Business Valuation
When valuing GENERAL MOTORS CRUISE UNIT (SELF-DRIVING AND ELECTRIC VEHICLES SUBSIDIARY), what sources could one consult to set the WACC, as well as size and industry risk premia?
Valuation of the Cruise Unit of General Motors
By Joel N. Morse, Ph.D.
University of Baltimore
General Motors and Cruise
The autonomous industry has yet to scale a commercial product, but companies operating in this industry have surely raised a lot of capital to build self-driving cars. One of the recent examples come from an eye-popping investment via Cruise, an autonomous vehicle unit in San Francisco, that is mostly owned by General Motors.[footnoteRef:1] According to recent articles, Cruise was valued at 19 billion, and had raised approximately 1.15 billion, which is roughly 33 per cent of the GM’s valuation, irrespective of the fact that it has not yet sold a single car. This infusion is being acknowledged to be the result of new investor i.e. T. Rowe Price Associates – a global asset management firm – in addition to its existing partners like General Motors, Honda and Softbank Vision Funds. All of these partners had collectively poured approximately $2.25 billion into the self-driving unit in the past year, which means that Cruise has raised approximately $7.25 billion in the past year alone.[footnoteRef:2] [1: Marshal, A. 2019. Cruise's $1 Billion Infusion Shows the Stakes in Self-Driving Tech. [Online] Data retrieved from https://www.wired.com/story/cruises-billion-infusion-shows-stakes-self-driving-tech/ ] [2: Welch, D. 2019. GM's Cruise valuation swells to US$19 billion as T. Rowe buys in. [Online] Data retrieved from https://www.bnnbloomberg.ca/gm-s-cruise-unit-raises-1-15-billion-as-t-rowe-joins-backers-1.1254888]
History and Future of Cruise Automation
Cruise Automation is one of the many companies out of the Y-Combinator startup accelerator that hoped to retrofit the existing cars with the features of semi-autonomous vehicles, especially for highway driving, but then shifted its approach to make electric vehicles (EVs) in the urban setting.[footnoteRef:3] With this purpose, the company became the centre of attention for General Motor circa during 2015, when a vast majority of the existing automakers were planning to introduce self-driving cars between 2018 and 2020. With GM’s strategic vision and the available resources, Cruise Automation was purchased by GM for an amount reported to be somewhere between $500 million to $1 billion. During the process of acquisition, Cruise only had a total of 50 employees, but this acquisition resulted in radical increase in the number of employees i.e. from 50 to approximately 1,000 employees in San Francisco, in addition to 100-200 employees in Seattle. Before the acquisition, Cruise acquired the license to test the autonomous vehicles on the busy streets of San Francisco, but the company was acquired just 9 months after it. However, during these 9 months, the company was able to secure investments from Softbank and Honda, which accounted to $15 billion. [3: Howard, B. 2020. GM’s Cruise Origin Is an Autonomous Vehicle From the Future. [Online] Data retrieved from https://www.extremetech.com/extreme/302323-meet-gms-cruise-origin-of-the-autonomous-species]
The acquisition of Cruise by General Motors clearly reflects the multi-billion-dollar company’s plan to have autonomous vehicles, in addition to electric vehicles. In this entire process, the skills and expertise of Cruise is exceptionally important, since it directly coincides with the GM’s Plan for 2023. In particular, the recent reports unveiled that General Motor will be introducing approximately 20 electric vehicles by 2023, which ranges from an electric pickup truck by 2021 and a Chevrolet electric vehicle by this year. With the future plans of General Motors, the company will be capitalising upon its ties with LG Chem to create its own Gigafactory so that it can supply 10,000 cars on annual basis.[footnoteRef:4] This is just one of the basic future plans of GM, and this can be more effectively achieved through the acquisition of Cruise Automation. [4: Potts, G. 2020. The Cruise Origin is GM’s take on an autonomous vehicle. [Online] Data retrieved from https://www.topgear.com/car-news/electric/cruise-origin-gms-take-autonomous-vehicle]
Cruise Automation and Competitors
