Last month, General Motors CEO (and now chair) Mary Barra wrote an essay predicting that 2016 would be the year that "Detroit takes on Silicon Valley."
"I have committed that we will lead the transformation of our industry," she wrote (emphasis hers). "No matter how our customers chose to get from one destination to another, we will provide them with choices that make their life better and easier."
Who knew that when Barra said she wanted to "take on Silicon Valley" what she actually meant was "give them lots and lots of money"?
On Monday, GM announced it was adopting the app-based, ride-hailing enterprise Lyft as its kid brother in the race to build autonomous cars. GM will invest a whopping $500 million in Lyft, get a seat on the company's board, and together the two will help usher in our self-driving, on-demand utopian future.
"Take on" Silicon Valley by forking over wads of cash
It was an eyebrow-raising move by GM, which just six years before had undergone a bankruptcy, restructuring, and government bailout. And Lyft is certainly a counterintuitive pick. It's the number two name brand in ride-hailing, and has long labored in the shadow of its much larger, much more ubiquitous rival, Uber. Initial reactions to the investment were muted. The next day, GM's stock dipped 2.58 percent.
But it makes sense if you think about GM's long-stated interest in car-sharing, as well as its need for a validator from Silicon Valley to support its autonomous ambitions. GM is playing catch up to Ford, Google, Uber, Apple, Tesla, and other companies that have a head start in the race for autonomy, and taking on Lyft as its sidekick is a way to stay fresh. In the same right, the auto industry needs Lyft to survive, so Uber isn't the last ride-hailing company standing. Lyft might be able to keep Uber in check, at least with GM's help.
Asked by CNBC's Kayla Tausche "why partner with David and not Goliath in this effort," GM president Dan Ammann would only say that his company and Lyft share "a common point of view" and a "common perspective." The subtext being: a world where Uber does not totally control the means of transportation.
"With companies like Uber and Google leading the game for ride-sharing or for-hire vehicles, I think that having partnerships between other major corporations is a way to compete," said Jeffrey Miller, an autonomous car expert at the University of Southern California. "GM hasn't been investing as substantially in technology as other companies, such as Tesla, Uber, Google, Mercedes, etc. GM has been very open about partnering with other companies to include technology in their vehicles. This isn't a surprising announcement at all, and due to their reduced investment in technology professionals in the company, I think this is a good move for them."
He added, "I think over time GM and Lyft may be able to compete with Uber and Google, but they have some catching up to do since they weren't very early adopters."
Lyft might be able to keep Uber in check
It's true that a wide gulf separates Uber and Lyft. Lyft is worth $5.5 billion; Uber $62.5 billion. Lyft estimates it completes 7 million trips per month; Uber says it does a million a day (and just completed its billionth overall trip). Lyft has 700,000 active drivers; Uber 1.1 million. Uber operates in hundreds of cities and 67 countries, while Lyft is still only available in the US. (Although a recent alliance with a number of Asian ride-hailing apps could change that.) And unlike Uber, Lyft has shown little interest in self-driving technology.
But Lyft is growing in size — three times over the last year — and reach — 5 million passengers in 2015. GM's Dan Ammann said he was eager to combine his company's autonomous and connected car capabilities with Lyft's ride-sharing platform. The implications are certainly exciting, if not a little rose-colored: fleets of self-driving cars continuously picking up and dropping off passengers, who pay next to nothing in fares; the end of car ownership; the end of traffic accidents; the end of fossil fuels and pollution; clear eyes, full hearts, can't lose.
It's not clear that Uber is interested in making its own fleet of self-driving cars. So far, the company seems content to just get the technology right with the team of researchers and engineers it poached from Carnegie Mellon University and Google. Why make the cars, when you can just attach a sophisticated light and radar (or LiDAR) sensor to a pre-existing vehicle and obtain the same function? Besides, with over $10 billion in capital raised over the last five years, if Uber wants to build a car, Uber will build a car.
If Uber wants to build a car, Uber will build a car
GM's investment in Lyft can also be seen as a hedge against Uber's rapid growth. Uber has shown no interest in playing nice with legacy automakers in its inexorable march to dominate the globe. CEO Travis Kalanick talks openly of wanting to make personal car ownership a thing of the past. This is anathema to car makers, who have helped forge a world where three cars in a garage is part of the American dream.
Other car manufacturers are swallowing their pride and getting into bed with Silicon Valley companies. Google is reportedly partnering with Ford to create self-driving cars — although strangely no mention of the team-up was made during the car company's CES presentation Tuesday. Both companies have a lot to gain from each other. Other companies, like Apple and Tesla, are going it alone, but may end up pairing off if the right opportunity comes along. Love, and money, are in the air.
Some see GM's investment in Lyft as a bid to stay relevant in a world where car brands carry less clout. Others see it as a cry for help by GM, after some hard years for its reputation and sales. It could be either or both. It could also be about making sure Uber's main competition stays healthy, stays financed, and lives to fight another day.