General Motors’ financial issues are likely to ease after the company announced it was giving up on its Robotaxi division, almost 9 years after its inception. To date, the company has plowed $10 billion into the project but it hasn’t achieved profitability.
General Motors Company is a multinational auto manufacturer based in Detroit, Michigan. It has been in existence for over a century and owns some of the most popular brands in the US.
Its primary source of revenue is the sale of automobiles. It holds brands such as Chevrolet, Buick, GMC, and Cadillac. It also owns Baojun and Wuling in China. Apart from this, it also derives revenue from selling auto parts, defense vehicles, and software services.
GM is a truly global automaker and has operations in North America, Asia Pacific, the Middle East, Africa, and South America. Its customers are mainly individual consumers, but it also sells to the government as well as rental and leasing companies. In short, it caters to both individual and business needs.
In an ever-evolving industry, GM, like many others, has been trying its best to enter the EV and autonomous driving market. In 2016 it set up its Cruise brand to tap into the autonomous driving market. The idea was to ensure it wasn’t left behind as auto technology moved forward.
Fast forward to 2024 and after spending $10 billion on the venture, the company has finally given up and abandoned the project. The Robotaxi market is getting increasingly competitive and companies like Waymo by Alphabet, Tesla, Zoox by Amazon, and Apollo Go by Baidu are leading the race.
What do these companies have in common? Deep pockets! These companies continue to run a very successful business which makes it possible to spend billions on a technology that hasn’t been perfected yet.
In the backdrop of this information, this apparent ‘bad news’ makes us bullish on the GM stock. The company will now restructure its research team by combining it with its main technical team. The knowledge gained in the development of Cruise will be used to improve the driver assistance technology for personal vehicles. As a result, the company is expected to save $1 billion annually.
Even though Cruise had potential, we believe that it was impossible to sustainably grow this division while the rest of the company’s business struggled under a slow global industry and the Chinese threat. By focusing the resources on its main technologies, GM can now improve its profitability and make the best use of an improving global outlook in the near future.
GM does not rank on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 64 hedge fund portfolios held GM at the end of the second quarter which was 72 in the previous quarter. While we acknowledge the potential of GM as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as GM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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