Cruise now worth $15 billion less

On February 29, 2024, Cruise employees were told that the estimate of the share price by a third party had dropped from $24.27 the previous quarter to $11.80, according to Reuters. This drastic cut in just one calendar quarter was a result of the October 2nd incident when a pedestrian was hit, run over, and dragged by a Cruise vehicle.

The Chief Administrative Officer for Cruise, Craig Glidden, stated “We cannot ignore that this estimate is significantly lower than we’ve seen before and that there are real life impacts for each of us” and Cruise has a “longer pathway towards scaled commercialization.“

As shown below, the drop in valuation reduces Cruise roughly from being a $30 billion company to a $14.6 billion one. And the value that GM holds dropped from roughly $22.5 billion to $10.9 billion, for an impairment of $11.6 billion. This loss of value is huge and very concerning for the future of Cruise.

History of Cruise valuation

Cruise’s value has increased rapidly over the past seven years. GM bought the startup in May 2016 for cash, stock, and performance-based awards valued at $659 million. Two years later, in 2018, SoftBank’s Vision Fund made a $900 million investment in Cruise at an $11.5 billion valuation. Honda invested $750 million in Cruise later that year at a valuation exceeding $13 billion. The valuation then rose to $19 billion following a $1.15 billion funding round in May 2019, which marked Cruise’s most recent capital raise prior to 2021 [MotleyFool].

The previous reported value of Cruise was approximately $30 billion in January to April of 2021 when Honda, Microsoft, Walmart invested in a funding round [GM][1][2][3][4] (same as Waymo).

The previous valuation of Cruise is somewhat unclear because in March 2022 SoftBank sold their shares of Cruise back to GM for $2.1 billion, which they had paid $900 million for when they bought into Cruise at a $11.5 billion valuation. One single analyst considered that the valuation of Cruise could then be just $19 billion, though my calculations show that it would have been $27 billion. Regardless, GM reported to Barron’s that the valuation of Cruise was still $30 billion and was unaffected by the SoftBank transaction.

Therefore we will use a valuation of Cruise for the previous quarter of $30 billion.

Cruise is now valued at $11.80/$24.27 of $30 billion, which is just $14.6 billion.

GM’s total impairment

GM is reported to own between 69% and 80% of Cruise stock. For a rough determination, we will use 75% of the previous $30 billion valuation. The previous value of GM’s holdings in Cruise was therefore $22.5B. The new valuation is just $11.80/$24.27 of the old valuation, which is $10.9B, for a write down of $11.6 billion for GM!

This large drop in valuation of $11.6 billion dollars is quite significant given that GM’s market capitalization is just $47.3B. But the value of GM stock did not change at all the day after the news went public. Clearly investors were not surprised at all of the large markdown, and had already incorporated the lower value of Cruise into their valuation of GM stock. I expect that this will mean additional markdowns can and will be made in the future, unless Cruise is first sold.

Why Cruise valuation was updated

Public companies like GM have to record on their balance sheets when an asset decreases in value significantly. This is known as the asset being “impaired”. This is done so that total asset value is not overstated on the balance sheet, and is key for being transparent with stockholders. According to generally accepted accounting principles (GAAP), certain assets should be tested on an annual basis. GAAP also recommends that companies take into consideration events and economic circumstances that occur between annual impairment tests in order to determine if it is “more likely than not” that the market value of an asset has dropped below its carrying value.

There is also another reason GM had to lower their value of Cruise. There is a program where employees can sell their Cruise stock to GM. But if GM kept the value of Cruise artificially high then they would be losing a great deal of money every transaction. By lowering the value of Cruise they probably have made most of the options worth less than the share price, which means that employees will no longer cash them in. And if employees do (they are a long-time employee) then at least GM won’t lose as much money.

Up next

Sources from Cruise have stated that a relaunch of service is not expected until fourth quarter of 2024. And such a relaunch would likely begin with as few as 10 cars in each city and no passengers, one of the sources said. This does not bode well. And they certainly have a lot of huge problems to deal with.

We have to expect further decreases in the valuation of Cruise, or for it to be sold at a much lower valuation.