Autonomous Freight Expansion And Regulatory Support Will Drive Long Term Trucking Transformation

Catalysts

About Aurora Innovation

Aurora Innovation develops and deploys autonomous driving technology for long-haul freight and trucking networks.

What are the underlying business or industry changes driving this perspective?

• Rapid expansion of driverless lanes across the Sun Belt, including the Fort Worth to El Paso and forthcoming Phoenix extension, creates a scalable network effect that can materially lift revenue and load volume density over the next several years.
• Industry wide pressure from driver shortages and hours-of-service constraints is pushing freight carriers toward automation. This is positioning Aurora’s 24/7 driverless operations as a potential solution that can improve customer revenue per truck and support Aurora’s top line growth.
• Planned deployment of second and third generation hardware, including a more durable kit designed for 1 million miles and roughly 50 percent lower unit cost, may reduce cost of revenue and support a path to positive gross margins and improving net margins as volumes scale.
• Deepening OEM and manufacturing partnerships with Volvo, PACCAR, International and AUMOVIO, combined with increased U.S. production capacity, lays the groundwork for a larger fleet of autonomous trucks on the road, which could increase operating leverage as fixed platform costs are spread over a larger installed base.
• Growing regulatory momentum in favor of autonomous trucks, including federal framework initiatives and safety-related approvals, may lower long term deployment risk and support customer adoption, which could benefit revenue growth and earnings visibility.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Aurora Innovation's revenue will grow by 596.3% annually over the next 3 years.
• Analysts are not forecasting that Aurora Innovation will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Aurora Innovation's profit margin will increase from -40150.0% to the average US Software industry of 12.7% in 3 years.
• If Aurora Innovation's profit margin were to converge on the industry average, you could expect earnings to reach $86.1 million (and earnings per share of $0.04) by about December 2028, up from $-803.0 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 344.1x on those 2028 earnings, up from -9.9x today. This future PE is greater than the current PE for the US Software industry at 31.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.48%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current revenue base remains very small at $1 million for the quarter despite record commercial miles and multiple blue-chip pilot customers, which suggests that large scale monetization of the network effect could take longer than expected and delay meaningful revenue growth.
• Sustained high operating losses of $222 million in the quarter, significant ongoing R&D and SG&A requirements and a cash runway only into the second half of 2027 mean that any delay in reaching positive gross profit in late 2026 or early 2027 could force additional equity issuance and dilute future earnings per share.
• The long-term ramp in autonomous trucking may be constrained if OEM partners like Volvo, PACCAR and AUMOVIO face execution, validation or manufacturing setbacks, or if customers are slow to convert pilot programs into large committed fleets. This would limit Aurora’s ability to scale revenue and improve gross margins.
• Reliance on favorable regulatory and legislative trends, such as momentum behind the AMERICA DRIVES Act and safety approvals, introduces the risk that policy shifts, regional restrictions or a high-profile incident could slow adoption, reducing future load volumes and revenue visibility.
• The strategy to operate hundreds of Aurora Driver powered trucks on Transportation-as-a-Service and Driver as a Service models assumes robust long-term customer demand and attractive unit economics. However, weaker freight cycles, increased competition or pressure on subscription pricing could compress revenue per mile and delay the transition to sustainable positive net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $9.79 for Aurora Innovation based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $3.59.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $675.2 million, earnings will come to $86.1 million, and it would be trading on a PE ratio of 344.1x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $4.09, the analyst price target of $9.79 is 58.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.