Why General Motors is making a $500 million bet on Lyft

The $1 billion mustache.
The $1 billion mustache.
Image: Reuters / Lucy Nicholson
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Late last month, it was rumored that Uber-rival Lyft was seeking $1 billion in funding that would value it above $4 billion. On Monday, to kick off the new year, Lyft announced that it had closed the round at a $5.5 billion post-money valuation, with $500 million coming from a single source: General Motors.

The GM investment brings more than cash. Lyft and GM are partnering to create an “autonomous on-demand network”—a fleet of self-driving cars that can work on the Lyft platform—as well as a rental program to give Lyft drivers in the US access to short-term vehicles. Neither company offered many specifics on the initiatives. A spokeswoman for Lyft says it’s yet to be determined whether Lyft or GM will own the self-driving cars. GM and Lyft also aren’t disclosing where the rental option will debut for drivers, or what the pricing will look like.

At face value, the partnership is about two companies that need something from each other. GM has been working on driverless car technology for a decade, and dreaming about it since the 1939 New York World’s Fair. But in recent years, as GM has finally started to realize that vision, the market for personal transportation has fundamentally shifted. Young adults, scarred by student debt and lingering effects of the recession, are buying fewer cars. Many are also migrating to cities, where the combination of public transit and ride-hailing services like Uber and Lyft are rapidly making car ownership less necessary.

The future of cars—driverless or otherwise—is increasingly looking like one in which people don’t just stop driving, they also stop owning. Automakers know that. That’s why Ford and Google are reportedly collaborating on self-driving cars, and why GM struck this deal.

“There’s a big chunk of the customer base that’s saying I want to get from A to B in a different way; I want to use a car, but I don’t want the hassle of owning one,” GM president Dan Ammann told Quartz.

The partnership also solves a problem for Lyft. While it’s charging forward with all things ride-sharing, Lyft has yet to make a substantial investment in self-driving cars. This contrasts starkly with Uber, which last year raided the robotics talent at Carnegie Mellon University to establish its own facility in Pittsburgh for developing mapping and self-driving car technology. Uber CEO Travis Kalanick has said the ultimate goal—the “magic” that will definitively make taking an Uber cheaper than owning a car—is to replace human drivers with robotic vehicles. For Lyft to stay competitive, it needs to invest in similar endeavors.

Partnering with GM “makes a lot of sense as opposed to a startup that’s never produced cars before,” John Zimmer, president and cofounder of Lyft, told Quartz.

Which brings us to the subtext of the partnership: it’s another bid against Uber. The fact is, Uber is becoming more and more of a real threat to big established corporations like GM. In early December, Uber was reportedly seeking another $2.1 billion in funding that would boost its valuation to $62.5 billion—several billion above the market cap of GM. Uber, with its operations in 67 countries and well over 300 cities, is going it alone against the world. Lyft, smaller by virtually every comparison, has been trying to catch up through global ride-hailing partnerships. General Motors probably didn’t have to pick a side at this point in the game. But maybe joining a team felt like the safer bet.