This week, General Motors Company cut more than 14,000 salaried staff and factory workers with plans to close seven factories worldwide in what Bloomberg calls a “sweeping realignment to prepare for a future of electric and self-driving vehicles.” Unfortunately for GM, and their employees, the future of autonomous vehicles is much farther off than what the company represents. Investors in GM stock should be cautious, and realistic, as to when new revenue streams will occur, as cutting costs, even to the tune of a net savings of $4.5 billion, might not be enough to wait out the innovation cycle.
In light of the recent layouts, there is $1.5 billion of reduced capex that the company will be saving by cutting the low-demand production lines and the anticipated plant closures (a drop in the bucket compared to the annual capex of $27.5 billion), however, the $1.5 billion capex is not being reinvested into electric vehicles or autonomous vehicle production at this time. The lack of reallocation conflicts with statements from the company CEO, Mary Barra, who promised the company would double investment in electric vehicles and self-driving technology during this week’s announcement.
The bottom line is that GM is correct to prepare for tough times, but they are not disclosing the true timeline for long-range electric vehicle and autonomous vehicle deployment and investors will have to wait years before they see any real profit from new production lines.
Three Words to Heed for GM Stock: Gartner’s “Trough of Disillusionment”
In September, Autonomous Vehicles fell into the “trough of disillusionment,” which is the downward slope published by the analyst firm, Gartner, to show the hype cycle for certain technologies. You can think of this as “winter is coming” for tech products – a time when all of the buzz and excitement finally meets reality (note: artificial intelligence winter is a well-documented thing).
ABI Research, an advisory firm that reports on market-foresight trends, predicts 8 million consumer vehicles with Level 3 to Level 5 autonomy will ship in 2025. Compare this to the 94.5 million vehicles sold in 2017 – which equates to 8.5% of sales. This is a small and fairly insignificant percentage of market share to be chasing 7-years ahead of deployment. Yet, investors have poured cash into auto manufacturers due to marketing campaigns that provide false hope for the near future.
The reality for autonomous vehicles includes regulations, production cycles, and delays in implementation for what is an extraordinarily difficult problem to solve – how to get machines to respond like humans at crucial moments. This gap between investor expectations (perception) and commercial deployments (reality) has created an autonomous vehicle bubble.
Per statements from GM, long-range electric vehicles are a minimum of 8 years before they represent a slim 10% of GM’s current production. In 2017, the company committed to a volume production goal of “1 million units globally by 2026,” with the majority of EVs being sold in China. GM’s overall production was about 10 million units globally in 2016.
Brief Background on the 6 Levels of Autonomy
You can skip this section if you know the six levels of autonomous vehicles as published by SAE International. If not, this background is important to understand why the autonomous vehicle bubble formed, and why and when it will burst.
Level 0: No Automation. The driver performs all of the tasks.
Level 1: Driver Assistance. The driver handles all of the accelerating, braking, and monitoring of surrounding environment. An example of this level is when a car brakes for you in a critical moment.
Level 2: Partial Automation. The vehicle assists with steering and acceleration functions and allows the driver to disengage. Bubble formed here with investments pouring in, fueled by high hopes of Level 4 or Level 5 commercial deployment by 2020.
Level 3: Conditional Automation. The vehicle controls all monitoring of the environment using sensors. The driver’s attention is critical but the AV system runs the safety critical functions. This level does not require human attention under 37 miles per hour. Bubble will burst at this level as commercial deployments are delayed and reality sets in that AV investments will not see returns for many years.
Level 4: High Automation. Vehicle is capable of steering, braking, and accelerating, as well as responding to events and changing lanes. The system is switched into the mode under safe conditions, but the vehicle cannot determine dynamic instances like traffic jams or merging onto the highway. Most likely ETA 7-10 years.
Level 5: Complete Automation. No human attention required. No need for pedals, brakes, or a steering wheel. The AV controls all critical tasks, monitoring of the environment and identification of unique driving conditions like traffic jams. Most likely ETA 10-15 years.
Autonomous Vehicles – Stuck in Second Gear
Hurricane auto sales from last September helped GM stock, which rose 11.9% from the previous years, however the stock has retraced and is now trading at $35 per share. GM is no stranger to pushing the autonomous vehicle hype with executives commenting that Cruise Automation was making “rapid progress” back in October 2017, and in a blog post, the CEO stated, “in the coming months, we’ll take the next bold steps in testing our autonomous technology as we lead the way to fully self-driving vehicles without any human driver as a backup.” Those months have come and gone, of course.