The CEO of Cruise Automation, GM self-driving car subsidiary, acknowledged that the journey of Cruise to build self-driving technology is expensive. The massive scale production of these vehicles is an engineering challenge for not just the company, but for the current generation. The CEO further highlighted that having sufficient resources to remain consistent with the pursuit of Cruise’s mission is a critical competitive advantage, which is currently being supported by GM. However, Cruise Automation is not the only company working on self-driving vehicles, but other companies have embraced this technology worth the expense. During the last six months, a number of global competitors have shown their interest in the self-driving technology, which is the reason for their very large investment. For instance, Argo Artificial Intelligence (or Argo AI) – an autonomous vehicle startup – was able to raise approximately $1.7 billion from Volkswagen, and had a valuation of $4 billion.[footnoteRef:5] It is worth mentioning that Ford has a majority stake in Argo AI. Similarly, the self-driving unit of Uber was able to raise $1 billion from Japanese Consortium that included Honda and Softback. Uber’s Advanced Technology Group had a valuation of $7.3 billion.[footnoteRef:6] [5: Marshal, A. 2019b. Bracing for a Hazy Robo-Future, Ford and VW Join Forces. [Online] Data retrieved from https://www.wired.com/story/ford-vw-alliance-self-driving-cars/] [6: Marshal. A. 2019c. Uber Recruits Some Rich Friends to Drive its Autonomous Cars. [Online] Data retrieved from https://www.wired.com/story/uber-recruits-some-rich-friends-drive-autonomous-cars/]
The race to invest in self-driving vehicles or self-driving technology has just begun, and as mentioned earlier, both big and small companies have invested in startup to take enter into the self-driving sector. This can be further illustrated through an example of robotic delivery startup Nuro, which was valued at $2.7 billion, and Softbank invested $940 million into this startup considering its worth and value.[footnoteRef:7] Another example of startup is of Aurora, which recently announced that it was able to raise $530 million and had a valuation of $2 billion with an alley-oop from Amazon – the self-driving investing newcomer.[footnoteRef:8] Elon Musk – the CEO of Tesla, has also shown significant interest in the production of fully functioning self-driving software, while indicating that the Tesla would be raising approximately $2.7 billion in investment by 2020.[footnoteRef:9] On the other hand, it has also been reported that the spinoff of Google i.e. Waymo – the putative leader in the self-driving – will be looking for external financing since the company has been spending $1 billion on an annual basis just for the development of autonomous vehicles. [7: Davies, A. 2019. Softbank Invests $1B in Robo-Delivery Startup Nuro. [Online] Data retrieved from https://www.wired.com/story/softbank-nuro-self-driving-investment/] [8: Davies, A. 2019b. Amazon Dives Into Self-Driving Cars With a Bet on Aurora. [Online] Data retrieved from https://www.wired.com/story/amazon-aurora-self-driving-investment-funding-series-b/] [9: Marshal, A. 2019d. Elon Musk Promises a Really Truly Self-Driving Tesla in 2020. [Online] Data retrieved from https://www.wired.com/story/elon-musk-tesla-full-self-driving-2019-2020-promise/]
Cruise Origin
Up until now, Cruise has only been testing its autonomous technology on a limited number of cars, but with drivers behind the wheel to avoid any unforeseen event. However, the years of operations and consistent collaboration between GM, Cruise Automation and Honda has resulted in the finalising of Cruise Origin, which has been designed without driver or combustible engine. This is to give the people more space, and can be acknowledged to be the reason that Cruise Origin can facilitate 6 people – 3 passengers on each side. Even when there is no information about the price, production data or the location to produce it, the information related to this vehicle indicates about the continuing vision of Cruise Automation, where the cars will be completely autonomous, and people may no longer have the need to own vehicles. This is a technological breakthrough for a startup that has only tested autonomous vehicle on the crowded streets of San Francisco, but Cruise Automation through its Origin intends to operate a ridesharing service, with a possibility of expanding the production to include cargo delivery.
