Honda will invest $2.8 billion spread over 12 years. The deal includes Honda paying GM $750 million immediately which will translate into a 5.7% stake in Cruise Holdings.
GM reported that the Honda Investment raises the Cruise valuation to $14.6 billion, a third of the GM’s market value of $48 billion.
This arrangement comes a few months after the $2.25 billion investment by Softbank Vision Fund in the GM unit.
The GM share value increased by 7% in premarket trading but by mid-morning, the share had increased by less than 2%.
Also, the Detroit automakers’ share value declined by more than 21% over the previous year. The US Honda’s share declined by 3% in trading Wednesday.
The deal will enable GM and Honda to join the many automakers that have shown interest to develop a wide-use autonomous vehicle that will be used worldwide. The manufacturing work will be done in GM plant although no timelines have been set.
“This is the logical next step in General Motors and Honda’s relationship, given our joint work on electric vehicles, and our close integration with Cruise,” said General Motors Chairman and CEO Mary Barra
“Together, we can provide Cruise with the world’s best design, engineering, and manufacturing expertise, and global reach to establish them as the leader in autonomous vehicle technology — while they move to deploy self-driving vehicles at scale.” She added.
“When you think about how much it costs to develop these future technologies — it’s immense,” said Michelle Krebs, an executive analyst at Autotrader on “Closing Bell.”
“And we don’t know when they’ll be ubiquitous when they’ll get any return on that investment. So they’re sharing the cost. They’re sharing the risk.” She added.