General Motors’ decision to focus on driver assist systems highlights challenges with the robotaxi business model
Yesterday, General Motors (GM) announced their decision to stop funding Cruise. GM plans to fold the business into their larger engineering organization. Instead of focusing on robotaxi, GM will develop advanced driver assist systems (ADAS) with the longer term vision of personally owned autonomous vehicles. Following years of development and over $10B in investment, it’s a fall from the top for Cruise. Just two years ago, it was difficult to tell who would emerge as the leading autonomous vehicle (AV) company between Waymo and Cruise as both had driverless deployments open to the public. Following Cruise’s incident with dragging a pedestrian under their vehicle, the company’s demise has been slow and steady.
GM’s announcement draws into question the business model of robotaxis at large. While the promise of robotaxis is exciting, challenging unit economics makes it so that only companies with deep pockets can afford to invest the long term capital required to achieve profitability. In light of such difficult economics, what made robotaxi the dominant go-to-market strategy for autonomous vehicles? To understand the reasons why, let’s consider the history of AVs.
The idea of autonomous vehicles has been around for decades. An early concept of self-driving cars was presented at the 1939 New York World Fair when General Motors sponsored Norman Bel Geddes’ “Futurama” exhibit that among other innovations showcased self-driving vehicles using radio control and magnetic tracks. The exhibit painted an exciting view about the future of transportation but it wouldn’t be until the early 2000s that AV technology would pick up steam. In 2004, the Defense Advanced Research Projects agency (DARPA) held the Grand Challenge, a 150 mile course in the Mojave desert to spur development of autonomous vehicles. While no team would complete the course in the first year, DARPA held subsequent events including the DARPA Urban Challenge in 2007 to encourage investment in technology to enable vehicles to drive autonomously in cities. Many of the early engineers involved in the DARPA challenges would go on to work for Google’s self driving car project starting in 2009.
That same year, further north from Google’s Mountain View offices, a small startup developed the technology to hail a cab from an app. Uber would go on to become the “world’s most valuable startup” valued at $51B in 2015. Uber’s disruption of the taxi industry and their subsequent investments in autonomous vehicles made them a darling of Silicon Valley; and what could possibly be sexier than Uber? A version of Uber where cars drove themselves. 2016 would mark an inflection point in the autonomous vehicle industry: Google spun out Waymo into its own company, and GM would acquire Cruise Automation. The race to become the first robotaxi company had begun, driven by the simple idea that eliminating the high cost of paying drivers would be the next big business.
At the time Google and GM were making these investments, little was known about the economics of rideshare. Uber and Lyft were still private companies but their valuations continued to reach greater and greater heights. In 2019, leading up to Uber’s IPO, some investors were valuing Uber as high as $120B. Compare that to GM’s market cap of roughly $50B that same year, it was hard to resist the urge to stake the future of mobility on robotaxis.
In May 2019, Uber had its IPO with a valuation of $80B at $45 a share. The end of the first trading day the stock closed at $41.57 making it the biggest IPO dollar loss in US history. What caused the huge decline from previous sky high valuations? Simply put, as investors learned more about Uber’s economics, they found a business that was unprofitable.
In 2023 and 2024 Uber and Lyft posted their first profitable quarters respectively after years of struggling with the transition from growth stage startups to established public companies. Their efforts took over a decade and a massive effort by both companies. So what does that mean for robotaxis? The whole concept of robotaxis was built from the hype of Uber’s valuation; which, over time proved to be overvalued. The rideshare business model didn’t have the earnings investors expected. The idea that autonomous vehicles would eliminate the need to pay drivers didn’t consider the costs required to remove the driver including: over a decade of research and development, and significantly higher vehicle costs. Over time, these costs will decrease but in the meantime, robotaxis will be an expensive business to scale.
While many companies are still focusing their efforts on robotaxis with plans to expand to new markets, the field will likely continue to narrow. Perhaps the next few years will be a battle between Google, Amazon, and Chinese AV companies to become the first profitable robotaxi company. For now, the industry must bid adieu to Cruise, one of the leading autonomous vehicle companies.
