General Motors (GM, Financial) is betting big in the driverless car arena and recently disclosed its plans to purchase Cruise Automation.
The Detroit-based automaker proposes to join forces with this San Francisco-based startup which makes sensors for driverless technology. This move doesn’t come as a big surprise as General Motors has already been making investments in young companies in this niche area for the past few years.
About the deal
There is no formal information regarding the deal value, but sources have it that General Motors is shedding a skyrocketing price of $1 billion for Cruise Automation which has just 40 employees. This suggests how keen General Motors is in making it big in the autonomous driving market and the kind of value proposition it expects to derive from the acquisition. General Motors aims to seamlessly integrate the resources of Cruise Automation with the company’s vehicle system. The transaction is expected to be concluded by the second quarter of this year.
Kyle Vogt, Cruise Automation’s founder, said: “GM's commitment to autonomous vehicles is inspiring, deliberate and completely in line with our vision to make transportation safer and more accessible. We are excited to be partnering with GM and believe this is a ground-breaking and necessary step toward rapidly commercializing autonomous vehicle technology.”
General Motors is not the only biggie working in this direction. Tech giants such as Google and Apple (AAPL, Financial) started venturing in this field much before the top American car manufacturer.
Even Tesla (TSLA, Financial) has been experimenting in the driverless space. Tesla has recently updated some of its key models like Model X and Model S which now includes an Autopilot feature, allowing the car to be driven by itself for some distances until the driver takes control.
This led General Motors to retrofit a somewhat similar feature to Cadillac later this year. The company’s president, Dan Ammann, said in a news release, “Fully autonomous vehicles can bring our customers enormous benefits in terms of greater convenience, lower cost and improved safety for their daily mobility needs.”
The vast opportunity ahead
The plan to acquire Cruise Automation is indeed a tactical move by the company indicating that it wants to beat its competitors and be ahead of them in the autonomous vehicle market. One of the key reasons for the acquisition is to develop superior quality software for its autonomous cars.
As per Lux Research, autonomous cars are going to be the future of the auto industry with a market size of $87 billion by 2030. It needs to be noted that China is going to play a big role in this space. The Asia economy is expected to be the largest autonomous car market, overtaking both the U.S. and Europe. It is estimated that China will generate revenue of $24 billion accounting for 35% of the total 120 million vehicles sold in 2030. This presents a great opportunity to General Motors given its vast footprint in the country. It is the largest-selling foreign automaker in China. In fact, it sells more cars in China than in the U.S.
The latest acquisition isn’t the first major investment that the company has undertaken. Recently, General Motors made an investment of $500 million in ride-sharing firm Lyft. The company plans to develop a structure for an automated ride-sharing service through the joint effort. The Detroit auto giant is making such big investments on the basis that self-driving cars will overshadow traditional driving in future. And General Motors, being an early mover, would be able to capitalize on the prospect.
