General Motors (NYSE: GM) recently released expectations for Cruise, the company’s driverless ride-hail unit, to reach US$1 billion in revenues as soon as 2025. The numbers indicate the business’ massive potential but, as Seeking Alpha put it, it will take “near-perfect execution” to achieve.
Is GM pulling an Elon Musk and overhyping the potential of Cruise, when its pace relies as much on the company’s ability to produce and scale the roll-out as it does on the market’s ability to adapt and increase demand?
GM’s robotaxi arm currently has a fleet of 300 autonomous vehicles, commercially operating to a limited degree in select areas in San Francisco, and testing in Austin and Phoenix. It plans to deploy a fleet in Dubai by the end of next year, and to expand to more locations throughout next year.
While the company has yet to announce new target locations and dates, GM COO Gil West said Cruise aims to enter a “large number of markets” and deploy “thousands of vehicles” in 2023.
An analysis from Forbes places this number at 5,500 automated vehicles (AVs) for the company to meet the target revenue by 2025. Their estimate tries to be conservative, working with a base rate of $2.50 per mile, and a run time of 20 hours per day. The estimate also already includes using the AVs not just for ride-hailing but also for deliveries which raises the utilization ratio to 50%.
Seeking Alpha, meanwhile, created a number of scenarios adjusting the variables, but arrived at an estimate of 8,000 AVs, with a caveat that the fleet must match or exceed current driver-led ride-hail volumes of at least 28 to 30 trips per day, operating around the clock.
They also estimate, using more conservative assumptions based on current operations in San Francisco, the only city where Cruise has so far been commercialized, Cruise would need a fleet of 17,560 AVs to meet their target. This is computed against an average revenue of $155 on about 14 trips daily.
The number is not impossible but it is huge. Seeking Alpha estimates that assuming Cruise can only deploy up to 500 AVs per city, they would need to expand to 35 cities by 2025.
The $1 billion target is not impossible but it may be too optimistic, especially considering that these estimates don’t yet figure the time required for testing, mapping, and meeting regulatory requirements prior to actual deployment.
And then at the end of the day, the company also has to address public perception issues as soon as possible to meet its 24-month goal. A lack of public trust in these driverless cars still presents a serious threat to adoption.
GM last traded at $38.20 on the Nasdaq.
Information for this briefing was found via Forbes, Seeking Alpha, TechCrunch, and the sources and companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
