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Already contending with a highly competitive landscape in both ICE (internal combustion engines) and EV markets, General Motors (GM) has decided to step away from a developing robotaxi market that has become a focal point for automotive and tech behemoths like Tesla (TSLA), Google's (GOOG) Waymo, and Uber (UBER). The Cruise robotaxi U-turn and related restructuring actions are expected to reduce GM's spending by more than $1.0 bln annually once the plan is completed in 1H25, while the company will also be freed to concentrate more on its core businesses. 

• Speaking of GM's core businesses, they have been performing quite well recently, so it's understandable that the company is looking to allocate more resources towards its ICE and EV businesses. Despite the fiercely competitive market and sluggish EV sales trends, GM delivered a strong beat-and-raise Q3 earnings report on October 22, driven by volume growth in both ICE and EVs.
  • In particular, trucks and SUVs, such as Chevrolet Silverado, Colorado, and GMC Sierra, have been areas of strength, which have supported higher margins and EBIT. In Q3, the company's adjusted EBIT grew by 15.5% yr/yr to $4.12 bln, enabling it to boost the low end of its FY24 EBIT forecast to $14-$15 bln from $13-$15 bln.
  • Meanwhile, U.S. EV deliveries jumped by 60% yr/yr to 32,195 vehicles in Q3, and GM surpassed 300,000 EV deliveries this past October, making it the second largest seller of EVs in the country.
• On the other hand, the Cruise business has continued to weigh on GM's profitability and cash flow. For the nine-month period ending September 30, 2024, Cruise posted adjusted EBIT of $(1.28) bln and cash flow from operations was $(1.75) bln.
• However, GM is not planning to ditch autonomous driving technology altogether. Instead of focusing on robotaxis, the company will prioritize ADAS and autonomous driving systems for personal vehicles by expanding and investing in its Super Cruise assisted driving system, which is already offered in more than twenty GM vehicle models. Additionally, GM intends to boost its ownership position in Cruise to over 97% from its current stake of about 90% as it strives to ultimately launch fully autonomous vehicles in the coming years.
• While the initial reaction to this development was positive, owning to the near-term cost savings and associated earnings bump, the stock has since reversed course and is now trading lower. We believe this is attributable to GM throwing in the towel on a business that it initially believed could generate $50 bln in revenue by 2030, erasing a potentially significant growth catalyst and clearing the path for TSLA and GOOG to capitalize on the robotaxi opportunity.

The main takeaway is that while the decision to abandon the highly unprofitable Cruise robotaxi business will lower GM's cost structure and provide a near-term lift to earnings, there's some concern that the move is short-sighted from a longer-term perspective as it eliminates the possibility of GM capitalizing on a robotaxi opportunity that could blossom into a huge market.