Even without selling a single vehicle throughout its history, Cruise Automation has been anticipated to become the pack leader in the global market, and forecasted to have sales revenues worth $173.15 billion by 2023.[footnoteRef:10] Unlike the existing competitors like Yandex, Waymo and Drive.AI, the reports by Department of Motor indicated that Cruise has driven approximately 450,000 miles in California, which is greater than any of the competitor except Waymo, which had 1.2 million miles driven on an annual basis.[footnoteRef:11] The Origin has been differentiated from other autonomous vehicles on the basis of third-generation all-electric cars that are equipped with Velodyne’s lidar sensors, in addition to both short and long-term radar sensors, video cameras and articulating radars to just name a few. Most of these are assembled in a plant located in Lake Orion, Michigan, where GM invested approximately $300 million during 2019, and is currently staffed by hundreds of robots and more than 1,000 people. However, Cruise has been found to be burning cash at a rapid pace, and the reports by General Motor indicated that it had posted $1 billion in losses on Cruise during 2019, which were much higher than that of $728 million in losses during 2018. [10: MarketWatch. 2018. Self-driving Car Market to Grow at a CAGR of 36.2%, leading to global revenue of USD 173.15 Bn by 2023. [Online] Data retrieved from https://www.marketwatch.com/press-release/self-driving-car-market-to-grow-at-a-cagr-of-362-leading-to-global-revenue-of-usd-17315-bn-by-2023-2018-09-11] [11: ]
Traditional Automakers under Siege
Previously, the traditional automakers were under the threat of becoming irrelevant and obsolete because of the rising preference towards sustainable and eco-friendly cars, which became a reality in the 21st century in the form of electric and autonomous vehicles. Unlike previous years, as mentioned earlier, car ownership has become optional for customers because of the shared economy and ride-hailing companies like Uber. Apart from these threats, the automakers are also under siege by the regulators based on their failure to reduced carbon dioxide emission, in addition to dropping sales. With all of these factors affecting the traditional automakers simultaneously, the only possible way out was to collaborate for their survival, as identified through the cases of Renault and Fiat Chrysler. However, this collaboration collapsed after Fiat decided to withdraw from the merger given the changed demands of French government, which is another reminder that merger between traditional automakers is not as single as it seems.
Advanced technologies like electric and autonomous vehicles have surely disrupted the operations of the traditional automakers, which existed for more than 100 years. This simply means that autonomous and electric vehicles have become really expensive for leading traditional automakers. This is the reason that it has been identified that leading automakers would have to invest more than $400 billion by 2025 so that they can work on the development of autonomous and electric vehicles equipped with technologies far beyond their current vehicles. However, the major challenge for these companies to compete against the newly established start-ups like Cruise is in the form of retooling factories, while ensuring that the companies can retain their workers in consistency with reorganising their supplier networks, and during the rethinking process of the whole car ownership idea. However, this must be done for the survivability of the auto manufacturers, and their failure to adapt can make their worst fear come true – being obsolete. This decision must be taken without their confirmation of whether or not the customers will be really willing to invest their time and resources in the technology, and whether or not the companies to earn profit if they invest $400 billion by 2025.
On the other hand, the climatic changes have transformed into a political issue, and this has directly led to wavering relationship between the cars and consumers, since it has led to worsening air quality across the globe. This is justifiable through the report by World Bank, which indicated about the need for change in the automotive industry, since the internal combustion engine accounts for 20 per cent of the carbon dioxide emissions across the globe. This has since the report transformed into a global concern, and the policymakers have responded to the public opinion by enforcing the companies to reduce their emissions and improve fuel efficiency. This eventually pushed back the ability of the carmakers to sell more cars, especially since the Volkswagen and Fiat Chrysler scandals. The recent policies are a setback for automakers, especially in the European Union, where these automakers have been enforced to ensure average fuel economy equivalent to 57 miles per gallon by 2021. Not just this, the automakers have been communicated that their failure could lead to substantial fines and penalties. Even with such policy at work, the automakers operating in the European countries are far behind in terms of achieving the goals, simply because of the fact that the people have been so attached with the utility vehicles, that they are still purchasing the vehicles. With this aspect into account, it has been reflected that the European automakers will be fined approximately €34 billion (i.e. equivalent to $37 billion) for their failure to adhere and comply with the regulations and policies.
