Honda Motor Co Ltd will invest $2.75 billion and take a 5.7 percent stake in General Motors Co’s Cruise self-driving vehicle unit, to jointly develop autonomous vehicles for deployment in ride services fleets around the world.
Honda‘s partnership comes months after Japan’s SoftBank Group made its own multibillion-dollar commitment to Cruise. That puts Cruise in a league with Alphabet Inc’s Waymo unit in terms of resources and aggressive plans to launch commercial services.
Honda, which has lagged behind many of its rivals in developing self-driving vehicles, is paying $750 million upfront for the equity stake in GM’s Cruise and will contribute another $2 billion over 12 years in development work and fees, the companies said on Wednesday.
The deal, which calls for Honda to provide engineering expertise, extends cooperation between the two automakers in a technology that has enormous costs and risk but no market-ready products.
Other global automakers are forging similar alliances to share the uncertainty and huge price of developing technologies that have yet to gain widespread consumer acceptance.
GM shares were up 3.1 percent in early afternoon trade.
In May, SoftBank said it would buy stakes in Cruise totaling 19.6 percent for $2.25 billion.
Where SoftBank is primarily a financial partner, “we view Honda as a strategic investor,” sharing in vehicle, systems and business development with GM, wrote RBC analyst Joseph Spak in an investor note.
In a blog post early Wednesday, Cruise Chief Executive and co-founder Kyle Vogt joked: “Honda is joining the party. They’re bringing chips, dip, and $2.75 billion.”
Vogt told Reuters that Cruise and Honda would design a vehicle intended to be autonomous, rather than the modified sedan with a steering wheel and driver controls that it is working on now.
“We’re still shooting for 2019 to have the first version or first wave of vehicles that come out on our own platform. This is what comes after that,” he said.
Honda‘s investment boosts the value of Cruise to $14.6 billion – about a third of GM’s $48 billion market cap. GM acquired the San Francisco-based startup in March 2016 for a reported $1 billion.
By comparison, analysts have pegged the value of Waymo as high as $175 billion. Honda has had discussions for two years with Waymo about possible collaboration, but no deal has been announced.
In a media briefing on Wednesday, GM President Dan Ammann said 2019 “remains the goal” for GM Cruise to launch a self-driving ride services fleet. He added: “The longstanding relationship we have with Honda will allow us to move very quickly in ramping up our efforts.”
In January, GM filed a petition seeking U.S. government approval for a fully self-driving car – one without a steering wheel, brake pedal or accelerator pedal – to enter the automaker’s first commercial ride-sharing fleet in 2019.
Ammann declined on Wednesday to provide a more specific timeline for the vehicle.
GM has been “very selective in our approach” to investors in Cruise and “we will evaluate other investment opportunities as they come along,” he said.
Ammann later told analysts: “We’re moving as quickly as we can to get to the point where we can initially deploy the technology and then scale it … This is an effort that requires very, very significant resources to pull off.”
Ammann said Honda will contribute its engineering know-how and will help GM Cruise build a global ride services business.
GM Cruise and Waymo are often described as leading the pack of technology and auto companies competing to create self-driving cars and integrate them into ride services fleets.
Honda executive Seiji Kuraishi said: “This investment is based on a shared vision and their (GM’s and Cruise’s) superior technologies in this area.”
GM Cruise has a test fleet of more than 100 self-driving versions of the Chevrolet Bolt, rebadged as Cruise AV.
GM CEO Mary Barra said the automaker is still focused on testing self-driving vehicles in San Francisco before expanding to other markets.
Waymo has agreements with Fiat Chrysler Automobiles and Jaguar Land Rover to buy and equip tens of thousands of vehicles with its self-driving systems.
Other automakers are exploring similar tie-ups to help mitigate risk and cost, according to Autotrader analyst Michelle Krebs, who said the GM-Honda deal “demonstrates that global partnerships like these … are necessary to take on these expensive ventures that likely will not return a profit in the near-term.”
BMW, which has a development partnership with suppliers Intel Corp, Aptiv PLC and Magna International, expects some rivals and ride services companies to join its consortium for developing self-driving cars as auto industry profits come under increasing pressure, board member Klaus Froehlich said on Tuesday.
At the Paris Auto Show on Wednesday, the heads of Daimler AG and Renault said the two companies may expand their cooperation to batteries, self-driving vehicles and mobility services.
The GM-Honda announcement extends a partnership that includes joint development of electric vehicles with hydrogen fuel cells that are expected to go on sale in 2020. In June, Honda also said it would buy advanced batteries from GM in a move that could significantly reduce the cost of future electric vehicles at both automakers after 2020.