AUR - Aurora Innovation: On Track To Launch By End Of 2024

Summary

• AUR is on track to achieving its commercialization goals, with a projected commercial launch by the end of 2024.
• AUR has $1.1 billion in cash on the books, which should be enough to sustain the business until about midway through 2024.
• While the timeline for commercial deployment remains subject to extension, the risk/reward ratio for investors appears to be asymmetrical, with the potential for a sizable reward if AUR achieves its targets.

Summary

Since I first discussed Aurora Innovation ( AUR ) as a potential investment, my opinion has not shifted. In fact, the results of 4Q22 have reassured me that AUR is well on its way to achieving its commercialization goals. Thus, I maintain my buy recommendation on AUR. During the quarter, AUR reached a number of technical milestones, including the release of Beta 5.0. I see AUR's ability to stick to its prior plan as a positive sign, even though it still has a number of technical capabilities to achieve and test before launch. I continue to believe that AUR is among the industry leaders in the autonomous trucking sector. True, investors may be taking on more risk today due to a lack of profits and the possibility that the commercialization timeline may be extended. However, the risk/reward ratio is extremely asymmetrical in my view. If AUR achieves its FY27 targets, as I have modeled in my previous post, it should reap a sizable reward.

4Q22 results

The most important takeaway is that management reaffirmed its roadmap to commercial launch, stating that the AUR Driver platform is still expected to be ready by the end of 2023, with commercial launch anticipated by the end of 2024. The fact that AUR has $1.1 billion in cash on the books is also encouraging, as this amount should be enough to keep the business afloat until about midway through 2024.

Tech and roadmap updates

Released during the quarter, AUR Beta 5.0 included new features that allow the AUR Driver to recognize and react appropriately to moving emergency vehicles that do not always adhere to standard road regulations. Moreover, the Fault Management System introduced the previous year was expanded upon in Beta 5.0 by introducing the ability to re-enter traffic from the shoulder. In plain English, this means that cars and trucks can now stop temporarily on the side of the road when necessary and then rejoin moving traffic. In addition, Beta 5.0 can now travel farther to avoid obstacles like construction zones and temporary roadblocks. I believe these updates are extremely crucial on 2 fronts.

First, it tells us that AUR is innovating and the product is becoming more applicable in real world situations. Second, it provides us with insights on the underlying process, which is helpful in terms of modeling and assessing if the commercialization timeline makes sense. By 1Q23's end, AUR hopes that its system will be Feature Complete, with features like the ability to detect and react to scenarios that are beyond the system's capabilities and the ability to identify involvement in a collision and take appropriate action. Importantly, the AUR Driver platform is still projected to be complete by the end of 2023, with a commercial release anticipated by the end of 2024. Separately, AUR declared that the Dallas–Houston corridor would serve as the inaugural commercial route.

Also, AUR reported that it has exceeded its first-quarter goal of hauling 30 loads per week by averaging 40 loads per week. AUR has completed pilot projects with its freight clients, delivering 1,150 loads over a distance of more than 324,000 miles (cumulatively). In addition, AUR and Ryder have announced a strategic partnership to test out on-site fleet maintenance. AUR expects to offer its customers lower maintenance costs and increased asset availability thanks to the agreement with Ryder, whose technicians will be stationed at its Dallas terminal to maintain its fleet.

When viewed as a whole, I see signs that gradually point to AUR's commercialization goals being met. The stock narrative should also turn for the better with news of successful feature rollouts and internal KPI achievements.

Risks update

Timeline extension

Since the launch date is rapidly approaching, I feel compelled to bring this up. Due to the numerous technological and regulatory obstacles that must be overcome before its commercial deployment, its expected date of release is murky at best. Investors could take a big hit if AUR is unable to bring its solution to market as planned.

Conclusion

AUR continues to show strong progress towards achieving its commercialization goals. The 4Q22 results and technical updates during the quarter indicate that AUR is sticking to its roadmap and making notable advancements in its autonomous driving technology. While the commercial launch timeline may still be subject to extension, the risk/reward ratio for investors appears to be extremely asymmetrical, with the potential for a sizable reward if AUR achieves its FY27 targets.

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