Autonomous driving was among the hottest investment themes until a few months back. However, of late a lot of companies are rethinking their autonomous investments while others are under pressure to cut their bets on the business.
Uber was among the first companies to ditch its autonomous driving business and in 2020 it sold the business to Aurora Innovation, a self-driving startup. In return, Uber took a stake in the company and is the biggest stockholder now.
Aurora Innovation went public through a SPAC reverse merger and the stock now trades below $2. Uber has reported massive mark-to-market losses on its investments in companies ranging from Aurora, Grab, and Zomato.
The steep fall in Aurora, which is a pure-play self-driving company is reminiscent of investor pessimism towards the sector. Several other companies are also giving a second thought to their investments in the autonomous driving sector.
Last month, Argo AI, an autonomous driving startup backed by Ford (NYSE: F) and Volkswagen shut down. Ford wrote off its investment in the company and took a non-cash charge of $2.7 billion.
F Exited Autonomous Driving Business
Ford said that Argo AI failed to attract new investors. The company also announced that it would not focus on L4 autonomous systems. Ford’s CEO said that while companies have spent a cumulative $100 billion towards level 4 autonomous vehicles, no company has been able to define a profitable business model.
During the earnings call, Doug Field, Ford’s chief advanced product development and technology officer said, “Commercialization of L4 autonomy, at scale, is going to take much longer than we previously expected.”
He added, “L2+ and L3 driver assist technologies have a larger addressable customer base, which will allow it to scale more quickly, and profitability.” Ford’s CFO John Lawler said that the company believes that it does not needs to create fully autonomous technology on its own.
Alphabet is Under Pressure to Cut Losses in Autonomous Driving Business
Alphabet, which has an autonomous driving subsidiary Waymo, is also facing shareholder heat over the spiraling losses. TCI Fund Management, which holds around $6 billion worth of Alphabet stock, wrote a letter to the company calling upon the management to cut losses in Waymo.
In the letter, TCI said, “Unfortunately, enthusiasm for self-driving cars has collapsed and competitors have exited the market.” It also talked about Volkswagen and Ford exiting the business.
In its letter, TCI said that Alphabet stock is undervalued. Most Wall Street analysts are also bullish on the stock. We have a guide on how investors can buy Alphabet stock.
More recently, Nuro, an autonomous driving startup backed by Alphabet, Tiger Global, and SoftBank announced that it is laying off a fifth of its workforce as it strives to save cash amid the perennial cash burn.
General Motors is Not Backing Out of Cruise
Meanwhile, it is not all gloom and doom and some companies continue to invest in autonomous driving. At its investor day, General Motors said that it is not backing out from investing in the business. It has an autonomous venture named Cruise. Microsoft also invested in Cruise last year.
General Motors CEO Mary Barra said, “We are the only AV company that is out there ready to launch in three markets and bringing in revenue.”
Barra meanwhile is upbeat about GM’s autonomous business. She said, “When we think about the strength of the business and what we have built, we feel we can reinvest in the business because we see these great opportunities.”
Tesla Sees Software as a Key Driver of Its Business
General Motors also raised its 2022 cash flow guidance and said that it expects its EV business to turn profitable by 2025.
Tesla also sees autonomous driving as a key driver. The company has raised FSD (full self-driving) prices twice this year to $15,000. The company’s CEO Elon Musk believes that over the long term, FSD would cost $100,000.
Chinese companies like Baidu and Xpeng Motors are also marching ahead in the autonomous driving business.
All said, given the deteriorating macroeconomic environment, a lot of autonomous driving companies are under pressure as they are unable to raise funds. Since the business is still in its infancy, companies might continue to post losses for the next several years.
When interest rates were low, investors had a lot of appetite for loss-making growth stories. Now, with the Fed on a rate hiking spree, not many investors are looking to fund loss-making ventures like autonomous driving.
That said, while recession fears are rising, you might still find some investments that are recession-proof.
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