Underdogs GM and Lyft hope to catch rivals in a new, self-driving partnership designed to catapult both companies. General Motors is investing $500 million in Lyft as part of the partnership. GM’s $500 million interest in Lyft is the single largest direct investment by an auto manufacturer into a ride-hailing company in the United States. Lyft will also receive another $500 million from other investors including Alibaba (China’s e-commerce company), Saudi billionaire Prince Alwaleed Bin Talal Alsaud, Janus Capital Management and Didi Kuaidi (China’s ride-hailing company). Lyft’s total value is $5.5 billion, after the investment.
GM And Lyft Trail Competitors
Both GM and Lyft are underdogs. GM trails Google, Tesla, Ford and purportedly Apple in self-driving car technology. GM is also behind Daimler and Ford, who are developing their own ride-sharing services. For its part, Lyft lags behind car-hailing industry leader Über whose market capitalization is $60 billion, nearly twelve times that of Lyft. Über raised $5 billion in 2015 alone, five times as much as Lyft’s current funding round.
The GM-Lyft partnership is unusual because it pairs an auto stalwart with the kind of start-up trying to disrupt it. The founders of Lyft, the ride-hailing service, have long imagined that the future of transportation would involve fewer cars on the road. Now General Motors is helping the start-up reach that goal.
The potential self-driving future poses a challenge for GM, a company built to manufacture and sell cars to individual drivers. The carmaker’s bet on a ride sharing could be seen as a hedge on that classic business, at least in highly populated areas where startups like Lyft and Über have seen the greatest traction.
GM And Lyft Pairing Up For the Battle Ahead
The competition in the ride-hailing market is really just the prelude to a much bigger fight over dominance of the self-driving car market over the next couple of decades. GM is betting the future of self-driving cars is rental, not ownership. Self-driving cars will flip around the notion of owning a car is the best means of transportation. Without the need to pay a driver, self-driving taxis will be so cheap that ordinary middle-class consumers, even in the suburbs and smaller towns, will find them cost-effective for most trips.
Cars can be optimized for shorter trips and more heavily specialized for different use cases if they are primarily rented, rather than owned. Short-range, high-efficiency electric vehicles will become more practical. Companies may make cars in a wider variety of sizes and shapes
By the time self-driving cars start showing up in the marketplace — likely sometime in the 2020s — many customers will have grown accustomed to hailing cars using a smartphone-based service like Über or Lyft.
New Partnership Gives GM And Lyft Advantages
Putting software in control of cars is likely to be a lot more than a cosmetic change for GM. Car companies’ current manufacturing techniques — which involve delegating most of the work to hundreds of subcontractors — make car software almost impossible to audit. Forming a joint venture with a prominent software company like Lyft gives GM a chance to start with a fresh slate.
Developing self-driving technology won’t be cheap, and so companies that can spread those development costs across multiple big markets will benefit. Lyft’s additional investment from Alibaba and Didi Kuaidi, two large companies in China will give both GM and Lyft increased access to the world’s second largest car market.
The GM and Lyft alliance will now play catch-up with other companies that have big head starts in self-driving technology. Google has had working self-driving car prototypes for years. Tesla’s cars already have some rudimentary self-driving capabilities, and Tesla is working hard to make its vehicles fully self-driving in just a few years away. And, Apple has also been working on a car project in the past year.
As part of the partnership, GM will work with Lyft to set up a series of short-term car rental hubs across the United States, places where people who do not own cars can pick up a vehicle and drive for Lyft to earn money.
GM and Lyft did not give a specific timeline for when they expected their autonomous vehicle network to become publicly available, nor did the companies offer details on how the network is expected to function.
It will most likely be some time before a fully autonomous network of cars becomes a reality. Early rules for self-driving vehicles may hinder the speed of progress. California recently passed legislation requiring a driver to be behind the wheel of a self-driving car at all times.