Readers may find my previous coverage via this link. My previous rating was a buy, as I believed Aurora Innovation (NASDAQ:AUR) was on the right track in terms of execution and achieving its commercial launch by the end of 2024. I am reiterating my buy rating as I do not see any glaring hurdles to AUR achieving its commercial plans by the end of this year. The recent drop in share price appears to be non-fundamental-related; hence, the risk-reward situation is more attractive today given the lower share price.
Financials / Valuation
Aurora remains in its R&D process as it reported no revenue in 3Q23, and operating expenses amounted to $212 million. The capital raise event, which raised $820 million from a private placement and public offering of common stock, helped the company end the quarter with a total cash (include short term investments) amount of $1.5 billion.
Reiterating my view and model from the previous post, my view of AUR’s ability to achieve its long-term target has not changed. For readers that are new, 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.
I would like to first address the situation regarding the share price. The major share price drop seems to have started on the 19th of September, when Cowen launched a “cautious” initiation on AUR. The main reason for the cautious initiation was that while progress was being made on commercialization, the timeline was uncertain. There is merit to the lack of certainty in the timeline; however, given the progress made so far, my view is that AUR can meet the commercial timeline by the end of 2024.
In general, the 3Q23 results confirm my assessment of AUR, which is that the company is on track to reach commercial launch by the end of 2024. Aurora Driver Ready could be a concern for some investors, but I don’t think it’s too big of a deal as long as the commercial timeline isn’t pushed back. Management has stated that although the original target date for completing the work to validate some of its Aurora Driver software safety case claims was the end of 2023, they now expect to do so in the first quarter of 2024. An important fact to keep in mind is that in 3Q23, AUR had already completed 84% of the claims in the Safety Case for the launch lane, as measured by the Autonomy Readiness Measure, a weighted measure of completeness across all claims. This is a significant step up of 19pts vs. the previous quarter.
Regarding the latest developments in the commercial rollout, management has announced in a press release that the first lane for driverless trucks between Dallas and Houston has been launched and that the Command Center is being prepared to support continuous commercial operations. A year before the commercial driverless launch is scheduled, the company says it will have commercial-ready terminals and services in place so that it can concentrate on helping customers integrate its Driver-ready trucks into their operations. Unless there is a catastrophic failure of the product or a failure to meet the Autonomy Readiness Measure, I do not foresee any significant obstacles for AUR to meet its commercial target before the end of 2024, especially since management has stated that the regulatory landscape is favorable and supports the advancement of the Aurora Horizon toward the planned Commercial Launch. In addition, I’ve noted that AUR has met its goal of autonomously hauling 75 loads per week for its customers by the end of 3Q23. The business has expanded to the point where it now travels over 20,000 miles per week in the course of its commercial operations. According to information provided by management, AUR has successfully completed 3,200 autonomous deliveries for its pilot customers, including FedEx, Werner, Schneider, and Uber Freight, while covering over 895K commercial miles with nearly 100% on-time performance. These statistics not only confirm, in the eyes of the market, that AUR is heading in the right direction, but also that AUR’s major clients continue to have faith in the company.
At the state level, under existing law and regulation, autonomous vehicles can help, say, be deployed in the vast majority of the US., including Texas, where current law expressly enables the safe operation of autonomous vehicles with or without a human driver. Source: 3Q23 earnings
The company has made some good headway in its partnerships with truck OEMs PACCAR and Volvo Trucks. In 3Q23, they got their first Volvo VNL with autonomy capabilities, and AUR was able to integrate a driverless hardware kit that had already been assembled and tested. Management anticipates fourth-quarter Volvo truck production will continue in advance of autonomy testing of this platform in the first quarter of 2024. Aurora also mentioned about its partnership with PACCAR that it had launched a new fleet of Peterbilt 579 trucks equipped with the latest version of the Aurora Driver hardware kit.
My previous assessment of AUR remains unchanged, and I maintain my buy rating. The recent share price drop, initiated by Cowen’s “cautious” stance, appears to be more related to the uncertainty in the commercialization timeline rather than any fundamental issues. However, based on the progress made thus far, I believe AUR is well-positioned to meet its commercial launch target by the end of 2024.