General Motor and Cruise: Business Valuation
Autonomous and electric vehicles have surely received all the attention that it was expected to receive. There is no valid proof than the multi-billion investments from General Motors and Softbank, where the purpose of the investment was to work on the self-driving applications and autonomous driving. This means that GM intends to bank on Cruise to push forward the autonomous driving effort, while leveraging the technology for the launch of its robo-taxi service. Notably, this strategic approach has put GM in a competitive position against its fiercest rival Ford Motor in the race to robo-taxi, and the company has recognised that it would not be long that other companies expand their operations into this profitable sector, but with an assumption that Uber will soon capitalise upon the opportunity. In any regards, Softbank’s investment worth $2.25 billion gained the bank 20 per cent stake in the business, which can be argued to be pretty substantial given the fact that GM acquired the company for just $581 million in cash, in addition to incentives equalling to $1 billion.[footnoteRef:12] Either way, the recent raise for Cruise Automation has put the valuation of the company must closer to $11.5 billion. This is quite an interesting aspect since GM’s shares gained significant boost after the announcement by Softbank, given the fact that GM is the owner of $11.5 billion entity, especially because of its market capitalisation of $61.5 billion. Even after such a noteworthy investment, the market capitalisation of GM is still lower in comparison to Tesla, which is $63.5 billion. [12: Alper, A. and Roumeliotis, G. 2019. Exclusive: U.S. clears SoftBank's $2.25 billion investment in GM-backed Cruise. [Online] Data retrieved from https://de.reuters.com/article/uk-cfius-softbank-gm-exclusive/exclusive-u-s-clears-softbanks-2-25-billion-investment-in-gm-backed-cruise-idUKKCN1U100O]
Available Options
GM had a range of options to consider with respect to Cruise, which included spinning off the assets or launching separate tracking stock, or to consider IPO. Even though, there are numerous options, experts and professionals in the industry have acknowledged that these options are more likely to be several years into the future, which showcases the potential and space that GM has through Cruise. This can be attributed to the valuation boost that has been received by Cruise in the recent years. The most effective and profitable option for GM would be public offering, but the effectiveness and success of IPO would be dependent upon the ability of GM to hold onto the bulk of its position, since doing so can result in attracting investors. On the other hand, another option that has caught the eye is spinning off Cruise. This strategic approach is adopted by parent companies given value one function/department of the entire company greater than the others when compared with the remaining whole. In this context, it has been identified that there is most likely that the Cruise Automation shares are to be trader at much higher prices in comparison to the capital-intensive GM, which has been found to have forward price-to-earnings ratio of less than 7 as per the estimates by Morningstar. This is a common strategic approach adopted by automakers; for instance, Ferrari was spun off by Fiat Chrysler Automobiles, and this led to the price-to-earnings ratio of 42; whereas the remaining core of the Ferrari has been traded at 7.5 times earnings.[footnoteRef:13] [13: Sylvers, E. 2015. Fiat Chrysler Approves Ferrari Spinoff. [Online] Data retrieved from https://www.wsj.com/articles/fiat-chrysler-approves-ferrari-spinoff-1449170879]
Even when spinning off Cruise would be the least preferable option for GM, yet it is amongst the most commonly talked about strategic option. This may be due to unlocking the true potential and value, while making it convenient and easier for the company to effectively retain the top talent, while moving ahead with the acquisition. This means the purpose of spreading news about spinning off was to attract and retain talent through stock options in pre-IPO company. Though, GM is in no need of help when it comes to acquisition front, since the global brand can simply flex some muscles to deal with it anytime it wants to. With respect to the unlocking value aspect, it is noteworthy that since the announcement of the deal, the stocks of GM gained approximately $7 billion with respect to market capitalisation. However, there are not many who would disagree that it would be possible for Cruise to garner higher price-to-earnings valuation in the open market in comparison to GM, given the fact that automaker is among the companies with lowest valuations when it comes to S&P 500. But if the portion of the company is floated in the market, it can be instrumental in setting definitive value with respect to the stake of GM, which can ultimately help in the stock moving higher.
