Monday, December 23, 2024

GM, Tesla and Alphabet’s diverging paths in self-driving technology

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There was a very telling contrast in the quarterly reports from General Motors, Tesla, and Alphabet (Google) on Tuesday.

Tesla CEO Elon Musk started one of his X polls (Twitter), asking his fans whether Tesla should spend $5 billion on AI. Meanwhile, Alphabet revealed it had invested another $5 billion into its self-driving car unit, Waymo.

But there was another decision quietly announced Tuesday by General Motors that holds a huge warning for both Alphabet and Musk and their self-driving ambitions: GM is halting production of its Cruise self-driving car indefinitely after more than $8 billion in losses over the last eight years.

That was a decision Musk and Alphabet ignored.

It’s the old story now with Musk—while he talks, others take action. The post-earnings release (which was poor and knocked the shares down 8% after hours) comments from Musk featured promises about his company’s future in autonomous driving and robotics.

But as Musk talked, investors sold, realizing that Tesla can’t afford everything that Musk wants—the shares fell because profit margins deteriorated in the worst performance for quite a while.

Tesla said its adjusted operating margin shrank to the lowest in three years, dropping to 14.4% from 18.7% a year earlier. It’s the fourth straight quarter of shrinkage.

The company reported just $1.48 billion in net income on revenue of $25.5 billion, which included $890 million in regulatory credits.

Expenses are soaring as the company spends on the artificial intelligence infrastructure Musk says is needed to turn Tesla EVs into self-driving cars and to develop humanoid robots capable of doing factory work and more.

But Tesla’s lifeblood is its EVs, not the expensive Cybertruck or the much-hyped Robotaxi, whose launch is now two months later than August 8.

Tesla’s most popular EVs are not catching buyers like they used to, and sales have been dropping this year. Tesla’s response of price cuts and other offers (such as cheap finance) are not working, especially in its most important market, China.

So more and more analysts are ignoring what they see as typical Musk diversions like talk of the Cybercab (AKA the Robotaxi), AI, humanoid robots, and other businesses that sound impressive but remain empty promises until something firm and workable emerges.

That’s why the contrast with Alphabet was so telling.

Alphabet CFO Ruth Porat announced on the company’s earnings call that the company had committed a new $5 billion multi-year investment in Waymo.

Waymo opened its service to all San Francisco users in the quarter, marking its second citywide rollout following its 2020 debut in the Phoenix metropolitan area.

CEO Sundar Pichai told the earnings call that Waymo is now making 50,000 weekly paid public rides, primarily in San Francisco and Phoenix.

“Our strong performance this quarter highlights ongoing strength in Search and momentum in Cloud,” Pichai said in the earnings release.

But even the Alphabet move has a touch of bravado about it—Waymo’s losses surged to $1.13 billion in the June quarter from $813 million a year ago.

And Musk? The $5 billion poll to fund AI is actually all about trying to make his Robotaxi and self-driving vehicles work.

On Tesla’s earnings call, Musk was asked when shareholders can expect “the first robotaxi ride.”

“I would be shocked if we cannot do it next year,” Musk replied after first noting that his predictions have been “overly optimistic in the past.”

Musk has been promising since about 2016 that Tesla will turn its existing EVs into self-driving vehicles with software updates, which the company calls Full Self-Driving. Tesla is separately working on a CyberCab dedicated robotaxi.

On Tuesday’s call, Musk said he doesn’t foresee regulatory hurdles to rolling out Tesla’s self-driving technology to a broad market in the U.S. and beyond.

He also dismissed Waymo’s commercial robotaxi services as “limited” and “fragile.” Tesla’s system, he said, should be able to work anywhere in the world, not just in a geographically-limited area.

He (and to a degree Alphabet) are ignoring the rotten experience GM has had with its Cruise self-driving car.

On Tuesday, GM said production of its self-driving Cruise Origin was being delayed indefinitely.

The car—which doesn’t have a steering wheel or pedals—faced years of delays, which helped make GM’s decision easier.

The cost this time: $583 million to stop production.

Last November, production was stopped temporarily to allow GM to take another look at the business and the idea. The answer on Tuesday was a big “no.”

That will take total losses well past $8 billion since GM acquired Cruise in 2016, with $3.48 billion lost in 2023 alone.

Alphabet can afford that sort of spend—it had $111 billion in cash and securities as of June 30.

Tesla had just over $30 billion, which sounds like a lot, but that has to finance a lot of more obvious things the carmaker needs to do because the threat from Chinese and European carmakers in the EV space is getting larger, and not even Musk’s new best friend, Donald Trump, will be able to hold back the tide.

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