Why Shares of General Motors Soared 10% This Morning

What happened

Shares of General Motors (NYSE: GM) soared on Thursday after GM revealed that an important technology-investment fund controlled by Japanese telecom giant SoftBank Group (NASDAQOTH: SFTBF) has agreed to invest $2.25 billion in GM’s self-driving subsidiary.

As of noon EDT, GM’s shares were trading at $41.81, up 10.52% from Wednesday’s close.

So what

The deal between GM and SoftBank’s Vision Fund is important for reasons that go far beyond the money involved — and those reasons add up to a bullish argument for GM’s self-driving effort, and for GM itself.

Ammann and Ronen are shown seated inside the car, which has no steering wheel. Barra is looking in from an open door.

GM president Dan Ammann, SoftBank Investment Advisers’ managing partner Michael Ronen, and GM CEO Mary Barra with a prototype of GM Cruise’s self-driving taxi. Image source: General Motors.

First, the SoftBank Vision Fund is a widely watched investor in technology companies that are likely to become dominant in the not-too-distant future. Its investment will give GM Cruise a credibility boost in Silicon Valley, which will be a boon to its recruiting efforts.

GM Cruise has been developing a self-driving taxi, based on the well-regarded Chevrolet Bolt electric vehicle, that it expects to deploy at scale in urban ride-hailing service starting in 2019. SoftBank has stakes in several ride-hailing companies, including Uber Technologies and China-based giant Didi Chuxing, and likes to arrange mutually beneficial deals between its portfolio companies.

Given the advanced state of GM Cruise’s autonomous-vehicle effort, it’s not hard to see why SoftBank might want to connect it with its other portfolio companies. It’s also not hard to see why GM, which didn’t really need the money, welcomed SoftBank as an investor in GM Cruise.

Now what

SoftBank has agreed to two rounds of investment in GM Cruise. The first round, to include $900 million from SoftBank Vision Fund and $1.1 billion from GM, is expected to close by the end of June. The second $1.35 billion tranche will be made available when Cruise’s autonomous vehicle is ready for deployment, likely next year if regulators approve.

GM and SoftBank both agreed to stay invested for at least seven years before seeking an exit.

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