There's a kind of big-picture way of looking at General Motors' decision to acquire, and less than a decade later, ultimately suspend, its Cruise robotaxi division: what are car companies supposed to be in the future?
Are automakers just going to make individual, privately owned cars in the coming years, decades and even centuries? Or are they going to be, and do, much more than that? Perhaps on a long enough timeline, the future of mobility really will be fully automated pods, or even flying vehicles; I tend to think that if either of those things actually happen, I'll have already been dead for a long time. But if so, who will make those vehicles, and who will usher us into that era? For now, GM has more immediate, short-term problems to deal with, but there are mixed opinions on its recent decision to walk away from the robotaxi business.
That kicks off this Monday edition of Critical Materials, our morning roundup of transportation and tech news. Also on tap today: while we're concerned with the future, the auto industry's present isn't in very good shape either. Let's dig in.
30%: GM Saves Money Now With Cruise, But Limits Future Growth
I'll admit we picked an interesting week to name GM CEO Mary Barra as the InsideEVs Person of the Year. I stand by that decision because pivoting an old-school automaker to where it ends the year selling so many electric vehicles is a remarkable achievement—especially as so many others struggle. (More on that in a bit.) Our award process had been in the works for months and wasn't contingent on one week's news cycle.
But Barra's decision to cease robotaxi operations at Cruise and transfer the teams and technology development to passenger cars is a divisive one.
On the one hand, GM sunk more than $10 billion into Cruise since acquiring the company in 2016 and had little to show for it. The robotaxi service largely hit pause on its operations last year amid multiple crashes and high-profile safety mishaps, and I'd argue its reputation never really recovered from that. (I'd also argue that, having been in many Cruise rides myself, the tech was simply not as good as Waymo's autonomous vehicles; more mistakes, less certainty and less overall confidence.) And GM just took a $5 billion hit to restructure its bleak China operations; it had to save money somehow. I'm not shocked this happened at all.
But the other argument is that between losses in China and throwing in the towel on robotaxis, GM is cutting off potential pathways to the future. Here's CNBC on that:
Part of the plan was for GM’s innovation division to identify trillions—yes, trillions—of dollars in new market opportunities such as electric commercial vehicles, auto insurance, military defense, autonomous vehicles and even, eventually, the potential for “flying cars,” also known as urban air mobility.
While GM has declined to disclose how much revenue such businesses have produced, Barra, with the ending of its Cruise robotaxi operations on Tuesday, made it clear that the automaker’s growth priorities have shifted amid a broader, industrywide retrench to preserve capital. Companies including GM are now focused on more “core” operations and adjacent business opportunities, including software, EVs and “personal autonomous vehicles.”
The driverless ride-hailing service was supposed to be the shining star of GM’s growth opportunities, with executives just a few years ago referring to it as an $8 trillion market opportunity that the automaker would lead. That included former executives touting $50 billion in revenue by the end of this decade, and Cruise being valued at more than $30 billion.
Instead, after spending more than $10 billion on Cruise since acquiring it in 2016, GM is ending the robotaxi business and folding Cruise’s operations and an undetermined number of its nearly 2,300 employees into the automaker.
Also, a decade ago, the focus of Wall Street investors and analysts was more around long-term prospects and the "be more like Tesla" ethos; these days, it's all about those short term gains. So this part is interesting:
To GM’s credit, Wall Street, which previously pushed for such growth businesses, applauded the decision to end Cruise’s robotaxi ambitions. Shares of the company were initially higher, before ending the week level with when the announcement was made.
GM, like other companies, has quickly shifted from trying to impress Wall Street with growth initiatives, including generating $280 billion in new businesses by 2030, to refocusing efforts on its core business to generate profits amid economic and recessionary concerns.
That's also especially interesting when you consider that Tesla—whose own EV sales have been steadily losing market share, including to GM—has most of its sky-high valuation tied up in the idea that it can one day "solve" fully driverless cars.
So, investors want GM to be a car and truck company, and Tesla to unlock the driverless-car future. Do I have that right?
If I do, that really flies in the face of the "we want to be seen as a tech company" vibe that so many automakers have pushed over the past decade. If you're not some driver of future technology, you're just a legacy business with low profit margins, high capital and labor costs, destined to duke out inches of market share with the likes of Volkswagen and Nissan forever. And no car company wanted that. But a lot of this just isn't going all that well for many of them, including GM:
GM’s plans to diversify its business through fashionable industries such as ridesharing and other “mobility” ventures — a trendy term used previously by the industry for growth initiatives — or startups have largely fallen flat since the automaker started investing in such growth areas in 2016.
The automaker earlier this year folded its BrightDrop EV commercial vans into Chevrolet amid lackluster sales. It’s also failed to announce any meaningful plans for fuel cells for tie-ups with boats, trains and airplanes, and it’s shuttered several prior “mobility” businesses.
I am glad that story points out the promising potential of GM Energy, because cool things are happening over there. And on this so-called "personal autonomy" front, Super Cruise is truly excellent right now, and about the only automated driving assistance system (ADAS) I've used that I really and genuinely trust.
But this whole industry is reckoning with the future, and balancing that with paying the bills in the short-term. I can only wish I knew how to crack that equation.
