EMBKW - Embark Technology: Leading Player In The Race To Autonomous Trucking

Summary

• Embark is ahead of the curve in terms of proving its autonomous trucking concept, with significant miles on the road and an unblemished safety record.
• The company's strategy as well as its value proposition are well-defined and are quite sensible in my view.
• Along with this, the firm is in talks with a robust slate of marquee shipping & trucking customers.
• As Embark proves out more of its offering, I think its business will generate traction as well as investor interest - and I am willing to call it a buy even at this very early (pre-revenue) stage.

Overview

Embark Technology Inc. ( EMBK ) is a technology company that outfits trucks with autonomous driving technology. Embark provides software retrofits for fleets of trucks, turning them into fully operational autonomous vehicles. They are purely a technology provider and don't own trucks themselves, although their technology is being designed from scratch to work with the fleets of every major trucking provider in the United States.

The company entered the public markets via SPAC merger in Q1 2021, merging with the blank check acquisition entity 'Northern Genesis Acquisition Corporation II'. This transaction was relatively complex, with another entity called Lion Electric Corporation spun off as another publicly traded security. Additionally, private placement financing of $200M was brought into the merger, primarily provided by the marquee venture capital firm Sequoia Capital as well as the well-known hedge fund/private entity vehicle Tiger Global.

While this company may be public, it is still in its proof-of-concept phase and has not generated any revenue. With that being said, it caught my eye as a unique player in the autonomous driving space that has a well-defined and seemingly viable strategy.

Business Strategy & Go-to-Market Progress

Embark has a unique strategy focused on 'transfer points'. These are places where a human driver can hand off a truck for what will then be the autonomous part of its journey. Final pickup and drop-off will still be handled by human drivers.

I like this approach and believe it to be the best one that I have seen yet for autonomous trucking. Having a purely autonomous zone while keeping human operators in charge of first-mile/last-mile pick-up and delivery serves to significantly reduce the complexity and risks inherent in this new technology.

Looking into further details around its business model ( investor presentation link ), we see that Embark is setting itself up to be a SaaS offering. Its offering is centered around Guardian, which is its dispatch and monitoring solution that operates via cloud. The actual hardware that enables autonomous driving is being left to truck manufacturers, which will reduce the company's capital expenditures significantly over its lifecycle - thus keeping margins high. Additionally, the dispatch service that it is in the process of constructing is being built in a generic (flexible) fashion, readily allowing hardware manufacturers to integrate with its offering.

The company is already in the process of testing its technology in the real world, and it has achieved several important milestones in this regard. It completed its first coast-to-coast autonomous vehicle drive in 2016, crossing the 100,000 miles driven mark by 2017. It is also seeing significant traction with an eventual customer pipeline and is currently in talks/testing with several brand names. Embark aims to execute fully-autonomous drives (no 'safety operator' behind the wheel) this year.

The coda to all of this traction is the company's track record on safety. Here its performance has so far been exceptional, with the company stating that it has overseen 1 million total miles driven without an incident reported to the Department of Transportation.

Value Proposition

Of course, all of this fancy technology wouldn't mean much if there wasn't a real value proposition to back it up. Here the company also has a clear vision and a quality economic proposition.

For trucking companies, the main parts of the value proposition are two-fold: increased fleet utilization as well as higher profit-per-mile. Since trucks will now be on the road 24/7, the firm expects to yield a 3x increase in utilization per vehicle. Additionally, not having to compensate drivers for the majority of the shipping route will also lead to higher profit margins, estimated to increase up to 2x by the company.

For shippers, the company will create a faster delivery cycle of up to 40%. This is also sensible as each truck will have more utilization (time on road) than standard human-in-the-loop operation.

Risks

Given that this company is in the pre-revenue stage and can be considered a micro-cap ($98M market cap as of this article), investors should proceed with caution. The risks here are significant and primarily pertain to whether or not the company will actually be able to deploy its business model into the real world. Autonomous trucking across state lines involves multiple layers of regulation, up to and including federal regulations. These regulations are at present not even defined, and there could be significant ramifications for this company's capacity to execute if they are not defined in the near term. This is a distinct possibility.

The pressure here, as with any pre-revenue entity, centers around the firm's burn rate and cash holdings. At present, it appears that Embark has a reasonable amount of gas left in the tank, so to speak. It received a fresh round of capital in Q4 2021 and has been drawing down somewhere between $20M and $30M quarterly since. This gives it a runway of somewhere between 6 quarters and 8 quarters at current burn rates. This pressure would be materially more significant if the company built its own hardware. Additionally, it has several deep-pocketed investors involved that could readily put up marginal capital. Nonetheless, if the regulatory situation ends up being slow-moving - as is often the case - the firm may need to raise additional capital. Whether this will need to happen is not yet clear.

Conclusion

I like what this company is doing and how it's going about doing it. Its business model and value proposition are well-defined and make sense. Having a shipping network set up in this way alleviates significant complexity, both from a technical as well as regulatory perspective.

Additionally, the company is clearly leading in terms of actually getting its trucks on the road. This, along with its growing high-profile list of customers, give me additional comfort that it will eventually succeed. As the company and stock become higher profile and continue to demonstrate traction on its concept, I expect investors to get interested and start buying in. As such I am calling it a buy.

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