May 31, 2018

Breakingviews: SoftBank-GM self-driving Deal

by Breakingviews

The SoftBank Vision Fund’s self-driving car deal with General Motors is more than a way to hedge its many bets. The huge Japanese investment outfit will sink $2.25 billion into the U.S. carmaker’s autonomous-vehicle unit. The risk may not be spreading its holdings too widely, but doing it too early.

The Vision fund has certainly been spraying its nearly $100 billion of cash around. Earlier this year, it took a 15 percent stake in ride-hailing firm Uber, which is also developing self-driving vehicles. An investment in chip firm Nvidia is also a play on AV technology, as that company is working with Uber Technologies, Baidu, Volkswagen and a host of others attempting to develop driverless cars. Just last week, SoftBank was in talks to provide funding to Zoox, a self-driving car startup larded with former Apple employees, according to Axios. Stakes in chipmaker ARM and telecom company Sprint are indirect plays on the technology, too.

It’s a kind of supercharged venture-capital strategy. When an investor thinks a particular technology is going to be massively profitable, it makes sense to invest in multiple companies pursuing it. Even if only one succeeds, the gain can easily dwarf 10 or more failures. Moreover, autonomous driving is a nascent technology, so predicting which upstarts or established players will eventually dominate is guesswork. That adds to the logic of making multiple wagers.

The risk in the Vision fund’s math may actually be the broader bet on autonomous driving. Other investors seem to share SoftBank boss Masayoshi Son’s faith: Stock-market players pushed GM’s stock up more than 10 percent on Thursday following the announcement of the SoftBank investment, and even tech skeptic Warren Buffett considered investing $3 billion in Uber, according to news reports this week. But some of the assumptions may be too optimistic.

For instance, GM hopes to start commercial self-driving taxi operations as early as next year. While autonomous technology has made great strides, the remaining shortcomings are by definition the hardest to surmount, and even then regulators and drivers have to be brought on board. Other quests provide warning that what seems imminently within the world’s grasp – whether it’s virtual reality or a cure for cancer – may still be just out of reach a decade from now.

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