Surprise: Detroit Is Winning the Race for Driverless Cars

Driverless Cars

Silicon Valley usually wins the race to bring new technologies to market. That’s why Northern California is home to many of the world’s youngest billionaires.

Its reputation for turning ideas into products means many investors expect the first driverless cars to come from a Silicon Valley giant. The apparent leader in the field is Alphabet’s Waymo division. Alphabet is the parent company of Google.

But in the race to produce driverless cars, smart investors are looking at Detroit.

A Big Head Start

General Motors Co. (NYSE: GM) already has a driverless car on the road. Few investors realize that. Yet the distance driven by GM cars dwarfs most of the competition, trailing only Waymo.

Driverless Cars

(Source: Bloomberg)

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Cruise began as a startup focused on developing kits to retrofit vehicles with self-driving capabilities. That’s a Silicon Valley idea to change the world. But the focus soon shifted to writing software for fully self-driving vehicles.

The small company caught the eye of GM, which bought Cruise in 2016. Since becoming part of GM, Cruise has been working on software to make its Chevy Bolt electric vehicles fully autonomous.

“Cruise Automation has given GM a big head start, and the acquisition has been great for Cruise as well,” according to Bob Ramseyer, managing partner of Service Lane eAdvisor, a technology and consulting company in the automotive dealership space.

Ramseyer adds that: “Cruise appears to be running autonomously from Detroit and has the benefit of GM capital and manufacturing know-how.”

GM Is Ahead of the Race

Data in the chart above shows the effort is moving quickly, and GM is likely to be a winner.

The truth is that building a driverless car involves building a car. That’s a capital-intensive process. It’s a process prone to problems. Just ask Tesla.

Tesla is building electric cars, inventing processes as it goes. It’s also encountering problems that repeatedly delay delivery.

That’s where GM holds an advantage. The company already knows how to build cars. The company also has factories staffed with skilled employees and supplier relationships in place. All that’s needed is the technology.

In the race to deliver the next-generation vehicle, GM’s infrastructure provides an edge over startup rivals. Its most recent balance sheet shows property, factories and equipment worth more than $79 billion.

Waymo’s parent, Alphabet, could use some of the $120 billion in cash and cash equivalents on its balance sheet to build car plants. But that process will take years.

That means GM is ahead of the race. It’s also likely to hold its lead.

The Bottom Line for Driverless Cars

Investors should look at GM stock as two businesses. One part is a slow-growth auto business. The other part is a fast-growing auto business likely to build the first mass-produced driverless car.

Valuing new technology is always difficult. But GM is undervalued with a price-to-earnings (P/E) ratio of less than 6 based on this year’s expected earnings. Tesla, the automaker/solar power company, is priced at 137 times earnings.

Somewhere between those extremes lies the right price for GM.

Regards,

Michael Carr, CMT
Editor, Peak Velocity Trader

  • You’re All Idiots

    “Detroit Is Winning the Race for Driverless Cars” Really? So by 2019 all the people in Detroit will either be dead or crippled because they were hit by a “Driverless” car. That’s a good thing. Go UBER !

  • Sam Ochi

    So where is Ford, Toyota, Honda, and others in the race to self driving cars?

  • DiverThom

    Waymo is mostly using Dodge as their car manufacturer. It would not be difficult for Waymo to purchase Dodge. At that point, Waymo would have the whole package.

  • brown7228

    Still looking for Batteries they go hand in hand with all electric cars.

  • brown7228

    You are one ahead of the game but I think Tesla would be a better deal; they should make a deal with Haydale for batteries.

  • Storm Connors

    Like no pedestrians have ever been hit by drivered cars.

  • d-dectiri

    not per driven mile…… think about it….. do you seriously trust a car that is the creation of genius programmers that produce stuff like Gates’ windows, or Obama’s ACA website… rotfl

  • d-dectiri

    I’d be seriously cautious, the site of China now banning people’s use of public transport because the govt didn’t like those individual’s ‘social credit’ attitudes will chill any idea that Americans would relinquish control of their self-deciding and personal freedom to some govt-controllable robot-driven ‘car’…. that’s dead money in the current market, here as well as overseas…… a race downhill to oblivion.. don’t you see it……..

  • Randy Ancheta

    The government would never misuse this technology, they would use it to ‘help’ you. Lets say you’re suspected of a crime, your robot car locks the doors and chauffeurs you to the nearest police station. Or you’re delinquent on your taxes, the driverless auto whisks you off to the nearest IRS office. Or maybe the deep state operatives don’t like the posts you’ve left on social media and your robot car ‘accidently’ drives you over the nearest cliff.

  • Barry Moon

    Im shocked that this article highlights GM a government run company. Ford has logged over 1 million miles and have been developing autonomous technology for over a decade. With over 400 successful missions, you don’t hear about this and all you see is commercials to buy GM, wonder how that is?

  • what-me-worry?

    PE ratio less than 6 ? Time for you to fact check yourself.

  • Ron Kreigh

    while the technology makes great leaps, it’s a machine that like all others, can fail. We need to be intelligent about maintaining control, and NOT trusting a machine to do your drivers job for you.

    I’ll stay a driver thanks, I make the machines, but trust my skills over bits to make my decisions when the unforeseen happens. Sometime the wrong decision is made by even the best of what we can produce today. I’ll hit the deer instead of the kid every time. Will the machine do that?