Remember the hype around self-driving cars? The promises of ending traffic jams and displacing drivers seemed imminent. However, despite the anticipation, investors and drivers are still waiting for the future to arrive.
Looking at the stock market, it appears that the much-anticipated, potentially disruptive technology should have already been widely adopted. In 2021 and 2022, start-ups raised billions as investors placed bets on rapid technological advancements and the adoption of self-driving systems by auto makers.
Valuations skyrocketed to eye-popping figures, but that era seems to have passed, at least for now. The numbers clearly indicate that the bubble has burst for self-driving car stocks.
The combined peak market capitalization of prominent companies such as TuSimple, a self-driving truck company, and lidar makers like Luminar Technologies, Innoviz Technologies, Ouster, and AEye once reached approximately $58 billion. These start-ups saw their share prices reach their peaks from late 2020 to late 2021, coinciding with a period when benchmark interest rates were hovering around zero.
However, today’s reality stands in stark contrast, with the total market caps of these companies now amounting to about $3.5 billion—a staggering drop of almost 95%. Investors have lost interest in companies that fail to generate free cash flow. Over the years, these companies burned through around $3 billion in cash to build their businesses.
However, when put into perspective, the cash spent by TuSimple and the lidar makers—whose technology serves as the “eyes” of self-driving cars—is relatively insignificant. Most of the significant spending in this area has been undertaken by larger companies that do not always disclose their self-driving car expenditures.
Nevertheless, we can glean some insights into the cash spent by analyzing certain companies. Alphabet’s Waymo, for instance, has raised billions of dollars according to regulatory filings. Tesla, on the other hand, allocates hundreds of millions of dollars each quarter towards research and development, although the specific amount dedicated to self-driving technology remains elusive. Unfortunately, Tesla declined to comment when requested.
Ford Motor and GM, however, offer more transparency in this regard. Ford’s Mobility division, home to its Argo self-driving car business, reported cumulative operating losses of $5.3 billion between 2017 and 2022, leading the company to announce the closure of Argo.
GM’s Cruise, on the other hand, has reported cumulative operating losses of $7.6 billion from 2018 to 2023. Despite reporting sales of approximately $25 million in recent quarters, the challenges associated with scaling up the service have hindered growth.
In conclusion, while self-driving cars were once seen as a promising frontier, the reality has yet to catch up with the optimistic projections. Investors have become cautious, and valuations have taken a significant hit. The future of autonomous vehicles may still hold immense potential, but for now, it seems that the road to widespread adoption remains uncertain.
Self-Driving Car Industry Continues to Push Forward
In October, Cruise faced a setback when its license to operate self-driving taxis in California was suspended following an accident involving one of its cars. The incident resulted in a pedestrian being dragged a few feet after being hit by another vehicle. As a result, former Cruise CEO Kyle Vogt resigned and GM initiated a safety review with the help of third-party consultants.
Despite these challenges, the self-driving car industry remains determined to achieve its goal of fully autonomous vehicles. Elon Musk, CEO of Tesla, acknowledged during a recent earnings call that his previous timelines for self-driving technology were overly optimistic. However, he remains confident that Tesla will eventually reach its objective.
Musk has even bigger plans for Tesla’s self-driving capabilities. He envisions selling the software on a subscription basis, which could generate billions of dollars in recurring sales. Furthermore, this technology could pave the way for Tesla to operate a fleet of self-driving robotaxis—a concept that would eliminate the need for human drivers while generating significant revenue.
While Musk’s vision may be ambitious, it is not the only path to profitability in the self-driving tech business. Lidar and other driver-assistance technologies can significantly improve the safety of cars, even if full autonomy is not yet achieved. Luminar CEO Austin Russell believes that Lidar should be installed on every vehicle to enhance safety, regardless of whether the cars are fully self-driving or not.
Companies such as Mobileye have already found success in this industry by focusing on the development of sensors and software for self-driving cars. Analysts predict that Mobileye will generate substantial earnings per share by 2023 and continue to grow profits at a rate of approximately 35% per year over the next three years. This positive outlook has led to a high valuation for the company, with shares trading at around 48 times estimated 2024 earnings and a market capitalization of approximately $33 billion.
In order to achieve similar valuations and financial success, other self-driving car stocks will need to demonstrate profitability as well.
