Self-Driving Trucks: 3 Pure Play Stocks to Avoid For Now
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Our recent piece on finding the next Tesla suggested that future upside for autonomy may trump the electric vehicle thesis. That’s what ARK Invest seems to think as they believe Tesla’s robotic taxi will generate more than half the company’s profits by 2026. But it’s not clear that autonomy on city streets is the best place to start. Long-haul trucking seems like a much easier use case to tackle since there’s a lot less chaos happening on highways. Given the shortage of truck drivers, it makes economic sense as well. The American Trucking Association reported a shortage of 80,000 truck drivers in 2021, which is expected to reach a shortage of 160,000 drivers by 2030.
Tesla is developing an electric semi-truck that will utilize their assisted driving functionality, but you don’t need an electric truck for autonomy. A year ago, we wrote about 4 Self-Driving Semi-Truck Stocks for Investors, three of which were going public using special-purpose-acquisition-companies (SPACs). That number is now down to two. Late last year, the Plus AI SPAC merger fell through, though the company is said to be operating trucks with drivers present in China, Europe, and United States. That leaves us with the following three stocks along with their corresponding market caps.
- Embark Technology (EMBK) – $212 million
- TuSimple Holdings (TSP) – $1.87 billion
- Aurora Innovation (AUR) – $2.23 billion
Let’s start with the stock that’s lost over 95% of its value.
Embark Technology’s Progress
Following the completion of their SPAC merger, shares of Embark stock began trading on Nasdaq in November 2021 under the ticker symbol “EMBK,” and have since settled to under 50 cents a share. Nasdaq will send a notice to the company once they’ve traded below $1.00 a share for 30 days after which they’ll have 180 days to regain compliance (a closing bid price of $1.00 or more for 10 consecutive business days).
Let’s get the giant exciting reservation number which means nothing out of the way:
As of March 31, 2022, we have accepted 14,200 reservations for Embark-equipped autonomous trucks. Until the customer enters into a purchase agreement for our Embark-equipped autonomous trucks, which is within the discretion of the customer, the reservation can be canceled and the customer is entitled to a full refund of its deposit (to the extent previously paid).
Credit: Embark
Embark has not earned any revenue to date and had $244.5 million in cash and cash equivalents as of March 31, 2022. They spent nearly $70 million in 2021, so let’s assume their runway is just over three years. Their fleet of 18 test trucks has been leased, and several of those have now been handed over to Knight-Swift to play around with.
It’s one of three goals the company has set for 2022, none of which seem to result in any revenues. Those are expected in 2024 when – according to the SPAC deck – $869 million will come pouring into their coffers. A cursory look at the progress points for 2022 in their recent S-1 filing shows the usual suspects – more partnerships, more planning to plan, the CEO gave up his salary to help the Afghan Girls Robotics team, and the list goes on. We don’t care about anything except revenues. Provide your investors with an update on when you expect revenues, how much you’re expecting, and who that will come from. That and $5 might get you a 40 of Old English which is probably money better spent than buying shares of a company with a bunch of cancelable reservations and lots of promises.
TuSimple Holdings’ Progress
In April of last year, TuSimple raised $1.35 billion in an initial public offering (IPO) that valued the company at around $8 billion. Now, you’re able to buy those same shares at a discount of nearly 79%. With $1.2 billion in cash on their books last quarter, TuSimple has a runway of about 11 years at a quarterly burn rate of $110 million. While the company has revenues, they come from transporting freight under a model called the TuSimple Capacity service model.
To date, all of our revenue recognized has been from freight capacity services provided through the TuSimple Capacity service model on our AFN. Revenue is recognized over time as the goods are transported from one location to another based on the number of miles traveled. Shipments are completed within a short period of time, typically spanning one to two days.
Cost of goods sold includes fuel, truck fleet operating costs, maintenance, and driver compensation. So far, they’re a trucking company that’s losing money. That might change when they’re able to offer autonomous driving, something that’s actually been happening. TuSimple claims seven freight shipments over an 80-mile stretch that took place with no drivers. Said the company, “the Driver Out program will continue and is expected to build to commercialization in the next two years.” Another 2024 target then. Last week, the company saw their second co-founder leave to do something else which isn’t a great vote of confidence. Investors should watch revenue growth along with costs falling over time as autonomy comes into the picture. Once they’re able to offer a profitable trucking service then the company might merit a second look.
Aurora’s Progress
In January 2021, Aurora acquired and integrated Uber’s self-driving unit. In February 2021, they announced a long-term, global, and strategic collaboration with Toyota and DENSO. In March 2021, Volvo selected Aurora as its technology provider to develop and commercialize Level 4 autonomy trucks in North America.
As part of the Toyota agreement, Aurora was to receive a total of $150 in payments with $82.5 million of that accounting for all their 2021 revenues. The remaining $67.5 million is expected to be received this year. Outside of any future partnership payments, Aurora expects to derive recurring revenue from per-mile fees charged to users of the Aurora Driver platform which isn’t just limited to semis. The Toyota venture has resulted in Sienna minivans plying the streets of Dallas in hopes of competing with the other robotaxi offerings out there like Cruise and Waymo.
This is a firm with 1,400 employees in product and engineering that contributed to losses of $755 million in 2021. With $1.6 billion in cash on hand, the company has a runway of about two years. The Volvo partnership appears to be progressing based on a Volvo press release a few months ago that talks about how DHL will be participating in their key customer program in North America. We couldn’t find any sort of timelines as to when revenues can be expected, so let’s just assume it’s 2024 like the rest. Investors in Aurora can use one simple metric to measure progress – revenues. Whenever Aurora starts to receive revenues from their Aurora Driver platform, for any use case, that means they’re starting to show traction. With shares now trading at an 80% discount to their SPAC offering price, some fingers have certainly been burned.
Of the three companies we’ve discussed today, Aurora seems to paint the clearest picture of a company with large industry partners that show their participation through press releases and collaboration fees. But it’s a double-edged sword. Large partners can change gears on the whim of a single senior manager. Volvo is developing their own internal self-driving technology and they’ve also partnered with Waymo. Toyota has partnered with Tesla and NVIDIA in addition to developing their own internal technology.
We also need to consider private companies developing self-driving technology for trucking, some of which we talked about in our previous article on TuSimple. Business models like Uber for trucking will eventually utilize autonomy, and the optimal business model configuration for long-haul trucking autonomy remains to be seen. Just because a company develops a self-driving platform for trucks doesn’t mean it will be economically viable. Locomation has developed a solution that allows trucks to follow one another in a convoy of sort with the lead truck always having a human driver.
They’ll be delivering their first units to Wilson Logistics in late 2023, and their CEO told Forbes he questions brute-force automation solutions that may cost half a million dollars and not provide the cost advantage they claim.
Conclusion
With robotaxis taking paying passengers, it’s surprising that autonomous trucking hasn’t shown more traction. Isn’t it easier to navigate vehicles on a highway than a city? The opportunity to reduce costs by replacing drivers must be appealing for an industry that’s suffering from a massive labor shortage. For retail investors, it’s better to watch on the sidelines as not all these ventures will be able to raise capital at favorable terms if their efforts take longer than anticipated. In a year, we’ll check back in to see how these self-driving players – and any other that might go public – are faring.
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At least one cheerleader showed up. Unfortunately, Doodles here is too lazy to actually raise a point of contention. Tsk tsk.