Cruise Gets $5B Pre-Approved Financing To Buy Robotaxis

One of the reasons I was always deeply skeptical of companies like Uber

UBER
, Lyft

LYFT
and Did trying to develop their automated driving systems (ADS) is that what comes next is completely antithetical to their current business models. There was no guarantee that going driverless was going to magically solve their profitability (or lack thereof)  problems. Uber and Lyft may have given up but Cruise is moving forward with plans to build a robotaxi service thanks to a $5 billion line of credit from parent, General Motors’ financing arm. 

Let’s look at why automated vehicles were not necessarily the silver bullet needed by the ride-hailing companies. Today, Uber, Lyft and their competitors are built on an asset light business model. Unlike taxi companies of the past, these 21st century cab providers don’t own any vehicles. They don’t have to put in gas or electricity, or change oil or tires, or clean the vehicles. All of that is handled by their employees/contractors that bring their own vehicles to the platform and cover all of those expenses, plus the loan payments on the cars. 

The biggest expenses that Uber and Lyft have is marketing and paying those contractor drivers. But if they spent billions of dollars developing ADS to replace human drivers, they would now have a new expense – paying for the robotaxis. All of a sudden, Uber and Lyft would have to spend billions of dollars a year buying or building vehicles and much more maintaining those vehicles. They become asset heavy and trade off one expense for a potentially larger one. Profitability is by no means assured. 

All of which brings us back to Cruise. In January 2020, just weeks before the world went into hiding from a virus, I stood in a theater in San Francisco as Cruise unveiled the Origin, its planned robotaxi. The battery electric Origin was developed in partnership with investors, GM

GM
and Honda and will be built at GM’s Detroit Hamtramck Assembly Plant (aka Factory Zero) alongside the gargantuan GMC Hummer EV. 

Cruise is a separate business unit from the rest of GM which owns a majority stake alongside several other investors including Honda, Softbank, T Rowe Price

TROW
and others. In addition to developing the ADS, Cruise plans to operate a robotaxi service, probably beginning in San Francisco but it also has a long-term contract with Dubai starting in 2024. 

GM is not simply going to build Origins and hand them over to Cruise for the fun of it. That’s not what automakers do. Just like any other taxi operator, Cruise will have to purchase the vehicles for its mobility service, as well as build infrastructure for service and charging of the fleet. While Cruise has been well funded to date and currently has about $5 billion on hand, that’s not going to be enough to establish a robust revenue business. 

As with many capital intensive businesses, Cruise is setting a line of credit for working capital to carry it through the ebb and flow of business. The $5 billion line of credit announced by Cruise CEO Dan Ammann today will come from GM Financial, the banking arm of the automaker that provides car loans to millions of consumers and businesses every year. 

GM is currently assembling about 100 pre-production Origins that will be used for testing and validation of the vehicle and its ADS over the next year or so. Probably sometime in 2022 Factory Zero will start delivering production Origins to Cruise which will get paid for from that $10 billion cash horde. Some time after that we will begin to see if Cruise can succeed in both developing and deploying a robotaxi service while generating more revenue than expenses. It is by no means a sure bet, especially in the early years. However, having a purpose-built vehicle designed to meet the durability needs of the task may well help. Only time will tell.