What if the stodgy, once-bankrupt auto maker was the disrupter all along?
SoftBank Group ’s 9984 -0.04% tech-focused Vision Fund is betting $2.25 billion that GM Cruise Holdings, General Motors GM 1.17% ’ driverless car developer, will be that disrupter. GM will retain an 80% stake in Cruise after the capital infusion.
Coming from the world’s biggest tech-investment fund, SoftBank’s investment is a huge boost to GM, giving it cash and strong ammunition to fend off shareholder pressure for its risky bet on self-driving vehicles, and more immediately, electric cars. The auto maker’s shares jumped 10% on Thursday morning.
The investment goes beyond money and prestige. SoftBank itself owns major stakes in Uber Technologies, China’s Didi Chuxing Technology and other big ride-hailing companies. That would potentially give GM a market for its future cars.
It also is a contrarian bet—GM is trading at a single digit price-to-earnings ratio and not long ago trailed Tesla in market value.
While the Vision Fund hasn’t been particularly sensitive to the prices it pays, the investment boosts the value of Cruise to $11.5 billion, less than three years after GM bought it for $1 billion.
For its part, SoftBank has invested alongside a profitable, highly efficient company. GM generated $5.2 billion in free cash flow last year, so the newly invested capital can be credibly aimed at research and development. GM also has successfully brought to market the Bolt, an affordable long-range electric car, something that more celebrated rivals have yet to accomplish.
If, for instance, SoftBank had chosen to invest $2.25 billion in Tesla, which burned about $3.5 billion in cash last year and regularly taps the capital markets to fund basic operations, the SoftBank money would barely cover the portion of Tesla’s long-term debt due in 2018.
The future of mobility is hardly a settled matter. Investors shouldn’t be too quick to count out the old guard.
Write to Charley Grant at charles.grant@wsj.com
Appeared in the June 1, 2018, print edition as 'SoftBank, GM Make Odd but Happy Match.'