General Motors Stock
Since 2013, the stock price of GM has not made any significant improvement, because of the changing market dynamics; for instance, the auto sales in China remained unprofitable for the company, but the inverse has been seen in the United States, where the auto sales have most likely reached its peak. The profit growth of the company has been stalled, and this was before the six-week UAW strike, yet General Motors have been seen to have a bright future because of its restructuring to drive earnings, while plotting transition from combustion engine to eco-friendly and sustainable electric and autonomous vehicles. Furthermore, it has been insisted by the management at GM that the financial targets have been within the reach, despite of the cost inflation. At the same time, reports of 2019 indicated unimpressive IBD Composite Rating of General Motors, which was 56 out of 99. The composite rating takes account of technical and fundamental factors into single score and its reflects sales, earnings, margin and even stock performance trends.
The stock of GM slummed during the strike and since then has not been able to rally since its resolution; thereby resulting in Relative Strength Rating of 25 as well as EPS Rating of 58. Even with these mediocre ratings, the Wall Streets seem to be a fan of General Motors as they believe that the future earnings would be turnaround for all, while indicating that GM still has room for growth and greater potential because of the unicorn embedded in the autonomous sector. Though, this does not change the fact that the Composite Rating of GM has declined to No. 6 within the automaker industry group, yet it has remained one of the gems of the group with respect to the fall stock market rally, and has been racing to achieve No. 2 of the 197 in the IDB industry group, which has been up from 126 during the mid-October. If this is compared with the performance of Tesla, the company’s stocks have doubled in value just during the recent months, which have helped in relieving the doubts that the investors had with respect to its finances, while allowing the company to open a Chinese factory. In comparison, Ferrari has been the central player in the luxury sport-car, which has been leading the group because of its strong IDB Composite Rating of 94, followed by Tesla, Fiat Chrysler, Toyota Motor, Tata Motor and Ford Motor with ratings of 83, 81, 79, 61 and 59 respectively.
General Motors Earnings
The current earnings’ report on GM has reflected weak performance, yet the Q3 reflected less negative results as per the expectations. In particular, the earnings per share of GM fell 8 per cent i.e. to $1.72, but was able to trounce the estimates by 54 per cent. The decline in the earnings per share was estimated by GM because of the strike, and it was indicated that the full-year EPS would reduce by $2, and the major decline was observed in Q4, when the company’s revenue sank by approximately 25 per cent when compared with the same a year ago. Even with all these ratios and earnings into consideration, the analysts indicated about the longer-term potential, which is quite evident from the report by Citi analyst; Italy Michaeli, who increased the stock price target from 67 to 68 after viewing the earnings during Q2. This was reaffirmed after the reports of Q3, while citing the value of the strong pickup truck franchise. Micheali has not been the only one increasing the stock price targets, but Dan Levy from Credit Suisse has also increased the price targets from 46 to 47, while indicating that irrespective of the strike-induced weakness, GM was able to turn the page that led to its relatively strong position.
Boosting GM Earnings through Restructuring
The stalled auto markets in addition to the changing preferences of the consumers along with the rising demand of investing in electric and autonomous vehicles have resulted in radical and fundamental restructuring at GM in the late 2018. In particular, GM has brought fundamental and revolutionary changes into the five propulsion and assembly plants, and have phased out the passenger cars so that greater attention can be placed on the profitable and more popular trucks and SUVs. Meanwhile, the company has also reduced 15 per cent of the contract and salaries staff, in addition to the four executives. This was in accordance with the estimates of tighter focus through which the company can save approximately $1.5 billion on annual basis in capital expenditure. Furthermore, it has also been planned that the company would be cutting expenses by $6 billion on annual basis by 2020. Yet, the company has been planning to increase its spending on the electric and autonomous vehicles by 2x.[footnoteRef:14] [14: Graham, J. 2019. Is GM Stock A Buy Now? General Motors Earnings, Chart Say This. [Online] Data retrieved from https://www.investors.com/research/gm-stock-buy-now/]
Electric Vehicles’ Market – Competition of Two Giants
