Asymmetric Investing Deep Dive: Cruise (via GM)

Today’s deep dive is on Cruise. Well, technically it’s on General Motors, which is a publicly-traded company investors can buy. But the REAL reason I am interested in GM stock is its 80% stake in Cruise.

Cruise is the leading autonomous driving company today with commercial operations in three U.S. cities. Parent company GM could be a good value investment by itself, but it’s the upside from Cruise that’s hidden within a legacy automaker that could make the stock 10x in a decade.

Why Cruise?

GM is really a tale of two companies, and without both, I wouldn’t be interested in the stock. Legacy GM is an industry-leading automaker with iconic brands like Chevrolet, Cadillac, GMC, and Buick and a large financial arm provides financing to GM’s dealers and buyers around the world. Together, the legacy business is extremely profitable, generating about $10 billion in cash flow annually.

The real reason GM is an asymmetric stock is the cash that’s being funneled over to Cruise. The autonomous driving company is one of only three companies (Cruise, Nuro, and Waymo) to hold a permit to deploy commercial autonomous driving vehicles in California and the company will launch a custom vehicle (see below) this year. If Cruise can create an autonomous version of Uber, a decade from now Cruse alone could be worth 10x GM’s current market cap of $48 billion.

The Key Stats

General Motors by the numbers:

• Company: General Motors

• Ticker: GM

• Stock price: $34.48

• Market cap: $48.1 billion

• Revenue (ttm): $156.7 billion

• Gross Margin (ttm): 13.4%

• Operating Margin (ttm): 6.6%

• Net Income (ttm): $9.93 billion

• Shares Outstanding and Y/Y Growth: 1.45 billion (-0.4%)

• Earnings per share: $6.13

• Dividend yield: 1.0%

• FCF (ttm): $6.8 billion

• Auto Debt (12/31/2022): $17.8 billion

• Financial Debt (12/31/2022): $96.9 billion

• Date Founded: September 16, 1908

  • The current iteration of GM emerged from bankruptcy on July 10, 2009.

• Founder: William Durant

General Motors’s key leaders:

• Mary Barra has been the CEO and Chair of the Board of Directors since January 4, 2016. She has been CEO since January 15, 2014.

• Kyle Vogt is the CEO, CTO, president, and co-founder of Cruise.

The Big Picture

The days of vehicle ownership could be coming to a (slow) end as we move to transportation-as-a-service. Uber showed that we could use smartphones to easily schedule cost-effective rides in almost any city around the world. It’s made it easier to go without a vehicle in large cities and possibly to have only one vehicle in suburbs (which our family of 4 has been doing for 6 years).

Autonomous vehicles will take transportation-as-a-service to the next level. Driver availability will no longer be a limiting factor for growth, personal safety with the driver won’t be in question, and costs should come down for each autonomous ride.

It took Uber a decade to go from launch to verb. If Cruise does the same, this could easily be a 10x stock.

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