--:-- Ryan Knudsen: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen.
--:-- [Discussion continues with music fading out]
--:-- Ryan Knudsen: In the transportation industry, there's a dream some people have. Robo-taxis. Self-driving cars that people can just call up, and that'll take them wherever they need to go. Yeah, it's been a big aspiration, and it has huge implications for the traditional auto industry. Our colleague Chris Otz covers the auto industry. And he says that maybe someday, if this technology gets good enough, people won't even need to own cars anymore.
--:-- Chris Otz: [as Guest] If you think about it, your personal vehicle is idle the vast, vast majority of the time. If you have reliable self-driving cars, that changes the entire paradigm in terms of what the auto industry is. You could have cars that are owned centrally by a fleet instead of people owning personal vehicles. So to move into a world where you have on-demand transportation that could totally upend transportation as we know it.
--:-- Ryan Knudsen: One of the companies that's been trying to do that is called Cruise. It's owned by General Motors. Cruise is an autonomous vehicle startup that General Motors bought and has invested heavily in, over the last decade, billions of dollars. General Motors, you know, only a few years ago, predicted that Cruise would generate $50 billion a year in revenue by the end of the decade. And GM had hoped that Cruise was a big part of its future.
--:-- Chris Otz: [as Guest] But last week, GM said that after investing $10 billion over the last decade, It's killing its robo-taxi program. Cruise, the autonomous vehicle company, they're pulling their cars from the streets. General Motors, which owns Cruise, says it's moving away from the robo-taxi business.
--:-- Ryan Knudsen: The whole question for GM is what is the future? Where is the growth? Cruise was a big part of the moonshot future growth story for General Motors. And now they're admitting that those aspirations of this legacy car company owning a big robo-taxi business that's ferrying everyone around are not going to come true.
--:-- Ryan Knudsen: In 2016, General Motors Company, known for its SUVs and pickup trucks, paid a billion dollars to acquire something totally different, the autonomous vehicle startup Cruise. It was founded in 2013 and based in San Francisco. Why would a company like GM be interested in a self robo car company like Cruise?
--:-- Chris Otz: [as Guest] If you see the future of your industry looking vastly different than it looks today if people no longer need to personally own vehicles because they can hail a robot that will take them anywhere that they need to go that certainly looks like an existential threat for a car company.
--:-- Ryan Knudsen: So in some sense, Cruz was a hedge for GM against the future. If that's really where the world is going, GM probably felt that they were better to be taking part in that rather than displaced by it.
--:-- Chris Otz: [as Guest] Remember that General Motors had to be bailed out by the taxpayers in the Great Recession. So they went bankrupt, a century-old company. There was a big turning point. They were headed in a new direction under Mary Barra, who became CEO in 2014. And they were getting their feet back under them and then trying to look at how do we participate in where the industry is evolving. Self-driving cars and robo-taxis seemed like one of the answers.
--:-- Ryan Knudsen: But creating self-driving technology is hard. So for GM, acquiring one of the top startups made a lot of sense. It would be extremely difficult for a company like General Motors to come up with this self-driving technology in-house. This is a wholly different business than GM is in. So it was much simpler for GM to just spend a billion dollars and acquire this technology than it would be for them to try to build it themselves.
--:-- Chris Otz: [as Guest] In late 2021, GM launched a small fleet of Cruise robo-taxis in San Francisco. One of the people who took a ride was GM CEO Mary Barra.
--:-- Ryan Knudsen: Plant a little camera here. Starting your trip, let's cruise. Oh my gosh. This is incredible. Here we go.
--:-- Chris Otz: [as Guest] Cruise was one of several startups working on robo-taxis at the time. The other main player was Waymo, which is owned by Google's parent company Alphabet.
--:-- Ryan Knudsen: Did it look at that point that like Cruise was like doing well, like it had a chance to like compete or even win against the race against Waymo?
--:-- Chris Otz: [as Guest] Cruise and Waymo were neck and neck, essentially, for a while in the race to really commercialize this technology. It wasn't at all clear that one company or the other company was ahead at that time. They were both, you know, putting more cars out on the road and slowly rolling this out to customers.
--:-- Ryan Knudsen: Even though both companies had robo-taxis on the road, perfecting the technology for a wider rollout was still a challenge, in part because of the way its artificial intelligence worked. Sometimes, when the car found itself in an unusual situation, it didn't always do the right thing.
--:-- Chris Otz: [as Guest] It is all of the unforeseen edge cases that make self-driving such a thorny problem to solve. Can you pre-program that your self-driving vehicle may end up behind another vehicle that is transporting stoplights that have not been installed yet but are on the way to where they're going to be installed and to understand that these are not traffic lights that the vehicle needs to pay attention to?
--:-- Ryan Knudsen: Right. There's all kinds of situations where humans can reason through what is going on in front of them that are a challenge for artificial intelligence.
--:-- Chris Otz: [as Guest] And one of those unusual situations that AI wasn't quite ready to solve happened last fall. A woman is hospitalized in serious condition after being hit by an autonomous car in San Francisco. Rescuers were able to lift the car off the victim, and the fire department used the jaws of life to free her.
--:-- Ryan Knudsen: Firefighters say it was the most serious incident they are aware of involving a self-driving car.
--:-- Chris Otz: [as Guest] In October 2023, a pedestrian was hit by a car, which was driven by an actual human driver, and was thrown into the path of a cruise vehicle. And at this point the cruise vehicle did what it was programmed to do which is slowly pull over and wait However it didn recognize that the woman was pinned underneath the vehicle and it ended up dragging this pedestrian about 20 feet.