It has been predicted that the profitability of electric vehicles – a road that GM has recently embraced – will be even more uphill in the short-term and long-term. This is the reason that GM has been working on the tax credit, which are to be phased out in March after being rejected by the Congress to expand the credit that faced White House Opposition. In particular, it has been identified that the per vehicle phase out tax credit would be $7500, after 200,000 units per manufacturer. In this context, the credit of General Motors fell to $1875 during the month of March. Tesla has been a challenge for General Motors because of its constant development, as evident in the form of Blade Runner inspired Cybertruck, which received more than 250,000 orders within just months, in the form of $100 refundable deposits.[footnoteRef:15] The cybertruck is expected to debut in 2021, and the analysts since then have remained sceptical about the mass market appeal of the post-apocalyptic looking pickup truck, and the cutting into the demand of the vehicles offered by Ford and GM. Both of the trucks by GM and Tesla are expected to debut in 2021. [15: Ibid 14]
GM Cruise vs. Alphabet and Tesla Waymo
GM Cruise has proved to be a worthy investment for the company in the race of autonomous vehicle, which is the reason that $300 million were spent on Cruise during Q3. This led to an increase of staff and has been forecasted to be on the pace of spending approximately $1 billion throughout the year. On the contrary, the Alphabet unit Waymo along with others like Tesla and Ford have been recognised to be amongst the large field of well-funded competitors; thereby resulting in one after another detours. GM Cruise recently acknowledged that the company would not be introducing any fully driverless vehicles before the end of the year. Previously, GM had hopes of launching a robotaxi service in the busy streets of San Francisco during 2019, but like others GM was too optimistic about solving the greatest engineering challenge of the lifetime. Yet, GM Cruise has remained optimistic about unlocking the multi-trillion dollars’ market potential that the company can capitalise into through its self-driving cars, which experts and professionals in the industry have been unsure about. Cruise Automation was bought by GM for $1.1 billion during 2016, which has since then been adding value to the company. The key investors of the GM project include Honda Motor, which has invested $750 million during the last year, while committing additional $2 billion during the next 12 years. The recent fundraising event hosted by GM Cruise resulted in attracting investment worth $19 billion.[footnoteRef:16] Though, the stake of GM in this entire process has not yet been disclosed, but it is being estimated to be $13 billion, which equates to $9 per the share of General Motor, or more precisely $52 billion market value (i.e. 25 per cent). During the month of November, Adam Jonas of the Morgan Stanley estimated the value of Cruise to be $4 billion from $9 billion, which has been based on conservative outlook; whereas the high-end Corvett was estimated to be valued $4.5 billion.[footnoteRef:17] [16: Ibid 14] [17: Ibid 14]
GM Cruise Unit-Potential Value
When it comes to the value calculation of the subsidiary business unit, it can become complicated and imprecise. Fortunately, Cruise has concentrated on raising funds round just the last year, and was publicly acknowledged based on its market value during the process. According to the report by Global Asset Management Firm; T. Rowe Price Associates, in addition to the existing partners i.e. General Motors, Softbank Vision Fund, and Honda, $1.5 billion has been deployed into the tech startup during mid-2019, which raised the market value of Cruise to $19 billion. In this context, the market capitalisation of General Motor was $42.6 billion; thereby reflecting that within just some years, Cruise is worth nearly half of its parent’s value.
Of course, much similar to other start-ups in other industries and sectors, the valuation of Cruise has been expected to rapidly expand its operations and value in the market. The vehicle automation as well as self-driving is a market that has been forecasted and estimated to be worth $556.67 billion by 2026 representing a Compound Annual Growth Rate (CAGR) of 39.47 per cent.[footnoteRef:18] Meanwhile, partnership with the ride-sharing and ride-hailing firms or establishing an independent entity can be instrumental in unlocking robo-taxi market, especially for the Cruise vehicles. Currently, the autonomous rise-sharing market has been estimated to be approximately $2 billion or more, especially because of the technology being viable and safe enough to be adopted in the mainstream market.[footnoteRef:19] Cruise being the market leader, in this space, means that it has sufficient opportunities to capture 10 per cent of the overall market within the next decade, which could easily be worth more than $42 billion market capitalisation of its parent company i.e. General Motors. [18: Garsten, E. 2018. Sharp Growth In Autonomous Car Market Value Predicted But May Be Stalled By Rise In Consumer Fear. [Online] Data retrieved from https://www.forbes.com/sites/edgarsten/2018/08/13/sharp-growth-in-autonomous-car-market-value-predicted-but-may-be-stalled-by-rise-in-consumer-fear/#338bd72e617c] …
,
Source: GM
hyperdrive
GM Is Exploring Listing Shares of Cruise Self-Driving Unit
By
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, and
June 15, 2018, 2:27 PM EDT Updated on June 15, 2018, 3:32 PM EDT
· Carmaker privately discussing options including IPO, spinoff
· SoftBank fund’s $2.25 billion investment starts 7-year clock
General Motors Co. is having early discussions internally and with banks about strategic options for its self-driving car unit Cruise Automation, according to people familiar with the matter.
