Hardware Scale-Up Risks And Slower Route Adoption Will Likely Limit Long-Term Autonomous Trucking Potential

Catalysts

About Aurora Innovation

Aurora Innovation develops and operates autonomous driving systems for commercial trucking and freight operations.

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

• Reliance on large scale deployment across the Sun Belt, including a target to exit 2026 with hundreds of driverless trucks in operation, could strain execution capacity. Any slippage in bringing these trucks into paid service would weigh on revenue and delay progress toward positive gross profit.
• The plan to introduce a second generation commercial hardware kit that is expected to reduce hardware costs by more than 50% and support 1 million mile durability depends on smooth manufacturing scale up with partners like Fabrinet and AUMOVIO. Production or validation setbacks would keep unit costs elevated and pressure gross margins.
• Aurora’s focus on long multistate routes such as the 1,000 plus mile Fort Worth to Phoenix corridor assumes broad customer adoption of the Driver as a Service and Transportation as a Service models. If carriers are slower to commit significant volume, revenue per mile and total revenue could remain modest relative to the current operating loss base.
• The business case relies heavily on higher truck utilization and improved fuel efficiency versus human drivers. Any extended constraints from weather validation, remote assistance scaling or on site support requirements would cap available driverless miles and limit the improvement in operating leverage and earnings.
• Expanding from a small driverless fleet to hundreds of trucks across multiple OEM platforms, including Volvo, PACCAR and International, increases technical and operational complexity. Issues in multi platform integration or lineside installation could drive higher ongoing R&D and cost of revenue, slowing any path toward lower cash use and better net margins.

Assumptions

This narrative explores a more pessimistic perspective on Aurora Innovation compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Aurora Innovation's revenue will grow by 563.0% annually over the next 3 years.
• The bearish 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 12.3% in 3 years.
• If Aurora Innovation's profit margin were to converge on the industry average, you could expect earnings to reach $72.0 million (and earnings per share of $0.03) by about January 2029, up from $-803.0 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 150.9x on those 2029 earnings, up from -11.1x today. This future PE is greater than the current PE for the US Software industry at 32.7x.
• The bearish 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 8.46%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Customer feedback and new contracts, such as Russell Transport signing up to run driverless hauls from day one, suggest growing acceptance of Aurora Driver across both large carriers and mid-market fleets. This could support revenue if adoption broadens faster than expected and more miles shift to paid driverless operations, lifting earnings and net margins over time.
• Progress toward hardware scale, including a second generation kit that management expects to cut hardware bill of materials by more than 50% over a production run of more than 1,000 units and a third generation program with AUMOVIO targeting tens of thousands of trucks, could lower unit economics and support a path toward positive gross profit and improved net margins if production ramps as planned.
• Regulatory momentum, such as U.S. Department of Transportation approval for cab mounted warning beacons and the advancement of the AMERICA DRIVES Act, may reduce policy friction for autonomous trucking. This could support wider deployment across the Sun Belt and potentially increase revenue and operating leverage if truck utilization rises.
• OEM and manufacturing partnerships with Volvo, PACCAR, international and AUMOVIO, including lineside integration at Volvo’s New River Valley facility and manufacturing expansion in Texas, may support long term capacity and reliability of supply. This could enable higher driverless truck volumes and, if matched by demand, support revenue scaling and margin improvement.
• Management’s focus on cost discipline, reflected in third quarter 2025 operating cash use of US$149 million that was below an externally communicated target and liquidity of US$1.6b that is expected to fund operations into the second half of 2027, may give Aurora time to refine its technology and business model. This could support long term earnings potential even if near term losses remain substantial.

Valuation

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

• The assumed bearish price target for Aurora Innovation is $3.59, which represents up to two standard deviations below the consensus price target of $9.79. This valuation is based on what can be assumed as the expectations of Aurora Innovation's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $583.0 million, earnings will come to $72.0 million, and it would be trading on a PE ratio of 150.9x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $4.59, the analyst price target of $3.59 is 27.9% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• 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.