Two Detroit automakers (Ford and General Motors) released their Q3 earnings recently which included comments by executives from each company about the future of autonomous driving technology. GM seems bullish about its ability to execute and scale self-driving car technology even before the latest Q3 earnings call. GM has been operating driverless taxi services in San Francisco, Austin and Phoenix through its 80% owned Cruise subsidiary. At a September Goldman Sachs conference, Cruise CEO Kyle Vogt said that Cruise is planning to reach $1 billion in revenue by 2025. In another presentation at the Evercore ISI Technology Conference, GM’s Travis Katz (CEO of its electric vehicle commercial subsidiary, BrightDrop) said that BrightDrop is planning to offer self-driving electric commercial delivery vehicles using the technology from the subsidiary’s connection to GM Cruise.
During GM’s most recent Q3 earnings call, Vogt (the Cruise CEO) said, “Driverless technology is seeing companies operating commercial driverless services and those that are still stuck in disillusionment.” He continued, “There is a virtuous cycle fueling the growth of the driverless leaders, who are taking the best talent, making it more difficult for the others to keep up. This is happening not just with talent, but also with suppliers, partnerships and investors.” Related specifically to Cruise, Vogt said, “You’ve seen this play out at Cruise with us pulling in timing and expanding scale, which is an anomaly in an industry that is dominated by delayed milestones and missed targets.”
Solving full self-driving technology is the difference between Tesla being worth a lot of money or zero - Elon Musk
As if on cue, Ford conducted its Q3 earnings call this week which included a surprising announcement about its ownership of Argo AI, the autonomous technology company jointly owned with the Volkswagen Group. Ford CFO John Lawler announced that Ford is “winding down” Argo AI operations. Lawler said, “It’s become very clear that profitable, fully autonomous vehicles at scale are still a long way off. We’ve concluded that we don’t necessarily have to create that technology ourselves.”
Ford invested $1 billion in Argo AI in 2017, followed by an additional $2.6 billion investment by VW in 2020, giving Ford and VW shared ownership of the company. During this week’s earnings call, Ford admitted that “Argo AI has been unable to attract new investors” just as Cruise’s Kyle Vogt suggested during the GM earnings call.
The winners in the future of automotive will not be the companies only selling the most electric vehicles. That view is based on an old automotive business model from the last 100 years of the industry. The future winners will be more like Apple in the mobile device space. Sure the company sells lots of iPhones. But it also keeps consumers in the Apple-ecosystem of hardware and services which drives massive recurring revenue nearly disconnected from consumers buying the latest iPhone models. This is the type of business opportunity autonomous driving technology represents to automakers:
An ability to utilize autonomous capability to create new sources of revenue beyond selling an individual car to consumers every few years while fighting for small incremental scraps of vehicle sales market share.
Elon Musk seems to understand this future as well based on comments earlier this year when he said, “It’s essential that Tesla solve its full self-driving technology. It should be the overwhelming focus of the company because it’s really the difference between Tesla being worth a lot of money or worth basically zero.”
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