant step forward though. As part of all of the investigations into the October 2nd crash where a pedestrian was seriously injured, Cruise committed to just a few things, and one of those was filing the glaring gap of there being no Chief Safety Officer. Cruise absolutely had to hire for this position regardless of the future direction of the company.
But Kenner’s background gives some pause. While experience in the automotive industry is extensive, safety has only been part of the recent and rather short-term positions he has had. And it should be noted that while Kodiak Robotics, Locomotion, and Aurora are indeed Autonomous Vehicle companies, they really only deal with trucking, and they currently use safety drivers. There is very little overlap with respect to safety when the key issue is providing fully autonomous robotaxi service in an urban area. Frankly, the temporary acting Chief Safety Officer, Louise Zhang, had a greater amount of relevant safety experience.
Engineers surely looking for other opportunities
The original layoffs of 900 employees, roughly 24% of the workforce, did not appear to include software engineers. Instead, it was mostly people who were only needed for when Cruise actually provides passenger service.
It has now been months since 10/26/23 when Cruise completely shut down passenger service. Their software engineers are likely quite anxious since after 4 months there still appears to be no progress towards restarting service, no real future for the company, and no pot-of-gold at the end of the rainbow, as in worthwhile stock options, to motivate the engineers to stick around. One has to expect a trickle of departing engineers to soon turn into a flood. Once this happens then Cruise will have much less value and it would be very difficult to resurrect or to sell for anything but a fire-sale price.
No more free food and coffee???!?!
Well, this will certainly drive their engineers and everyone else to find other jobs. It was reported in Reuters that starting in January 2024, Cruise began charging workers $10 for hot meals and $2.50 for barista-served hot coffee. Ouch!
No plan to demonstrate safety to regulators
Cruise has apologized profusely to the regulators. But there are still multiple investigations occurring with the California PUC, California DMV, NHTSA, DOJ, and SEC. While Cruise created the lengthy Quinn Report on their failings, that report still has major gaps and is quite misleading.
The Cruise robotaxis were found by the CDMV to not be safe. To be shown to be safe Cruise needs to go far beyond just addressing the specific problems that occurred for the October 2nd 2023 crash where a pedestrian suffered traumatic injuries. Instead, Cruise needs to show that the vehicles are now safe around pedestrians in general, not just for that one incident. That is extremely difficult to demonstrate since there are an infinite of other out-of-the-ordinary situations that might occur. That is the nature of our chaotic streets. Originally, the regulators had a completely insufficient criteria, basically only self-certification, which led to the October 2nd crash. This time the regulators will need to insist on actual demonstrated safety, and that will be extremely difficult for Cruise to accomplish.
No permits from the regulators means that Cruise is not a viable business for the foreseeable future.
Cruise Origin discontinued
The Cruise Origin was actually more important to the future of the company than most realize. It was the one thing that was supposed to lower the operating cost to just $1/mile, which is what they believe they can charge passengers. Without that low operating cost being a profitable business is simply impossible.
This is a reason that ex-Cruise CEO Kyle Vogt falsely stated in September, just a few weeks before service was shut down nationwide, that they were just days away to getting federal regulatory approval for this radically different vehicle that does not have a steering wheel nor an accelerator pedal.
The NHTSA made it clear that this was simply not true:
NHTSA told TechCrunch that no decision to grant or deny GM’s petition has been reached, nor has a deadline been set for such a decision.
TechCrunch – 9/7/23
Cruise also relied on the Origin to justify pandering to people with disabilities. They went through a great deal of trouble to allegedly show how the vehicles could be used by people who use wheelchairs. Plans to launch in 2024!
But despite all of their marketing hype it must be noted that an human operator is still needed. There are many people who use wheelchairs who cannot restrain them by themselves. This is why Waymo actually implemented accessibility that actually works.
Humorously, the Cruise CEO also described the Origin as “a party on wheels”.
But alas, on November 6th, 2023, Cruise announced that production of the Origin was suspended. They claim to already have hundreds of the Origin vehicles so will be able to use them when they bring back service again. But given all of their other false statements, and since only a small number of Origins have every been seen, their claim seems incredibly doubtful.
Chevy Bolt manufacturing halted
But no need to worry about the Origin. Cruise uses the Chevy Bolt EV! Except after some back (4/29/23 killed) and forth (10/24/23 revived) and back again (12/15/23 killed) GM has now stopped production on the Chevy Bolt EV as well. 1,314 workers have been laid off. The factory is slated to produce Chevrolet Silverado EV and GMC Sierra EV on GM’s new Ultium EV platform after a $4 billion investment, but the company has pushed back the launch from 2024 to late 2025.