The largest U.S. automaker is researching possibilities including a public offering of shares, listing a separate tracking stock to reflect its value, or spinning off the unit, said the people, who asked not to be identified because the discussions are private. GM won’t make a decision until Cruise is further along in development and may not take any action for a couple of years, if at all.
Source: GM
While a public offering may be well into its future, the exploration shows how far Cruise has come since it was acquired two years ago as a 50-person firm. It’s now attracting capital, hiring by the hundreds and aiming to offer an app-based, ride-hailing service next year. The company, whose autonomous vehicle prototypes are still in the testing phase, wants to demonstrate commercial viability and build out a business before moving forward with any plans, said two of the people. GM declined to comment.
GM shares rose on the news, gaining as much as 3.3 percent. Ford Motor Co. and Fiat Chrysler Automobiles NV also jumped briefly.
The exploration also underscores that GM sees Cruise, which develops self-driving cars in San Francisco, as a vital piece of the company’s future that could be fostered by raising its profile with investors. Chief Executive Officer Mary Barra sees it as a huge strategic asset and a source of future profits. Last month, SoftBank Vision Fund announced plans to invest $2.25 billion in Cruise at an $11.5 billion valuation.
The SoftBank fund is putting an initial $900 million into Cruise this year, followed by $1.35 billion once its autonomous vehicles are ready for business use. The fund will own 19.6 percent of Cruise once the entire investment is completed. If the unit doesn’t have an IPO, spinoff, sale or dissolution within seven years of closing the SoftBank investment, the fund may convert its stake into GM common stock, according to a regulatory filing.
“SoftBank’s investment is a huge mile marker for them in this process,” John Murphy, auto analyst for Bank of America Merrill Lynch, said Thursday in a speech in Detroit. “GM is way out in the lead” on autonomous vehicles.
GM acquired Cruise in 2016 for $581 million in cash. The value of the deal was closer to $1 billion when including incentives for key talent including Cruise CEO Kyle Vogt. The purchase was a coup for company, which is racing Alphabet Inc.’s Waymo and others to develop self-driving car technology that has the potential to transform transportation. Cruise has been testing autonomous Chevrolet Bolt prototypes in San Francisco, Phoenix and outside Detroit.
Of the options GM is considering, it’s unlikely to spin off Cruise because this would risk ceding control and leaving the more than century-old automaker with less of a tech story to tell. An offering of less than 20 percent of Cruise’s equity would enable the automaker to maintain control while potentially making it easier for the unit to hire talent or make acquisitions.
The SoftBank deal ensured that Cruise will have the funding it needs for the next several years. GM’s future moves with the unit will depend on how quickly the public embraces the technology and its use for the ride-hailing business.
GM has experience with a tracking stock, which is intended to trade based on the unit’s performance. The automaker’s Hughes Electronics business was listed this way in the 1990s before GM sold it to Raytheon Co. in 1997.
— With assistance by Keith Naughton
(Updates with trading in the fourth paragraph, analyst’s comment in the seventh paragraph.)
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
Form 10-K
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2018
From < https://www.sec.gov/Archives/edgar/data/1467858/000146785819000033/gm201810k.htm >
Note 10. Goodwill and Intangible Assets
Goodwill of $1.9 billion consisted of $1.4 billion recorded in GM Financial and $504 million and $490 million included in GM Cruise at December 31, 2018 and 2017.
|
|
December 31, 2018 |
|
|
|
|
|
December 31, 2017 |
|
|
|
|
|
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
|
Technology and intellectual property |
$ |
734 |
$ |
457 |
$ |
277 |
$ |
8,092 |
$ |
7,735 |
$ |
357 |
|
Brands |
4,299 |
|
1,165 |
|
3,134 |
|
4,302 |
|
1,044 |
|
3,258 |
|
|
Dealer network, customer relationships and other |
968 |
|
661 |
|
307 |
|
1,310 |
|
933 |
|
377 |
|
|
Total intangible assets |
$ |
6,001 |
$ |
2,283 |
$ |
3,718 |
$ |
13,704 |
$ |
9,712 |
$ |
3,992 |
Our amortization expense related to intangible assets was $247 million, $278 million, and $325 million in the years ended December 31, 2018, 2017 and 2016.
