GM-backed Cruise ready for next phase of growth

Cruise, the self-driving technology company owned mostly by General Motors, said it has moved out of R&D and beyond the early stages of commercialization. Now, it's gearing up for the next phase: rapid growth.

In 2023, Cruise aims to expand its commercial operations, currently limited to portions of San Francisco, Phoenix and Austin, Texas. It's preparing for volume production of the Origin, an autonomous vehicle with no steering wheel or pedals, at GM's Factory Zero in Detroit.

Cruise CEO Kyle Vogt said the company is on track for — if not ahead of — its goal to reach $1 billion in revenue by 2025.

Achieving that target is not a certainty, though some analysts who follow Cruise and GM say it's a reasonable goal. The company's ability to transition from a cash-burning startup to a sustainable business would represent a significant milestone for Cruise and the nascent robotaxi industry, which has had a rougher path toward viability than many in the industry expected.

"Almost all of our energy as a company is going into scaling," Vogt told Automotive News. "Figuring out how to set up new markets, crank up the volume of vehicles, get ready for the Origin, make sure all of our support systems handle that kind of volume. And so our metrics and reporting have started to resemble that of a business operating at scale."

Since June, when it began charging for rides in San Francisco, Cruise has expanded its commercial fleet of modified Chevrolet Bolts in the city to more than 150 vehicles. The company said that in February, it surpassed 1 million driverless miles, and it now has more than 300 AVs in all three of its markets.

Vogt said Cruise plans to expand into more cities — and increase the scope of its operations — but declined to name possible future locations. Last month, the company asked California regulators to revise its existing permit to allow for testing of AVs throughout the state.

Near the end of this year, Cruise expects to be operating in Austin and Phoenix at a level "on par with or potentially larger than what we have in San Francisco today," Vogt said.

Cruise is working on being able to deploy its robotaxi service in new cities with less effort, money and time while covering a larger geographic area and making more vehicles available at launch, Vogt said.

"The business has grown up in many ways and reached this rapid-scaling phase where we're no longer trying to prove that this technology works or even that we can do it inexpensively," he said. "It's about reaching scale and driving that top-line revenue and path to profitability, and I think that's the appropriate place for our folks to be at this stage in the company."

GM representatives referred Automotive News to public comments about Cruise from CEO Mary Barra and other executives, who have expressed optimism about the company's prospects.

At last month's South by Southwest event in Austin, Barra said Cruise and AVs more broadly represent the automaker's goal of zero emissions, congestion and crashes.

Last year, GM acquired SoftBank Vision Fund 1's ownership position in Cruise for $2.1 billion and made a separate investment of $1.35 billion into Cruise that SoftBank previously had committed, according to an annual report filed with the U.S. Securities and Exchange Commission. In the filing, GM said it made "additional investments in Cruise of $1.1 billion" in 2022.

The investments brought GM's ownership stake up to about 80 percent. Honda Motor Co. has been a minority owner since 2018 and worked with GM to develop the Origin.

"The growth opportunity with Cruise is just phenomenal," Barra said at South by Southwest.

GM can build as many Origin vehicles as Cruise needs, she said, while the company's technology, combined with Vogt's road maps on how to reduce costs with scale, could open up a larger ride-hailing market than exists today.

"We're here. It's happening now," Barra said. "We're charging for rides. Now's not the time to take the foot off the accelerator."

One key step forward will be getting the Origin into operation, Vogt said. The vehicle is designed for robotaxi use and to last for hundreds of thousands of miles, he said, lowering Cruise's costs and making it difficult for competitors to match by retrofitting vehicles.

Cruise continues to work with regulators on its request for an exemption from Federal Motor Vehicle Safety Standards to deploy the Origin for commercial service, Vogt said.

The automaker hasn't said whether Cruise's technology eventually will show up in GM's passenger vehicles. But Cruise's work, coupled with GM's work on advanced driving technologies, could create the economies of scale necessary to offer autonomous technology for personal transportation, Barra said at the 2022 CES technology expo.

"In pursuing multiple paths simultaneously, GM and Cruise are gaining significant technological expertise and experience, and we are working to be the fastest to market with a retail personal autonomous vehicle," she said. "In fact, we aim to deliver our first personal autonomous vehicles as soon as the middle of this decade."

The opportunities Cruise's robotaxi service and even consumer AVs offer could change the thinking about automotive revenue as a function of pricing and annualized sales rates to one of the revenue a vehicle can generate over its lifetime, said Itay Michaeli, a Citi research analyst who covers GM.

"You can start to take potentially a much larger share of that lifetime revenue as you're creating new business models on a machine that over time will have declining cost per mile," Michaeli said.

Cruise will need 5,500 to 6,000 vehicles operating on a daily basis to achieve its $1 billion revenue target by 2025, according to calculations by Sam Abuelsamid, principal research analyst at Guidehouse Insights. That assumes Cruise is operating in 10 cities with 550 to 600 vehicles in each location, he said, and fares of about $2.50 per mile.

It's a realistic target, Abuelsamid said, though achieving profitability likely will take longer.

Cruise lost $1.9 billion before interest and taxes in 2022 after losing $1.2 billion in 2021, according to GM's latest financial report. The automaker said the loss grew primarily as a result of higher development costs related to commercialization.

"Scale matters in our business," Cruise COO Gil West said last month at a Morgan Stanley conference. "It drives revenue and, ultimately, profitability, so the sooner we scale, the sooner we overcome our overhead costs and reach profitability."

Cruise has an advantage through its relationships with GM and Honda when it comes to vehicle development, engineering and funding, said Abuelsamid, whose firm ranked Cruise as an industry leader in a report issued in February on automated driving systems. That gives the company a better chance at avoiding the funding pitfalls that have caused some rivals to fold, he said.

"Cruise clearly has very strong support right now from General Motors," he said. "Mary Barra, at least publicly, remains totally, fully committed to Cruise and to supporting Cruise and to getting them into wide-scale deployment, and even to bringing some of that technology back into GM consumer vehicles."

One potential risk factor is how long Barra, now in her 10th year as GM's CEO, remains in the job and whether her eventual successor shares her commitment to investing in Cruise, Abuelsamid said.

Another is winning consumers' and regulators' trust, he said. Cruise this month recalled 300 of its driverless vehicles and updated its software after a collision with a bus in San Francisco. The company has made headlines for crashes and clustering events, in which multiple vehicles got stuck in the same location and blocked traffic.

Such incidents, while infrequent, can lead to crashes, Abuelsamid said.

"They clearly still have quite a bit of work to do to get to a level of reliability and safety that consumers are going to expect ... before you enable these things to operate everywhere all the time," he said.

Incidents of vehicles getting stuck are notable because they are novel occurrences, Vogt said. "The vast majority of our customers have not and never will experience anything like that," he added.

Cruise publicly reports details about collisions to state and federal regulators, and the company said its more than 1 million driverless miles to date have resulted in no life-threatening injuries or deaths.

Vogt said the company starts small and expands operations — with more vehicles driving for longer hours — as it meets performance standards. Its commercial service today operates only overnight in specific areas.

Cruise's goal is to become a mainstream transportation option and ultimately reduce traffic crashes and deaths caused by human drivers, he said. Its phased approach to expansion has allowed the company to learn from rides given in newer cities to improve its service in San Francisco.

"Because of things like that," Vogt said, "we kind of have this flywheel and economies of scale that are going to start to kick in and, I think, make it a little easier to go to each market and enable us to have a really strong showing out of the gate."