Aurora Innovation is running on empty – is it overvalued?

While many technology firms seem to have reached the stage where they are making money from AI, other companies have achieved huge valuations based solely on a promise of future profits. And some have not yet even been able to make their technology commercially viable. These companies are particularly vulnerable to any shift in market sentiment.

One that may have promised far more than it can deliver is Aurora Innovation (Nasdaq: AUR). Aurora Innovation focuses on the development of self-driving trucks, arguing that by doing away with the need for a driver, it will cut the costs of transportation and be able to grab a large share of the US trucking market – which had revenues of $987 billion in 2023. The company boasts it has already conducted many tests to prove the technology works on various highways in the US and is poised to roll it out across the rest of the country.

Flaws in Aurora Innovation's plan

However, analysts are sceptical, with Sahm Adrangi of Kerrisdale Capital arguing that the group’s product suffers from two major flaws. Firstly, its bespoke system (like many other companies involved in self-driving) relies on Aurora spending huge amounts of time and money mapping each of the 50,000 miles in the US Interstate Highway System. Despite years of research and development (R&D), it has managed to map and test fully only a 200-mile stretch of highway, with a few hundred additional miles in the pipeline.

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Even when this task is finished, it will only be able to operate on highways rather than within cities. This means that companies that use them will first have to deliver their goods from their factories or warehouses to special terminals, where they will be handed off to Aurora’s trucks, with the same thing happening in reverse once they reach their destination. The costs of this additional step will mean that making a trip using Aurora’s technology will actually cost more than using ordinary manned trucks for all but the very longest journeys, which represent a tiny fraction of deliveries.

Given these dismal economics, it is not surprising that Aurora’s gross revenues are expected to amount to a paltry $40 million in 2026, with annual losses predicted to rise to $864 million in the same period, compared with losses of $91 million in 2019. Throw in competition from other firms pursuing similar technology, and it is hard to see how Aurora’s valuation of roughly $10.5 billion is sustainable.

Not surprisingly, the market seems to be cooling on the self-driving truck company, with the share price down by half from its peak at the start of this year. It is also below both its 50-day and 200-day moving averages. As a result, I suggest you short Aurora at the current price of $5.73 at £2.25 per $0.01. In this case, you should cover your short if it gets above $9.73, which gives you a total downside of £950.

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