The Right Move for GM
The carmaker is subsidizing its autonomous vehicle strategy with its profitable core operations.
GM (GM) held an analyst day in San Francisco on Nov. 30 to unveil the plans for its autonomous vehicle business. We liked what we heard, but we are not changing our fair value estimate. The additional revenue modeled through 2021 is not enough to merit a fair value change, and we want to see how the mobility business actually plays out over time. Transportation as a service, more commonly called TAAS, with autonomous vehicles, or AVs, will be a ride-hailing business competing with the likes of Uber and Lyft. GM already owns about 9% of Lyft. We think the market was disappointed with GM saying it will be ready to deploy AVs in a commercial service at scale in dense urban environments in 2019. In recent months, management said the service would be ready in quarters, not years. We expect the first cities to get the service to be San Francisco and New York, with Phoenix also possible since GM already tests AVs there.
We think GM is right to focus more on complex driving in San Francisco with its Cruise subsidiary rather than rack up miles mostly in suburban and closed-course driving as Alphabet’s Waymo has done. The vehicles can learn the most in a dense city, as GM’s data shows its AV fleet of 180 Chevrolet Bolts encounters special situations such as emergency vehicles up to 46 times more often in San Francisco than in suburban Phoenix. GM expands testing to New York City in 2018. All GM AVs will be pure electric vehicles (battery electric vehicles, or BEVs) as GM feels the AV hardware can be more easily integrated in a BEV than in a hybrid or internal combustion vehicle. GM will have two new BEV crossovers by 2020 and will have at least 20 new BEVs launched by 2023. A new battery platform in 2021 will help drive GM’s BEV costs down by over 30%. This reduction plus eliminating a driver and GM gradually lowering its LIDAR costs to $300 from $20,000 presently, give management confidence to say it can make BEVs profitably but also have a profitable TAAS business.
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David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.