BMW spends roughly $4B a year on research, and how much do they have to show for it? GM also spends several billion a year on research, and their market cap is roughly $50B. Does acquiring Cruise make GM worth 2% more by helping turn it into more of a software company? Absolutely, I’d say.
Regarding the valuation on the Cruise deal, GM’s stock went up something like 1% on the announcement, which you could argue would represent roughly half the acquisition price right there. GM plus Cruise is certainly worth more than GM alone, with another billion in the bank.
More importantly, what’s the cost of falling behind in the transformation of the auto industry into software companies? Those who are unable to transform into software companies risk playing in a low-margin commoditized hardware game. It’s better to be Microsoft than a Dell or Gateway PC manufacturer.
Now imagine for GM — They might arguably have best self-driving technology and team, overnight. It’s a brilliant acquisition by them. I would have paid more than $1B easily.
Cruise refocused on cities and urban driving about a year ago — the opposite of Tesla, which focused on the highway. I have driven in Cruise car, and I just sat there while it went across the city. It was amazing. I think it’s how Kyle closed his investors. He showed them the product, and they invested. Who needs a deck when the product pitches itself?
Car ownership is going away. There are more than 800 cars in the USA per 1000 people, and occupancy rates are something horribly inefficient like 1.6 passengers per vehicle. The typical car is parked 95% of the time. A shocking percentage of urban real estate is dedicated to parking spaces for these giant steel contraptions. I saw an estimate that something like 40% or 45% of traffic in cities might be caused by folks driving around in search of parking spaces.
This is a real threat to companies like Uber, by the way, because most of the cost of the Uber ride is the driver. If someone else comes out with a dramatically cheaper fleet of autonomous vehicles before Uber, which one would you use? Whoever has the cheapest fleet of autonomous cars will win. It’s very hard to displace the incumbents in marketplace industries, but this is how you do it in the Uber/Lyft space. Owning the best, cheapest, and widespread supply can topple even a goliath like Uber. Just look at how fiercely Uber and Lyft have been fighting over drivers. They get it.
Via Edward Niedermeyer.