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General Motors' (GM) Cruise Battles Regulatory & Safety Woes

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General Motors’ (GM - Free Report) self-driving unit, Cruise, has hit a roadblock. It is facing a critical safety crisis, which has cast a shadow on its ambitious vision to revolutionize urban transportation.  Amid the challenges, the company has scaled back its plans, now focusing on deploying autonomous vehicles in just one city instead of the previously targeted 13 across the United States. The specific city and the timeline for this deployment remain undisclosed.

Additionally, General Motors has postponed the production of the much-anticipated Cruise Origin robotaxi. Cruise is completing a small number of pre-commercial prototypes. However, the full-scale production remains on hold. The company will not manufacture any prototype or commercial model of Origin in 2024.

This comes amid regulatory and safety hurdles. California's suspension of Cruise's driverless permits has led to a nationwide operational pause. The company's troubles were further compounded by the departure of its founding executives, Kyle Vogt and Daniel Kan.

The Cruise Origin, a central piece of the company's autonomous strategy, was set to be produced at GM's Factory Zero in Detroit. There were plans for its deployment in U.S. cities and Tokyo but regulatory approvals have stalled the process. GM has been awaiting a decision from the National Highway Traffic Safety Administration (NHTSA) on an exemption request for federal safety standards since February 2022.

The implications of these setbacks are significant for GM, which envisioned Cruise’s technology driving substantial revenue growth. GM CEO Mary Barra had projected the robotaxi business to contribute $50 billion by 2030. However, Cruise has been a financial drain, with losses over $700 million in the third quarter and more than $8 billion since 2016. These financial challenges are compounded by other issues facing GM, such as increased labor costs, slower-than-expected sales of electric vehicles and new emissions standards.

The company’s challenges are not just internal. An incident in San Francisco, where a Cruise self-driving taxi was involved in a pedestrian accident, has further complicated matters and resulted in the revocation of the company's license to operate driverless rides in California. This has led to speculation about the relocation of its operational restart to more accommodating regulatory environments like Phoenix or Austin.

Cruise's strategy also faces hurdles in deploying vehicles without human control. Despite requesting permission from the NHTSA to deploy up to 2,500 such vehicles annually, government approval remains pending.

In response to these operational and financial challenges, Cruise is making efforts to support its employees, offering compensation for potential tax liabilities on company-granted shares. This move follows employee backlash over tax burdens from vested stocks after the suspension of the program.

Zacks Rank & Key Picks

General Motors currently carries a Zacks Rank #3 (Hold).

A few better-ranked players in the auto space include Toyota (TM - Free Report) , PACCAR (PCAR - Free Report) and Canoo (GOEV - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for TM’s fiscal 2024 sales and EPS implies year-over-year growth of 11% and 45%, respectively. The earnings estimate for fiscal 2024 and 2025 has been revised upward by $2.37 and 13 cents, respectively, in the past 30 days.

The Zacks Consensus Estimate for PCAR’s 2023 sales and EPS implies year-over-year growth of 20% and 56%, respectively. The earnings estimate for 2023 and 2024 has been revised upward by 41 cents and 33 cents, respectively, in the past 30 days.

The Zacks Consensus Estimate for GOEV’s 2023 and 2024 EPS implies year-over-year growth of 69% and 53%, respectively. The company has surpassed the earnings estimates in the last four quarters, with the average surprise being 26.1%.

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