AUR - Aurora Innovation: 2024 Launch Can't Come Soon Enough

2023-04-30 05:05:59 ET

Summary

• Aurora Innovation is finalizing steps towards commercial launch of the Aurora Driver along with a subscription trucking service.
• The company is busy testing an autonomous lane between Dallas and Houston.
• The stock isn't appealing until Aurora solves the stunning cash burn rate.

While Aurora Innovation ( AUR ) still offers a ton of promises, the stock has been an ultimate disaster since completing the SPAC deal. The market isn't very fond of pre-revenue business models, though the autonomous driving software business is approaching official launch in 2024. My investment thesis remains ultra Bearish in the short term due to funding and business launch questions, though the date is fast approaching now.

Aurora Driver

The promise of autonomous driving lanes for trucks provides some huge appeal. Aurora Innovation has set up a terminal in South Dallas to handle autonomous trucks for pilot customers like FedEx, Schneider and Uber Freight handling trips on a lane between Dallas and Houston.

The terminal allows for non-stop operations with on-site maintenance, fueling and weigh stations to enable continuous driving. Aurora Innovation is now hauling 50 customer loads a week with a goal of reaching 100 hauls per week by the end of 2023.

The one noticeable issue with the terminal plan is that Aurora Innovation is offering a very limited service for autonomous trucks. The service might speed up the official deployment of autonomous trucks, but the plans aren't offering the full potential of self-driving capabilities with a very restricted lane versus the promises of delivery covering any desired route in the country.

The Aurora Driver service is set to save drivers from a roughly 8-hour roundtrip from Dallas to Houston. FedEx and Uber Freight would only need to provide local drivers to take truckloads to and from the terminals in Dallas and Houston.

The exciting part is that Aurora Driver is Feature Complete. Aurora Innovation is currently focused on refinement and validation between now and commercial launch in later 2024.

The company will launch Aurora Horizon, an autonomous trucking subscription service, around the same time. The ultimate goal is to launch Aurora Driver for self-driving cars and local delivery after the initial focus on the trucking segment.

Stunning Cash Problems Ahead

At the end of 2022, Aurora Innovation had a cash balance of $1.1 billion. The company dropped the stunning pronouncement the business only had enough cash to survive until mid-2024.

The CFO reinforced the cash position on the Q4'22 earnings call :

We ended the year with a very strong balance sheet, including $1.1 billion in cash and short-term investments. Taking into account cost savings and cost avoidance actions we took in 2022, we continue to expect our cash to fund Aurora through mid-2024, enabling us to continue to execute on our Aurora Horizon roadmap.

Aurora Innovation burned $141 million in operating cash flows during Q4 and the company spent $508 million for the whole year. At a quarterly burn rate of $150 million, one can see how the company burns $900 million in cash by mid-2024 while the forecasts have always included plans to ramp up spending heading into commercial launch.

These statements are highly problematic for a business with the stock trading at $1.43. Aurora Innovation can't raise equity without a massive dilution to existing shareholders, but the company recently filed for a $350 million mixed shelf offering.

Ultimately, the most concerning part is that the autonomous trucking platform company is only forecasting a limited release of the product in late 2024 focused on the trucking lane from Dallas to Houston. Aurora Innovation could spend another $1+ billion to open up a limited product opportunity, not a full suite of AV technology completely solving customer needs to delivering goods directly to the customers door as opposed to terminals outside of Dallas and Houston.

Also remember, the company launching a commercial product (especially a limited product) won't deliver the massive ramp in revenue due to the time needed to scale the other lanes around the country. Analysts currently don't forecast Aurora Innovation topping $100 million in annual revenues until 2026.

As noted above, the company is burning $140+ in cash from operations on a quarterly basis already and the analyst community doesn't see quarterly revenues reaching this level until 2027. The business disconnect is very concerning for shareholders because the cash burn rate will require dilutive financing far before the company reaches material revenue levels.

Takeaway

The key investor takeaway is that Aurora Innovation is on the steps of launching their autonomous truck platform, but the company remains far away from material revenues. The stock isn't appealing until business is better aligned with the cash burn rate.

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