While shares of legacy automaker General Motors (NYSE:GM) popped conspicuously higher, the underlying news wasn’t great for employees of Cruise, GM’s subsidiary that focuses on developing autonomous driving technology. Unfortunately, safety concerns over the innovation finally bubbled to the surface, forcing the General Motors layoffs. Still, it’s a complicated narrative that requires careful thought, which may explain the rise in GM stock.
According to a CNBC report, the Cruise layoffs will impact 900 employees or 24% of its workforce. Further, the headcount reduction primarily affects commercial operations and related corporate functions. The business news agency stated that it’s part of the latest turmoil for the subsidiary, which a day earlier let go of nine “key leaders.”
Specifically, the high-level terminations and rank-and-file reductions center on Cruise’s response to an Oct. 2 accident, where a woman was found critically injured and trapped underneath one of its self-driving vehicles. CNN reported that at the time, another car had initially struck the pedestrian, who had crossed the intersection when cars had the right of way.
In a statement, the subsidiary’s spokesperson stated that the Cruise layoffs reflect its decision to focus on “more deliberate commercialization plans” and with safety as its “north star.” Unfortunately, CNBC mentioned that a “barrage of safety concerns and incidents have plagued Cruise” following approval in August for its round-the-clock robotaxi service in San Francisco.
General Motors Layoffs Warrants a Careful Examination of Facts
Contributing to the woes that eventually sparked the General Motors layoffs, Bloomberg reported in late October that Cruise grounded its entire fleet. However, that decision was largely out of the subsidiary’s hands. A few days prior to the grounding, the California Department of Motor Vehicles suspended the driverless unit’s deployment and testing permits.
Pouring salt on wounds, the regulatory body issued a blunt statement. “When there is an unreasonable risk to public safety, the DMV can immediately suspend or revoke permits.” With that, the General Motors layoffs were inevitable, as the company’s memo to employees clearly implied.
Still, is there really a problem with self-driving technology? According to an Ars Technica article, context matters. Available data indicates that the innovation may be on par with — or maybe even better than — a human driver. Notably, Cruise and Waymo, the driverless unit under Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), have both driven a combined total of 8 million autonomous miles.
Further, a majority of collisions involving Waymo represented low-speed affairs initially stemming from other (human) drivers. As well, during incidents where a Waymo driverless car hit another vehicle, the counterparties were not blameless, leaving little ability for the Waymo car to avoid the collision.
Therefore, it’s possible that the General Motors layoffs center largely on a reactionary narrative and that investors view the controversy as a discounted entry point.
Why It Matters
At the moment, analysts peg GM stock as a consensus moderate buy. This assessment breaks down as 14 buys, four holds and one sell. Further, the average price target stands at $45.91, implying a 28% upside potential from the time of writing.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