--:-- Ryan Knudsen: Unfortunately, the woman did survive, but this incident really ended up being a turning point for Cruz.
--:-- Chris Otz: [as Guest] At the time, a representative for Cruz said, Our heartfelt concern and focus is the well-being of the person who was injured. The company pointed out that the initial cause of the accident was the human in the other car, not Cruz, but said it would conduct a safety review.
--:-- Ryan Knudsen: What happened after that accident for Cruise and GM? That's next.
--:-- Ryan Knudsen: After the accident, the state of California revoked Cruise's permit to operate, which meant the company had to shut down its robo-taxi service in San Francisco. Pumping the brakes on autonomous vehicles operated by Cruz, effective today, California's DMV has suspended the company's deployment and testing of self-driving cars. A serious roadblock.
--:-- Chris Otz: [as Guest] So Cruz had to go on pause, go dark for several months and then had to come crawling back, get permission to operate once again. And they did do that. But by this time, it was becoming clear that Cruise was a cash drain on GM at a time when they're also rethinking a number of approaches in the company and trying to be what they call more capital efficient.
--:-- Ryan Knudsen: Which is a way to tell investors, we're not going to spend so much money.
--:-- Chris Otz: [as Guest] Yeah. So every dollar they put into Cruise and other long-term investments is a dollar that they don't have to share with investors. Over the last three years, GM has spent nearly $20 billion buying back its own shares as a way to boost its stock price. And the company has also been cutting costs.
--:-- Ryan Knudsen: GM is clearly pivoted towards more of a short-term oriented focus on returning cash to investors. And clearly they've decided that they would rather save about a billion dollars a year, which is what they say they're going to save by folding Cruz into the larger company.
--:-- Chris Otz: [as Guest] A GM spokesman said there was no connection between the recent surge in share buybacks and its decision to stop funding Cruise's robo-taxi business.
--:-- Ryan Knudsen: One thing GM has emphasized is that a robo-taxi fleet is a pretty expensive proposition. You have to own the cars, and they have to sit on your balance sheet. And you have to do the maintenance.
--:-- Chris Otz: [as Guest] Right. You have to do the—I mean, GM's in the business of making cars and then selling them. And so one of the things that they've been saying is, well, you know, owning a fleet of vehicles and renting them out as taxis is not our core business.
--:-- Ryan Knudsen: While GM is pulling back on Cruise robotaxi program Waymo at Alphabet is still forging ahead.
--:-- Chris Otz: [as Guest] Chris says that because Alphabet has several advantages in the RoboTaxi race The first is money. While GM's market cap is just over $55 billion, Google's is almost $2.5 trillion.
--:-- Ryan Knudsen: For a tech company with a very generous valuation like Alphabet has, there's a lot more room to do experimentation and aspirational projects like self-driving.
--:-- Chris Otz: [as Guest] And then the other aspect of this too is the artificial intelligence that powers the brains of these self-driving cars, the cloud infrastructure that is needed to develop this AI. All of those are obviously where Google's core competencies are more aligned with this enterprise than General Motors.
--:-- Ryan Knudsen: General Motors never got to the part where they really have the inherent advantage, which is building the car.
--:-- Chris Otz: [as Guest] In other words, it seems like if you're a robo-taxi company, it might be better to be owned by a tech giant than a car company.
--:-- Ryan Knudsen: Exactly. So GM is not a tech company. GM is not in the cloud business. that was another thing that they recognized in making this decision, that they don't have any special advantage when it comes to compute power and cloud infrastructure.
--:-- Chris Otz: [as Guest] So that sets them a little farther behind the competitors who are in this space.
--:-- Ryan Knudsen: Jim says that while it's stepping back from the robotaxi business, it's still working on self-driving technology for personal cars, an area the company says is a more promising business opportunity.
--:-- Chris Otz: [as Guest] They say that everything they spent on cruise was not for naught. Like, they're still going to salvage this technology and it's going to make their personal vehicle autonomy efforts better and faster.
--:-- Ryan Knudsen: But, you know, it's clear that it's a far, far cry from the ambitions that they had.
--:-- Chris Otz: [as Guest] But if the idea that fleets of robo-taxis are an existential threat to a car company, where does that leave GM if they're no longer saying that they're going to be in that business?
--:-- Ryan Knudsen: Most of the industry is stepping back from this. GM's ultimate competitor, Ford, Crosstown Rival, they got out of the autonomous driving game in 2022. They were part of a startup called Argo AI and decided that that was beyond their desires and capabilities.
--:-- Chris Otz: [as Guest] Other automakers are also not pursuing the robo-taxi business. Some auto executives, Mary Barra included, are saying things now like people are always going to want to have their own vehicles. They're always going to want to own, even if the vehicle can drive itself, personal vehicle ownership is not going away anytime soon.
--:-- Ryan Knudsen: Does this story say more about GM or about how hard it is to create a fleet of autonomous robotaxis?
--:-- Chris Otz: [as Guest] Well, it's a harder problem than many people may have assumed several years ago. And it's definitely too soon to say that it will not happen. But certainly GM didn't see a path to commercialization in a way that made sense for them to keep investing in the idea.
--:-- Ryan Knudsen: But again, like fundamentally, GM has for a decade been exploring different ways that it can evolve beyond being a pickup and SUV company for the United States. and this was one of the ways that they were hoping to evolve into the future and now it's off the table.
--:-- Ryan Knudsen: That's all for today, Tuesday, December 17th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Ryan Felton, Megan Bobrowski, and Mike Kalias Thanks for listening. See you tomorrow.
