GM defiant on $1bn Cruise revenue

US legacy automaker GM is sticking to lofty short- and medium-term revenue forecasts for its autonomous driving subsidiary Cruise. Speaking at the JP Morgan auto conference in New York, GM CFO Paul Jacobson reiterated that Cruise has “not backed off the billion dollars in 2025” revenue target.

Jacobson acknowledges that there is “a lot of scepticism” about the ambitious outlook, but emphasises that “this is an opportunity that I think you are going to see come to fruition pretty quickly because it is time to start putting up the numbers if we’re going to be at $1bn of revenue by 2025”.

The OEM’s all-electric driverless ridesharing cars are currently being piloted in Austin, TX, Phoenix, AZ and San Francisco, CA. And they have been met with positive “customer receptivity”, according to the CFO.

“We have vehicles out there on the road driving pure level four by themselves with no driver and some of our largest competitors don’t even have that, but they still get a lot of valuation credit for it.”

Jacobson appears to be referring to a prediction from Elon Musk, CEO of US peer Tesla, that full self-driving (FSD) Tesla robotaxis could lead to a multi-fold value increase on each vehicle.

But the extent to which Tesla is getting valuation credit based on its predictions about FSD is questionable. At one point in July, Tesla shares dropped 10pc in a day after Musk’s statements about FSD failed to impress investors.

GM see a healthy level of demand for the Cruise pilot fleets and the company is awaiting an expansion to their licensed operating area in San Francisco after positive feedback from city hall.

“People get excited when that comes to their market. We are starting to see cities asking, ‘can we be next?’ and that is what you need if you are going to hit $50bn in 2030,” Jacobson says, reiterating another revenue prediction often cited by GM CEO Mary Barra, who has already enjoyed her first Cruise ride.

But a phase of expansion is needed until Cruise can break even and stand alone on a cash flow basis. Cruise has, however, seen a “15pc reduction in cost in each of the last 6 months”, and Jacobson is confident that the trend will continue. “As we are scaling up we are seeing the costs come down, as we have largely solved a lot of the technology challenges,” he says.

Cost focus

The key now for GM is execution. “What is emerging as a tech story is also emerging as a great operational prioritisation,” the CFO continues. And he hails the recent arrival of new COO Gil West to oversee Cruise operation as a key part of the puzzle

“If we are going be at a billion dollars by 2025, you are going to see a different trajectory over the next 4-6 quarters. The capabilities of the vehicles in terms of speed, comfort, [are] rising at the same time as we are getting broad distribution across the board.

“But we have got to be able to execute that operationally, and we have got to make sure that we keep riding down the cost curve,” Jacobson cautions. “Because that is what prevents you from escalating disproportionately on the cost side as you are starting to scale up the business.”

Looking ahead, Cruise is eyeing up more cities. An expansion will “provide a platform and foundation for the technology to get stronger, faster and that is where growth comes in pretty strong”, Jacobson predicts.

But it comes back to growth while keeping a handle on costs. “The cost performance is something we have got to lean into, because we started with ‘let us solve the technology and bring the cost down,’ because we think that is a faster path than solving for costs and bring the tech up,” the finance chief reiterates.

“Ideally now what we will do is start to put a cap on some of that unit cost as revenue is increasing. And that is when you will see, as we get into 2025 and beyond, margin performance start to become meaningful beside that revenue growth,” Jacobson promises.