There will be a new model, the Chevy Equinox EV, to temporarily replace the Chevy Bolt. It was promised for fall of 2023 but has slipped to mid 2024 at the earliest. It is a pretty different vehicle and it will take quite a bit of engineering to get the Cruise system fully integrated.
And GM has promised to bring back the Chevy Bolt in 2025, on the new Ultium platform. But of course the Ultium platform has been beset with problems and delays. Again, this will be quite a different vehicle from the existing Chevy Bolt EV.
With these changes to GM’s lineup, and with the timeframe being quite vague, it will be extremely difficult for Cruise to ramp up robotaxi service in the foreseeable future. This is especially true given that the Cruise VP of hardware recently resigned.
GM loosing interest, Cruise now just an asset
There were some recent statements by Mary Barra, CEO of GM, that appear to indicate that Cruise is now considered an asset as opposed to an operation, and something that could be spun off.
General Motors Chief Executive Mary Barra said on Thursday that the automaker was looking at the best path to unlock value at its self-driving unit Cruise.
Cruise is an “incredibly valuable asset“, Barra said at an event hosted by Wolfe Research.
The Detroit automaker will focus on relaunching the unit this year, she added while reiterating her support for the unit.
Reuters – February 15, 2024
”Best path to unlock value” clearly shows that having Cruise operate service again is not the only possible outcome for GM. Other path would of course be to sell Cruise, even at a steep loss. “Incredibly valuable asset” shows that Cruise is now just another asset, like a factory or a patent, that could be sold to extract value. Plus “relaunching the unit this year” specifically refers to the Cruise organization as opposed to Cruise service. Therefore the relaunch is likely not implying a commitment to restoring service.
GM investing $1B less in ’24
In 2023 Cruise burned through $1.9B in cash, which is a tremendous amount. GM owns Cruise and is now the only source of funding. But notably, GM stated on January 30th 2024 that funding for Cruise will be cut by $1B for 2024. Given that Cruise only laid off the service oriented people the end of 2023, keeping the highly paid engineers, their expenses are still incredibly high. One has to expect that with $1B less to spend that there will be additional significant layoffs in 2024, making recovery of service even more difficult.
Financials for Cruise are scary
On January 30, 2024, GM released financial info for the 4th quarter and the entire year of 2023. Cruise burned $1.9 billion in cash during 2023, and recorded a $2.7 billion pretax loss, not including $500 million in restructuring costs incurred in the fourth quarter as the unit cut staff. But the $500 million was a genuine expense of laying off many of their workers. Given that Cruise will likely do additional large layoff in 2024, that cost will likely be repeated. This means a more honest GAAP based result would be for a loss of $3.2B for 2023.
The table above also indicates only $1.3B in cash or equivalents at the end of 2023, and a drop of $1.6B in cash. They will be out of cash by the end of 2024, especially given that GM is greatly reducing their financial support.
And note in the chart below that the loss for Cruise is quite significant for GM, being greater than income from GMI and almost as great as the income from GM Financial. This cannot be continued.
Given the difficulties and expense arising from switching to EV vehicles, GM cannot afford such significant losses moving forward. They will need to make a drastic change to keep the stockholders satisfied. And stockholders don’t care about past investments gone bad. They only care about burning additional money. And if Cruise is shut down or sold there will be a large multi-billion dollar charge, but at least there will be a tremendous tax loss benefit, which is good for the shareholders. A concrete example is when Ford shut down Argo in October 2022 and took a $2.7B impairment charge, resulting in a $827M loss.
And to close this out, the following is an interesting and prescient quote from the Motley Fool all the way back in December 2022. Looks like GM is still throwing money into a buzzword, but presumably, not for much longer.
It’s a fair question for investors to ask if General Motors is throwing capital into a money pit, and not cutting its losses on technology that is far out from scale and profitability. So far, GM is adamant it’s not making a mistake, and believes Cruise is making operational progress.
Investors won’t have to wait long to see if that $1 billion figure is hit by mid-decade, and as they see how the dollars start to add up, they’ll have better insight into whether Cruise’s $50 billion annual revenue target by 2030 makes sense.
If it turns out GM is replicating Ford’s mistakes and throwing money into a buzzword that’s far from helping the company’s bottom line, investors will have plenty to complain about.
Motley Fool – December 24, 2022
Conclusion
There is no light at the end of the proverbial tunnel. Cruise is in a hopeless situation with respect to recovering and resuming significant service. Their original targets of $1B revenue for 2025 and $50B by 2030 are, without doubt, now impossible. We have to expect a fire sale or shutdown of Cruise by GM, announced by the end of 2024. There is no other option.
