GM to cut spending on self-driving unit Cruise after accident

General Motors is to scale back ambitions for its self-driving unit Cruise following a pedestrian injury last month, which led it to suspend testing. 

The carmaker behind Chevrolet and Buick will outline on Wednesday the extent to which it is slashing planned spending on self-driving technology that was once at the forefront of its pitch to investors. 

For years the carmaker has traded under the strapline “zero crashes, zero emissions, zero congestion”, a testament to its bet on a future of cars that are both electric and self-driving. 

While it is not expected to drop the slogan officially, the company will spend less on the unit in the future, owing in part to an expected slower rate of testing, according to two people briefed on the plan. GM’s quarterly investments in Cruise run to about $700mn. Its driverless vehicles have been operating in certain US cities including San Francisco as a taxi service.

GM had previously said it remained committed to Cruise, and that its “strategy is to relaunch in one city and prove our performance there, before expanding . . .[once] . . . we have taken steps to improve our safety culture and rebuild trust”. The company said it would provide more details in Wednesday’s update.

Pushing back any timelines for Cruise will also impact GM’s long-term revenue targets previously put at $80bn by 2030, driven by new areas such as self-driving income and software.

Cruise suspended all self-driving operations in October, days after California regulators banned the vehicles from the state’s roads. The decision followed a highly publicised accident in San Francisco, where a female pedestrian was thrown by another vehicle into the path of one of Cruise’s self-driving cars and then dragged for 20ft underneath it.

The California Department of Motor Vehicles said the cars were “not safe” and accused Cruise of having “misrepresented” the details of the incident. Cruise maintained it “proactively” shared information with the relevant authorities.

Cruise has since brought in law firm Quinn Emanuel — one of the law firms that sued Volkswagen over the 2015 diesel scandal — to investigate its response to the accident.

GM’s decisions on Cruise spending are not tied to the timings of the law firm’s investigation. But the company will probably face questions over whether its long-term ambitions are realistic, according to analysts.

“The big question is to what extent ‘Zero Zero Zero’ also hinged on zero rates,” said Barclays auto analyst Dan Levy, adding that investors had become less tolerant of projects without returns. 

“This has been a big theme this year in auto; everyone has had to step back from the euphoria”.

In the wake of the accident, Cruise’s approach to testing, which critics said amounted to a race to be first, came under closer scrutiny. 

A letter signed by 26 transportation labour organisations to the US Department of Transportation and National Highway Traffic Safety Administration outlined their “grave safety concerns about the expanded testing and operation of automated driving system-equipped vehicles” and called on the departments to “take action” to better regulate autonomous vehicles.

“The public are also recognising that being unwitting guinea pigs to unproven tech that’s desperately underregulated is not what anybody has signed up for,” said Matthew Colvin, chief of staff of the Transportation Trades Department and one of the letter’s co-authors.

GM has sunk billions into Cruise, including buying out Softbank’s minority stake for $2.1bn last year. It now owns about 80 per cent of the business. Other investors include Honda and Microsoft.

But GM’s own investors have grown more cautious about Cruise in the wake of the accident.

“The problem for Cruise as a business is GM is dependent on it for all the software [revenue] targets the company has set,” said one. “We don’t see a path to profit, but we do see they will burn a lot of cash trying. GM would be better placed winding back its bet, and returning the money to shareholders.”

Cutting spending “as much as possible” from Cruise on Wednesday would be an “easy win”, the investor added. 

Cruise lost $1.9bn in the first nine months of the year, and had $1.5bn of cash at the end of September. In the third quarter, Cruise burned through about $500mn of cash, meaning its current reserves will last until the middle of next year if it receives no additional funding. The business, however, does have a deal with GM’s financial arm that would allow it to borrow up to $4.3bn to buy self-driving cars from GM or for other expenses.