Amortization expense related to intangible assets is estimated to be approximately $184 million in each of the next five years.
We removed $7.7 billion of fully amortized intangible assets in the year ended December 31, 2018 which are no longer in use and provide no remaining economic benefit.
67
From < https://www.sec.gov/Archives/edgar/data/1467858/000146785819000033/gm201810k.htm >
Page 53
GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Goodwill Goodwill is not amortized but rather tested for impairment annually on October 1 or when events occur or circumstances change that would trigger such a review. The impairment test entails an assessment of qualitative factors to determine whether it is more likely than not that an impairment exists. If it is more likely than not that an impairment exists, then a quantitative impairment test is performed. Impairment exists when the carrying amount of a reporting unit exceeds its fair value.
From < https://www.sec.gov/Archives/edgar/data/1467858/000146785819000033/gm201810k.htm >
2018 10-K (also pdf in files )
https://www.sec.gov/Archives/edgar/data/1467858/000146785819000033/gm201810k.htm
GM's Cruise unit to double headcount
https://www.reuters.com/article/us-gm-cruise-jobs/gms-cruise-unit-to-double-headcount-idUSKBN1QS2Q7
GM Is Exploring Listing Shares of Cruise Self-Driving Unit
GM's incentive plan for Cruise chief points to IPO: SEC filing
GM to acquire autonomous-vehicle technology developer
http://www.wsj.com/articles/gm-to-acquire-autonomous-vehicle-technology-developer-1457704950
GM to acquire autonomous-vehicle technology developer
http://www.wsj.com/articles/gm-to-acquire-autonomous-vehicle-technology-developer-1457704950
2019 IBIS WORLD on autonomous vehicles and the mobility revolution
2019 GM SLOWING DOWN
https://www.cnbc.com/2019/06/17/gms-race-to-outflank-tesla-may-be-stalling-out.html
Ford invests $500 million in electric truck maker Rivian
https://www.cnbc.com/2019/04/24/ford-to-invest-500-million-in-electric-truck-maker-rivian.html
ETF mobility also does china
Curfew for a Corporate Teenager? Tesla in June 2019
Damodaran on tesla
Aswath Damodaran – Laws of Valuation: Revealing the Myths and Misconceptions (FULL PRESENTATION)
Apple buys robo company
https://www.cnbc.com/2019/06/06/apple-is-looking-to-acquire-self-driving-car-startup-driveai.html
Despite declining car sales in China, global giants and local startups still see it as the proving ground for electric vehicles
https://www.wsj.com/articles/auto-makers-raise-bets-in-china-despite-market-slowdown-11559986201
6/10/2019 PODCAST I love Palisade Radio | Mike Beck: Keynote: Parabolic Growth for Electric Vehicles is Now Beginning, let's play it!
https://www.podbean.com/ei/dir-qqka7-64b82cf
Ford, VW to announce deal to invest billions in autonomous and electric vehicles
2019 august big electric car future
If accurate, this means that China, in a sense, controls our ability to follow the climate change strategies that involve a diminished use of fossil fuels.
https://www.linkedin.com/feed/update/urn:li:activity:6552553230314856448/
The Cobalt Cliff Could Eradicate Non-Chinese EV Manufacturing Before 2030
Tesla rival Nio tumbles to record low after deliveries disappoint
“Our goal is not to build a car,” says Waymo’s CTO. “We’re really building a driver.”
https://www.wsj.com/articles/driverless-cars-are-90-here-theres-another-90-left-to-go-11558717322
Electric cars (GM) to cost UAW jobs
The Car Industry Is Under Siege
https://www.nytimes.com/2019/06/06/business/auto-industry-fiat-renault.html
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