The robotaxi market took a sharp turn this week when an industry leader made a shocking announcement.
general motors (G.M.) once hailed as a formidable rival to Tesla (TSLA) in the race to launch a self-driving car ahead of its competitors, recently announced it will end its Cruise robotaxi division, the company's foray into autonomous driving and ride-sharing technology.
Don't miss the move: SIGN UP for TheStreet's FREE daily newsletter
The former automaker acquired a majority stake in Cruise in 2016, three years after the autonomous driving (AV) startup launched. Since then, it has faced challenges as General Motors has struggled to compete in the race to launch taxis that don't require drivers.
Since Cruise announced its move away from ride-sharing, GM shares have fallen 3%. But it is not the only company affected by its decision. Regulatory filings show that one of the most prominent technology companies on the planet is also affected.
Cruise's fall is a hard blow for the great technological leader
microsoft (MSFT) took a position in Cruise in 2021. In a 8K shape Filed with the SEC on December 10, the tech leader noted General Motors' decision to stop funding Cruise and stated:
“We expect to record an impairment charge of approximately $800 million in the second quarter of fiscal 2025. This charge will be recorded in other income and expenses and was not included in our second quarter guidance provided on October 30, 2024. It is estimated which will have a negative impact of approximately $0.09 on second quarter diluted earnings per share.”
Related: Google wants a government agency to end its ai competitor's deal
The charge stems from General Motors' plans to acquire minority stakes from other investors, including Microsoft.
Microsoft's relationship with Cruise dates back to January 2021, when it joined an equity financing round that netted the startup $2 billion and raised its value to 30 billion dollars. Under this strategic partnership, Cruise agreed to use Microsoft's Azure cloud computing platform for its autonomous vehicles.
Cruise has faced obstacles on and off the road
On October 2, 2023, Cruise suffered one of the most public failures of autonomous driving when one of its robotaxis made contact with an injured pedestrian, dragging her 20 feet after she had already been hit by another car while crossing the street.
According to Cruise, the vehicle detected a crash, causing it to stop before attempting to stop, resulting in the trapped pedestrian being dragged to the other side of the street, seriously injuring her. On October 24, the California Department of Motor Vehicles suspended Cruise's AV rollout and driverless testing permits.
- New ai Leader Eclipses Magnificent 7 Stock on Top Funds List
- Google presents the ChatGPT of time
- UnitedHealthcare Spotlight Reveals Fundamental ai Flaw
More recently, Cruise supported to falsifying a safety report in an attempt to influence the federal investigation that followed the incident, resulting in criminal charges. Both actions likely undermined public confidence in self-driving technology and Cruise as a company.
What this movement means for the autonomous driving market
It's important to note that these issues do not appear to contribute to the decision to stop funding Cruise directly.
General Motors leadership cited the lack of “considerable time and resources” needed to scale autonomous vehicles and increasing competition as the main factors behind the decision.
That said, these elements may worry investors. If an industry-leading company like General Motors can't successfully scale a ride-sharing autonomous driving business, especially with a partner like Microsoft, it's clearly a difficult, resource-intensive operation.
A team of Bernstein analysts examined the news and speculated whether AV economies could succeed. “They can, but they require capable technology and a willingness to spend billions if an AV provider is interested in scaling a proprietary network, as we saw in the early days of ride-sharing,” the team concludes.
Related: General Motors' bold move rolls out the red carpet for Google and Tesla
General Motors may not be willing to spend as much on a venture as robotaxis.
However, CEO Mary Barra says her company is still committed to work on autonomous driving technology for personal use.
the streetJames Ochoa's James Ochoa reports that GM's decision to part ways with Cruise is expected to ultimately prove lucrative, as it could help the company save up to $1 billion a year.
The decision to shift its attention away from ride-sharing may benefit Tesla, as the electric vehicle leader will have one less competitor as it works to corner the robotaxi market.
Companies will continue to advance their AV technology. GM's decision highlights that this new sector still presents many risks, even for strong companies.
Related: Veteran Fund Manager Sees a World of Hurt for stocks
