AUR - Aurora Innovation: Getting Closer To Commercial Launch Reiterate Buy

2023-08-10 08:46:43 ET

Summary

• Aurora Innovation is expected to achieve commercial launch by the end of 2024.
• The company now has a much stronger balance sheet with at least a billion dollar in the balance sheet.
• Aurora's pilot activity has been successful, with impressive results and potential collaborations with industry heavyweights.

Summary

Readers may find my previous coverage via this link . My previous rating was a buy, as I believed Aurora Innovation (AUR) has continued to make strides in the development of its technology in 1Q23, and the company has reached a number of technical milestones, including feature completion for the Aurora Driver. I am reiterating my buy rating for AUR, as I expect it to continue executing and achieve commercial launch by the end of 2024.

Financials/Valuation

As AUR is not reporting any meaningful revenue yet, I believe the focus should be on its balance sheet . As of the end of 2Q23, AUR has $966 million in cash and equivalents and $137 million in debt, netting a net debt of around $830 million. This, along with the capital raise on July 18, gives AUR more than a billion of capital. Based on a 3Q23E EBITDA loss of -$168 million, it should have enough to last for at least 6 to 8 quarters, depending on EBITDA improvement, which is sufficient to bridge AUR to its first commercial launch at the end of FY24. Management is also confident that it has sufficient cash to fund the company into 2H25.

My view of AUR's ability to achieve its long-term target has not changed. My model assumes five scenarios, reflecting the range of multiples that AUR would trade at. Given the lag of peers at scale, I compared AUR against Tusimple and Lucid.

Comments

In my view, the two most important comments made during the call were management reiterating their target for the Aurora Driver Ready milestone by the end of the year and Commercial Launch by the end of 2024.

"In closing, on the heels of our recent capital raise and strong technical and commercial advancement, we entered the second half of 2023 with strong momentum toward achieving the Aurora Driver Ready milestone by the end of the year, which, in turn, prepares us for our anticipated commercial launch by the end of 2024."

"The Aurora Driver hardware remained fully functional at the end of the test. Volvo Autonomous Solutions and Aurora expect to begin testing an autonomy-enabled prototype, Volvo VNL powered by the Aurora Driver in the first quarter of 2024." 2Q23 earnings

One of the key hurdles to Aurora Driver being ready to launch is achieving Autonomy Readiness Measure. Significant progress was made during the quarter to resolve the Aurora Driver Safety Case between Dallas and Houston, according to AUR. Once AUR has received the finalized Aurora Driver Safety Case, the Aurora Driver can be deployed. In the short to medium term, this is one of the most consequential factors for the stock's performance. If successful, the Safety Case will be an all-encompassing evidence-based strategy for establishing that AUR self-driving vehicles are sufficiently risk-free to be used on public roads. This will likely kickstart strong stock sentiment as the near-term outlook will become a lot more visible (i.e., consensus can confidently model revenue and profits).

Leading indicators that point to high probability of success during commercial takeoff were mentioned in the call as well. The company's pilot activity, according to management, has been so successful that it has exceeded its goal of autonomously hauling 50 loads per week for customers in 2Q23. The business has expanded to the point where it now logs over 17,000 business miles per week and has transported 1,300 loads this year as of July 31. As of July 31st, Aurora had driven over 630K commercial miles while delivering 2,290 loads autonomously under the watchful eye of vehicle operators. Management claims that their pilot customers, which include FedEx, Werner, Schneider, and Uber Freight, experienced nearly perfect on-time delivery performance. The results were impressive, but the fact that industry heavyweights tested it suggests opportunities for future collaborations; these organizations have effectively "vetted" the product, which will make selling it to these potential customers much simpler for AUR.

On the commercial front, management has stated that the company still anticipates signing a Commercial Launch contract by the end of the year in light of the growing interest among customers to incorporate Aurora Horizon into their networks. AUR's relationships with PACCAR and Volvo Trucks, two of its truck OEM partners, and with Continental, a new Hardware as a Service partner, remain fruitful. For those who may have forgotten, AUR and Continental entered into a long-term partnership to create, produce, and support a commercially-scalable next-generation Aurora Driver hardware kit. In my opinion, this gives AUR a significant competitive edge because it enables the company to expand its operations over the long term while minimizing its capex.

Conclusion

I reiterate my buy rating for AUR due to its steady technological advancements, including reaching key milestones for the Aurora Driver. AUR's robust cash position, recent capital raise, and management's confidence in funding through 2H25 provide comfort that the balance sheet can last until it reaches commercial launch. The achievement of Autonomy Readiness Measure and successful pilot activity with major partners like FedEx and Uber Freight signal positive commercial prospects. All in all, anticipated commercial launch by the end of 2024 and management's clear goals further support my positive outlook on AUR's potential for long-term growth.

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