60%: With The Party Over, The Hangover Sets In
Between its EV sales, overall profits and bets on the future that are working, GM actually had a better year in 2024 than most. The same, I think, will be said of Hyundai Motor Group and a couple of others. Make no mistake, however: this was a very rough year for the auto industry. Maybe the gloomiest since the lead-up to the Great Recession.
These are issues that frequent Critical Materials flyers will know very well, but the New York Times has a good summary of why this current moment feels so dismal after the car industry saw a surge in sales during the pandemic:
Nissan, the Japanese automaker, is laying off 9,000 employees. Volkswagen is considering closing factories in Germany for the first time. The chief executive of the U.S. and European automaker Stellantis, which owns Jeep, Peugeot, Fiat and other brands, quit after sales tumbled. Even luxury brands like BMW and Mercedes-Benz are struggling.
Each carmaker has its own problems, but there are some common threads. They include a tricky and expensive technological transition, political turmoil, rising protectionism and the emergence of a new class of fast-growing Chinese carmakers. The many woes raise questions about the future of companies that are a critical source of jobs in many Western and Asian countries.
Many of these problems have been apparent for years but became less pressing during the pandemic, lulling some automakers into complacency. When shortages of semiconductors and other components slowed production and limited inventory, carmakers found it easy to raise prices.
But that era is over and the industry has reverted to its prepandemic state, with too many carmakers chasing too few buyers.
Emphasis mine, because that's the heart of the problem.
The car business expands and contracts all of the time. Sales skyrocketed a decade ago amid the recovery from the financial crisis, then naturally started slowing by the close of the 2010s; people don't need new cars all of the time. Then people bought like crazy during the pandemic. But that, and the concurrent supply chain issues and pandemic-related inflation, drove prices to their sky-high levels I'd argue they're still at now. Yes, prices have gone down since their peaks, but we're still around $50,000 for average new car prices. Even more so for EVs.
The car industry is really seeing long-term demand declines in Europe, where buyer growth just isn't coming back, and China, where the brands we know are getting crushed by local newcomers. (And China's own car market has its limits as well.)
There just aren't many winners as we close out 2024. Stellantis and Volkswagen? Bad. Nissan? Even worse. Toyota? Doing really well on hybrids—for now—but not so much in China. Ford? Taking some hits after its early innovations in the EV space and shrinking across the world. Even luxury brands are struggling thanks to these same problems. And incoming President Donald Trump promising to nuke the EV tax credits also threatens billions of dollars in planned investments.
It does feel like the car business is poised for contraction more than anything else now—and as that story notes, an "If you can't beat 'em, join up with them" approach to China's EV makers.
90%: A Fuel Industry VS. California Fight Is Shaping Up
California is the nation's leader in EVs and a huge driver of cleaner cars everywhere. That's because the state has the power to set its own emissions rules and more than a dozen other states follow those standards too. So its potential plan to phase out sales of new gas-powered cars by 2035 has real power.
The fossil fuel industry, some members of the auto industry and conservative politicians have wanted to erase that power for decades, and now the U.S. Supreme Court will have something to say about it too. From The Guardian:
The US Supreme Court agreed on Friday to hear a bid by fuel producers to challenge California’s standards for vehicle emissions and electric cars under a federal air-pollution law in a major case testing the Democrat-governed state’s power to fight greenhouse gases.
The justices took up an appeal by a Valero Energy subsidiary and fuel industry groups over a lower court’s rejection of their challenge to a decision by Joe Biden’s administration to allow California to set its own regulations.The dispute centers on an exception granted to California in 2022 by the US Environmental Protection Agency to national vehicle emission standards set by the agency under the landmark Clean Air Act anti-pollution law.
The high court will not be reviewing the waiver itself, but instead will look at a preliminary issue: whether fuel producers have legal standing to challenge the EPA waiver.
This case won't go to trial until next spring but it's something we'll be watching closely. The petroleum companies' argument is that, essentially, California's waiver exceeds federal power and is also hurting their business:
They said they met the legal test for getting into court. As a “matter of common sense”, lawyers for the companies wrote, automakers would produce fewer electric vehicles and more gas-powered cars if the waiver were set aside, directly affecting how much fuel would be sold.
The current fight has its roots in a 2019 decision by the Trump administration to rescind the state’s authority. Three years later, with Biden in office, the EPA restored the state’s authority.
Valero’s Diamond Alternative Energy and related groups challenged the reinstatement of California’s waiver, arguing that the decision exceeded the EPA’s power under the Clean Air Act and inflicted harm on their bottom line by lowering demand for liquid fuels.
Won't someone please think of the oil companies?
100%: What Are Car Companies, Anyway?
I don't think some of that argument above against GM is entirely fair. It's still doing well on EV sales, battery development, home energy stuff and is getting closer than many rivals to EV profitability. Plus, Super Cruise is massively underrated as ADAS tech. But the loss of the Cruise—or at least the idea of it—does sting somewhat if you're thinking really long-term.
So what are car companies supposed to be and how should they be viewed by customers and Wall Street alike? Let us know who you think will deliver the future, and how, in the comments.
Contact the author: patrick.george@insideevs.com
