The departure of Kyle Vogt is the latest setback for an asset that was once valued at $30 billion and now probably represents a value less than zero for GM (ticker: GM).
GM didn’t immediately respond to a request for comment.
Vogt, who co-founded Cruise and oversaw its acquisition by GM in 2016, announced that he was stepping down late Sunday in a post on X late Sunday. His resignation comes after a crash in early October led to the suspension of Cruise’s license to operate self-driving taxis in California.
A hit-and-run victim ended up under a Cruise taxi and was dragged several feet before the vehicle stopped, Barron’s reported. The collision led to Cruise pausing all operations, including robotaxis with drivers who take control only when needed, to “engage third-party experts and strengthen public trust.”
Earlier this month, Cruise announced additional steps to improve safety, including an independent expert to conduct a safety assessment. An engineering firm also is investigating the cause of the hit-and-run incident.
In midday trading Monday, GM stock was up 2.2%, to $28.66. The
Dow Jones Industrial Average
were up 0.4% and 0.3%, respectively.
Wall Street’s reaction isn’t big. But there isn’t a lot of value in GM stock for its robotaxi business. Shares trade for about 4.2 times estimated 2024 earnings.
(F) stock, for comparison, trades for about 5.9 times, and Ford doesn’t have an operation comparable with Cruise.
If GM stock traded at 5.9 times earnings, shares would be at about $39 apiece, about 40% higher than recent levels. Its market capitalization would be about $54 billion; Ford’s market cap is $41 billion.
There are other things that go into valuation multiples. Ford stock pays a higher dividend than GM and yields 5.8% compared with GM’s 1.3%. It’s a notable difference, but GM generates more free cash flow than Ford. GM is expected to generate $5.8 billion in 2024 free cash flow. Ford is expected to generate $2.5 billion.
No matter how investors slice and dice the numbers GM trades at a discount. One reason might be Cruise losses. Cruise generated about $25 million in robotaxi sales in the third quarter. The unit has been losing about $650 million a quarter this year.
Things for GM would look even better without Cruise.
Ford shut down its autonomous driving unit, Argo, in October 2022. At the time Ford’s “Mobility” unit, which included Argo, was losing about $200 million a quarter.
When Ford shut down Argo, its shares were trading at about 6.7 times its estimated 2023 earnings. GM shares were trading for about 5.8 times. The gap today is almost one PE ratio point bigger. Even that would be worth almost $7 a share, or $9 billion, for GM stock.
GM owns about 80% of Cruise, which has been valued in transactions as high as $30 billion. GM’s latest publicly disclosed purchase valued the company at about $21 billion. Whatever the valuation inside of GM is now isn’t $20-plus billion.
GM needs to turn sentiment around. Management changes are part of it.
As of Sunday, Cruise’s executive vice president of engineering, Mo Elshenawy, will serve as president and chief technical officer, said Cruise in an email.
GM still has big plans for Cruise. About two years ago, the auto maker projected Cruise could generate $50 billion in annual sales by 2030. That projection hasn’t been updated in recent months.
“Cruise is still just getting started, and I believe it has a great future ahead. The folks are Cruise are brilliant, driven, and resilient,” Vogt said in his post.
GM needs Cruise to be a success. The unit now needs to get back on the road without Vogt.
Coming into Monday trading, GM stock was down about 17% year to date, and down 29% over the past 12 months. Rising interest rates, a slowing economy, and weakening electric vehicle sales growth have all weighed on investor sentiment.
Write to Callum Keown at firstname.lastname@example.org