General Motor’s Cruise subsidiary has secured $1.15bn in new investment, which now values the autonomous driving technology unit at some $19bn. The new investors seem to have piled in happily, but the potential fallout from Uber’s IPO could have some painful ripple effects for everyone in the self-driving game.
Uber has long spoke of its plans to use self-driving cars to create fleets of vehicles that it will service its customers with. It has gone as far as creating its own self-driving development team, which as everyone will remember, is responsible for the first death attributed to a self-driving project – barring Tesla users who ignore the Autopilot instruction manual.
There has been a lot of reshuffling and departures at Uber’s unit, and under the new CEO, who is trying to right the ship and tackle Uber’s systemic problems, there were rumors that the unit might be completely wound-down or jettisoned. It’s future is far from clear, but without it, there’s a strong argument that Uber is simply an app – and that its dominant market position is the only thing propping up its valuations, keeping the horde of smaller (and less controversial) rivals at bay.
So, depending on the narrative that takes hold in the Wall Street and investor community, there’s a significant risk that cuts in Uber’s share price would devalue (by proximity) many others in the self-driving sector. If Uber begins stressing that its real value is in its self-driving technology, then the risk of being tarred by the same brush increases. If it backs down, says its self-driving technology has little to do with total valuation, then it looks like a company that has wasted billions on a fruitless endeavor. Uber will want to do neither, but investor pressure could prove too much.
This is the reason why we were surprised to hear of Cruise’s valuation. The last time we covered Uber, Toyota had invested $500mn into it, providing a valuation of $76bn. This would mean that Cruise, a company solely focused on technology and not customer platforms, was worth a quarter of Uber.
This makes the Uber-narrative somewhat more painful to decide. If it says the self-driving tech is not the focus, you might see Uber as being worth $20bn overnight, and if you cut it the other way, then the application and market position is worth the other $56bn or so – for a company that still struggles to turn a profit.
Uber’s main rival, Lyft (which GM has invested heavily in), has already had its IPO, going public at a $24bn valuation, but almost immediately seeing that number tumble, as rumors about Uber’s IPO and skepticism about the valuation took a toll. Lyft is now sitting at around a $15.1bn market cap, down some $10bn in just a couple of months.
So then, if you use Lyft as a yardstick to measure Uber, you can see the predicament that Uber is caught in. With rumors of Uber wanting to seek a $90bn to $100bn IPO float, there is the distinct possibility that there will be carnage. Does being the first-place ride-sharing firm make you worth six or eight times the second-place figure? Has the company turned itself around? Does having a technology wing create a better path to growth?
Like Waymo, Cruise is planning on launching a self-driving taxi service. Waymo has soft-launched its own in Arizona, and near the time of that launch, a Morgan Stanley research note declared that Waymo was worth $176bn – with its taxi wing worth $80bn and the self-driving technology licensing elements worth the other $96bn. So then, as a pure taxi firm, is Waymo worth around 5.2 Lyft’s, just because it has kicked off the self-driving angle, despite Lyft having years of experience? Can just the technology in Waymo be worth more than Uber’s lower expected IPO range?
This is the pending backdrop that investors in the self-driving sector are going to find themselves operating in. To this end, getting in ahead of the Uber IPO is probably a sound strategy, and Cruise has been successful here at least. In terms of valuations compared to other automotive OEMs, Cruise is still far smaller than the T1 OEMS, like Bosch (privately held, annual revenue of around €47.5bn in its Mobility Solutions group) or Continental ($44bn market cap, historically poor recent performance), but that $19bn value puts it not far behind Delphi spinout Aptiv ($20.5bn). GM’s little startup is now worth nearly half that of the (once) venerable Continental, and more than what Intel paid for Mobileye ($15.3bn).
To date, Cruise Automation has secured around $4.5bn in investment, after being acquired by GM in 2016 for $1bn, and says it has secured ‘capital commitments’ of $7.25bn in the past year. The latest round added $1.15bn, and involved GM, Honda, and SoftBank. Last year, Honda invested $2.75bn in October, in a deal that saw $750mn invested and $2bn committed to an exclusive vehicle project (similar to the Toyota-Uber investment), and SoftBank added $2.25bn in May.
It now has over 1,000 employees, and is still based out of San Francisco. It is being led by Dan Ammann, who was previously president of GM, who announced in November an expansion into Seattle and plans to hire between 100 and 200 new engineers in 2019 – Microsoft and Amazon are the giants up in that neck of the woods.
So the question for the post-Uber-IPO world is whether the likes of Cruise and Aptiv, which are ostensibly just automotive OEMs that are focused on self-driving technologies, rather than things like fuel injection systems or drivetrains, are going to be caught in the likely fallout from the investment community’s Uber maneuvers.
[After writing, Uber set its IPO price at $45/share, valuing it at ~$82bn—we wait to see how the market reacts.]