Microsoft Bets on Driverless-Car Space With Investment in GM's Cruise -- 2nd Update

By Mike Colias 

Microsoft Corp. is investing in General Motors Co.'s driverless-car startup Cruise as part of a strategic tie-up, another sign of renewed interest in the autonomous-technology space after a relatively quiet period.

Microsoft is among a group of companies that will invest more than $2 billion in San Francisco-based Cruise, which has been majority-owned by GM since early 2016. The financing brings Cruise's valuation to $30 billion, Cruise said Tuesday, up from an estimated $19 billion in spring 2019.

GM is adding to its Cruise investment as part of the funding round and will retain a majority stake, a Cruise spokesman said. The investment also includes current stakeholder Honda Motor Co. and other institutional investors that Cruise declined to name.

Under terms of Tuesday's deal, Cruise will use Microsoft's Azure cloud-computing service to help it roll out autonomous-vehicle services. Cruise for years has been testing driverless cars in San Francisco and plans an eventual robot-taxi service. It is also is exploring commercial delivery.

Driverless cars are expected to throw off troves of data for autonomous-service operators to capture, store and eventually monetize, analysts say. Even on today's cars, auto makers and tech companies are mobilizing to harness data from the growing number of vehicles with internet connections.

In a statement, Cruise Chief Executive Dan Ammann said Microsoft's involvement will help Cruise commercialize its technology. Microsoft Chief Executive Satya Nadella said the tech giant wants to help autonomous cars go mainstream.

GM also said Microsoft would be its preferred cloud provider and help it streamline supply chains and roll out new digital services to customers. The auto maker's shares were up more than 9% in afternoon trading Tuesday. Microsoft shares were up close to 2%.

The tech giant in recent years has been aggressively pushing its cloud-computing business, where it rents server capacity and software tools to customers. It has been in a heated battle with Amazon.com Inc., the leader in the cloud, and trying to tap emerging sectors. The autonomous-vehicle market, once it becomes real, promises a new and rapidly growing market for the kind of number-crunching services Microsoft offers. "With this strategic relationship, we are looking to further address these hyperscale computing needs," said Sanjay Ravi, a general manager of Microsoft's automotive-focused business."

Big-tech companies generally have jumped into the autonomous-vehicle space, which some analysts say could eventually be valued in the trillions of dollars. Amazon last year acquired driverless-technology firm Zoox. Apple Inc. has held talks with Hyundai Motor Co. about working on driverless, electric vehicles, the South Korean car company has said.

GM spent around $1 billion in early 2016 to acquire Cruise, which was then a 40-person startup. The company now has nearly 2,000 employees.

GM Chief Executive Mary Barra has pegged her growth strategy on electric cars and expanding into services, including connected-car features and a future autonomous-vehicle network. In recent years investors have largely put their faith in Tesla Inc. and other newcomers instead of GM, despite the auto maker's progress on advanced technologies, which has drawn praise from analysts.

But GM's shares have risen sharply in recent months as investors warm to the company's growth bets, analysts say. Shares were up 20% this year through Friday after rising 14% in 2020.

The investment is Cruise's first significant infusion in more than 18 months. The company pulled in about $7 billion in 2018 and 2019 from big investors including Japan's SoftBank Group and Honda.

Cruise missed its target of introducing an autonomous ride-hailing service to paying customers by the end of 2019 and hasn't set a new timetable. It has signaled recently that it is getting closer to commercializing its technology, though, including the hiring this month of Delta Air Lines Inc.'s former operations chief to oversee aspects like customer service and fleet management.

There are signs that investor appetite for autonomous-driving companies has grown following a lull amid challenges in transforming the technology into viable business plans.

Startup Aurora Innovation Inc. had a valuation of around $10 billion following its recent acquisition of Uber Technologies Inc.'s autonomous unit, up from about $2.5 billion in 2019. The market value of Luminar Technologies Inc., which makes laser-based sensing technology for self-driving cars, has rocketed to around $10 billion following its initial public offering last month.

Waymo LLC, the autonomous-vehicle division of Google parent Alphabet Inc., raised at least $3 billion last year and recently began providing rides to the general public in the Phoenix area.

RBC Capital analyst Joseph Spak said in a recent research note that the pace of deals and technical milestones in the autonomous-vehicle sector are drawing investor interest after "a tough few years."

--Aaron Tilley contributed to this article.

Write to Mike Colias at [e-mail]

(END) Dow Jones Newswires

January 19, 2021 16:09 ET (21:09 GMT)

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