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GM Needs To Spin Off Cruise To Unlock Value

Mar. 02, 2020 3:39 PM ETGeneral Motors Company (GM) Stock23 Comments
Vishesh Raisinghani profile picture
Vishesh Raisinghani


  • The Cruise Origin is the result of decades of work and billions in investment GM has been making behind the scenes.
  • The company is currently worth 38% of its parent's market value. Soon it could be worth more than GM itself.
  • GM's debt burden is the key reason investors have shunned the stock. To tackle this debt, GM could list Cruise or sell it off entirely.
  • I do much more than just articles at Betting On Tomorrow: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

General Motors (NYSE:GM) unveiled its first production-ready driverless car in San Francisco earlier this year. The Cruise Origin is the result of decades of work and billions in investment the automotive giant has been making behind the scenes, while the rest of the world was distracted by Elon Musk’s (Tesla (TSLA)) endless adventures.

Image result for gm cruise

Source: WSJ

After reading the reviews and seeing all the demonstrations, I must admit GM’s pet project is a sleek and exciting look at the future of transport. I love the way this car looks and what it implies about the way we’ll all move around in the future. But, most of all, I love the valuation it comes with.

Exciting and valuable technologies packaged in mundane and overlooked businesses is my favorite sort of investment opportunity. At this stage of the market cycle, finding a reasonably-priced tech company is about as rare as a Loch Ness sighting. Which is why GM’s Cruise division has me as excited as that time I realized Yahoo held a 40% stake in Alibaba before its IPO.

I was excited enough to take a deep dive into GM’s books back in February 2019. The company already is ahead of the pack when it comes to autonomous miles driven in the U.S., has attracted major talent from the Valley in recent years and is valued at $19 billion, which could expand rapidly in the years ahead based on the estimated market size.

Now that the product has been unveiled and the reviews are in, it’s time for an update and a closer look at GM's underlying numbers that justify its shift to autonomous driving and why I believe Cruise could unlock a lot more wealth for investors as a standalone firm.

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This article was written by

Vishesh Raisinghani profile picture
Founder at Sharpe Ascension Inc. - a content marketing agency for financial and technology firms.Researcher, Content Creator, Financial Writer, Consultant., PizzatarianCollaborating with Seeking Alpha contributor Growth At A Good PriceFind me on Twitter @Visheshrr or send me an email if you'd like to work together.

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Comments (23)

Also, instead of spinning off GM Cruise, due to the chronic inability of many investors to understand that the automotive finance portion of GM could be safely leveraged 10:1 yet them having a melt down about the leverage of GM in totality, a far better idea would be to spin off the automotive finance portion and create GMAC Mark 2. GM could sell 10% and retain 90% of what should be a very profitable finance company and take all of the automotive finance debt off the GM balance sheet.
Common Shares profile picture
There's a misalignment of incentives when you do this, which is why none of the world's largest durable capital/consumer goods manufacturers do it. And then smaller players who do it, you hear them talking about doing it unwillingly (e.g., FCA working with Santander)
@QAAP "misalignment of incentives"

OK, I'll bite. How so?
Common Shares profile picture
Not sure it involves much biting or that I'm trying to lead you into something but... for example, as soon as you spin off a finance sub, they will naturally not want to sole-source with you the OEM, since it would add risk to their business model from their perspective in that world. They'd also be less inclined to work as closely with you. It'd also be harder to share data and design marketing plans - there'd be a lot more complexity.

Haven't thought about it but maybe the lease financing and subvention aspect of the business is also harder?

It's just not something any OEM is going to want to do, and so it's not going to happen regardless of what anyone's opinion on the matter is anyway.

"California's DMV reported that GM's Cruise completed 12,221 miles of autonomous driving on the state's roads in 2019, second only to Google's (NASDAQ:GOOG) (GOOGL) Waymo"

You need to verify your numbers.

In 2019 GM Cruise racked up 831,040 miles, up from 447,621 miles in 2018, 131,676 miles in 2017, and 9,776 miles in 2016.

In 2019 GM Cruise reported 12,221 miles between disengagements compared with 5,205 miles the previous year.
Poor financial analysis along with terrible recommendation
Long GM
Why should they spin it off when this golden goose can keep laying its eggs for GM in perpetuity
GM financial debt and GM automotive debt are 2 completely different things, one is essentially an asset and one is not
Dumb idea.
Debt load? GM went through bankruptcy not long ago. Where did your 100B come from? Cruise needs to stay within GM it's part of the evolution in the industry.
Say what??!!!
Common Shares profile picture
The whole finance subsidiary thing really throws most SA authors a curveball eh. Has to be the second or third time now in the last few months that people have had trouble figuring out how much debt an automotive company has.

Btw, have a quick read of Dan Amman's pay package and listen to the most recent investor day, if you want to know about a Cruise divestiture.
Ray Merola profile picture
It's important to focus upon Automotive debt instead of reported total debt. GMF skews the numbers. GM breaks out Automotive debt within the financials.

When viewed properly, GM debt financials are good.
RickJensen profile picture
"The Cruise Origin is the result of decades of work and billions in investment GM has been making behind the scenes."
"decades of work and billions" -- at best hyperbole.

Cruise is not even 10 years old. gm bought it in 2016 (about 3 years ago).
tyler hammond profile picture
But OnStar was created in 1996. My gut tells me this data is invaluable to a technology company heavily dependent on data. And this data is likely better then what Waymo could get its hands on through partnerships and Google Maps.
RickJensen profile picture
OnStar was basically a cell phone connection.
Buickman profile picture
sell it and back back in the car business!
vooch profile picture
spin off to existing shareholders 1:1

(unless KKR and Blackstone want to pay $100B cash for Cruise - LOL )
Marrk profile picture
Spin off Cruize? That's like saying they should cut themselves off from their future.
Exactly. And GM should make only internal combustion engines, no electric. (Sarcasm).

Cruise is GM's future. Electric is GM's future. GM is becoming the future. Invest accordingly.
coaster kid 13 profile picture
My feelings exactly. Cruise is advancing GM's computer technology, while GM is providing not only platform vehicles for their taxi service (the Bolt EV), but access to other cars from their stable (Cadillac, Buick), most of which will have some EV or plug-in offering, that will have some AV software to offer their owners. It's actually a very exciting time to be a GM shareholder.
Too much excitement could lead to a heart attack, before GM stock price moves up finally.
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