Aurora Innovation

Moat: 2/5

Understandability: 4/5

Balance Sheet Health: 3/5

Aurora Innovation is an autonomous driving technology company focused on developing self-driving software and hardware for various vehicle types, including trucks.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Aurora is a company in a high-growth, but unproven, industry facing tough competition, as it still searches for profitability and positive unit economics. The path to profitability will depend a lot on how technology advances in the future, which is not in the company’s control, and whether they are able to generate sufficient demand for their products at attractive prices. This will depend on the trust, safety, and reliability of their autonomous technology.

Business Overview:

  • Revenue Distribution: Aurora is currently pre-revenue and relies on strategic collaborations for funding, the company has been generating revenue from a collaboration agreement with Toyota. Its ultimate sources of revenue are expected to come from a combination of software licenses, hardware sales, and autonomous ride-hailing services.
  • Industry Trends: The autonomous vehicle industry is in a period of significant uncertainty. While the promise of fully self-driving technology is captivating, the path to commercialization has been slower and more complex than initially anticipated. The industry faces regulatory hurdles, technological challenges, and public acceptance issues.
  • Competitive Landscape: The competitive landscape is fiercely contested. Established tech giants like Google’s Waymo and Apple are developing competing solutions, alongside traditional automakers like General Motors’ Cruise and numerous start-ups. This intense competition could put pressure on Aurora’s pricing power and its ability to attract and retain talent.
  • What Makes Aurora Different: Unlike many other competitors, Aurora focuses its efforts on long-haul trucking, where it sees a clear path to profitability. Moreover, the company focuses on autonomy as a service. Also, Aurora uses LIDAR technology that offers both long range, high resolution, and fast-reimaging rate. This differentiates it from companies who have focused on vision only, or radar + vision.

Aurora’s business relies on the promise of its technology working seamlessly and being trusted by consumers and regulators, while also making a profit, which is a tough mix to get right in this competitive industry, where others are making similar investments.

Financials In-Depth:

  • Liquidity & Capital Resources:
    • As of September 30, 2022, Aurora had $660 million in cash and cash equivalents. They expect to have sufficient funds to operate through 2024.
    • The company had net cash used in operations of $313.1 million in the nine months ended September 30, 2022.
    • In the near term, the company is burning a lot of cash, without consistent revenue generation.
  • Profitability:
    • Revenues are still negligible due to the product is in the pre-revenue stage.
    • Net loss has been increasing due to increasing operating costs.
    • With high R&D expenses, the path to profitability is still a long ways off.
    • For Q3 2022, company experienced a net loss of $255.5 million.
    • The company’s goal to achieve profitability and positive free cash flow isn’t expected before 2027.
  • Recent Concerns & Problems:
    • Due to the company’s focus on the Driver-as-a-Service model, revenue might be capped in the initial years of launch.
    • The company’s long-term contracts with its manufacturing partners like PACCAR and Volvo are still in the research and development phase.
    • The company had to face challenges with the supply chain and chip shortage.
    • The first test of Aurora Driver (beta 2.0) had some problems and was not a success. There was some unexpected behavior from the AI driver and therefore was temporarily suspended. The company is now implementing a “Safety Case Framework” which is to make sure testing and validations are transparent and reliable.
    • Because of the supply chain constraints, it may not reach its financial and operational goals by next year, 2024.
    • The company has mentioned several times during their earnings calls of having to adjust timelines. This indicates that they are behind on several aspects of commercialization of its tech.
    • In 2022, there were a few cases where the company’s driver had “unexpected actions”, which required the company to conduct detailed investigations to make sure that there are not any fundamental flaws in its AI technology.
  • Management’s Comments: The CEO has reiterated his vision in multiple press interviews and earnings calls that he is building a self driving technology that is safe and reliable. They have said that the long-term vision is to be a “Driver-as-a-Service”, where they will have multiple partnerships to scale its self-driving technology. Their partnerships with Toyota and PACCAR are an example of these partnerships. They have also talked about their improved Aurora Driver beta 3.0, that they claim has better performance, and a few other features. However, their main emphasis has been on safety and the reliable performance of the driver.

Aurora’s management team seems confident in its long-term plan, but it will take some time to produce results. Investors need to consider the company’s current high cash burn and uncertain future.

Moat Rating:

  • Rating: 2/5
  • Justification: Aurora possesses a narrow moat stemming from its technological expertise and strategic partnerships with truck manufacturers. However, the technology is rapidly evolving and could easily be overtaken by competing products or research. The company also does not have high switching costs or pricing power. Furthermore, regulatory hurdles could also be an issue. While their existing partnerships give them an early advantage, their moat still remains narrow.

Legitimate Risks & Resilience:

  • Technology Disruption: The rapid pace of technological change in autonomous driving is a significant threat. New technologies may quickly render their existing technology obsolete.
    • Resilience: The company must focus heavily on R&D to ensure its technology stays ahead.
  • Regulatory Hurdles: Regulatory requirements for autonomous vehicles are still evolving and uncertain. The lack of a clear regulatory path will create problems for the commercialization of its technologies.
    • Resilience: Aurora can partner with more well-established companies like Toyota that have a better relationship with regulators.
  • Competition: Intense competition from both established companies and well-funded startups could hinder the company’s growth and profitability.
    • Resilience: Aurora should try and focus on niches where the competition is more limited.
  • Dependence on Partnerships: Aurora heavily relies on partnerships with vehicle manufacturers for commercialization. If these relationships falter, their plans might be severely hurt.
    • Resilience: Aurora needs to make sure these partnerships are strong and they develop the tech in collaboration with these partners.
  • Financial Risk:
    • High cash burn rate and negligible revenue create a significant financial risk, so they need to raise more money without giving too much equity to their shareholders.
    • Resilience: They need to prioritize profitability and start focusing on revenue growth.
  • Public Acceptance:
    • General public still has major concerns with self-driving cars, specially trucks. This lack of trust can be a significant barrier to commercialization.
    • Resilience: Transparency and consistent and reliable performance are important here to build that trust.
  • Adoption Curve: The adoption of new technology by consumers will be a long and volatile process. The slow and staggered adoption could affect the company’s ability to sustain its business and the company might face difficulties to meet their forecasts. Resilience: Aurora is positioning itself as a service and not as a seller of vehicles, which should help with widespread adoption.

Understandability Rating:

  • Rating: 4/5
  • Justification: Aurora’s business model and purpose of operations is fairly clear- a tech company developing a self driving technology. However the tech behind the AI and the complex partnership, with different companies with different focus make it complex for the average investors to understand. Also, the complex financial implications add to the difficulty of understanding the business.

Balance Sheet Health:

  • Rating: 3/5
  • Justification: While the company does have significant cash reserves, it is currently burning cash without revenue. Also, the long term outlook depends on their ability to commercialize its technology.