Aurora Innovation, Inc. ($AUR)

Hi, everyone. I'm George Gianarikas, one of Canaccord Genuity's sustainability analysts. Thank you for joining our second Annual Virtual Summit. We're incredibly excited to have with us from Aurora Innovation, Dave Maday, CFO. Dave, thanks so much for joining us.

Thanks, George. I appreciate it. It's always great to attend this conference and looking forward to the Q&A today. So let's get started.

So maybe first and foremost, broadly, there's been a surge in interest in the robotaxi market in the United States, internationally. But Aurora, for the most part, has stayed steadfast in their commitment to trucking. Why the commitment there, why do you think that's a more interesting market than robotaxis at least for now?

Yes. I think we have always been saying this, and I think it's all still true today. Trucking is the -- in our opinion is the best first market for AV deployment. When you look objectively at the market size, the economic impact, the demand perspective, and how we can help transform that industry. The proof points are pretty obvious. But let me just hit a couple of them, right? Like so you think about the TAM, right? It's a $1 trillion market in trucking. The U.S. market for ride-hailing, I don't know, in the $60 billion, $70 billion. If you think about the unit economics truck drivers make 3x as much as gig economy workers, right? So there is a big difference. The other thing is we can really provide an immediate benefit to the industry. It's not just the safety of it, and it's more about we can help deliver total cost of ownership benefits. And if you think about these carriers that have relatively thin margins, the ability to provide a better total cost of ownership, whether it be helping to curb some of the driver costs that are out there today or fuel efficiency where we're getting 15% more on our trucks that are operating driverless, no hours of service limitations and having a predictable supply, those are all immediate benefits. And that's what technology is supposed to do, to transform an industry, right, is to create value throughout the entire ecosystem. Obviously, the self similarity of the trucking routes also is a clear advantage, in our opinion. If you think about we just launched in April, and we're already operating on 10 different routes. So our ability to take this and start to transform and operate in different areas is quite impressive. We think there is a big need, right? The driver costs are escalating high. There are shortages, regardless of what the numbers claim. And the future everybody would agree, the average age of the driver is just getting higher and higher and higher, and we have to supplement that base. That said, one of our missions is to deliver the benefits of self-driving technology safely, quickly, broadly. That's our mission. And part of that is into different use cases. For us, it's not about if we should go into trucking. I mean, into ride-hailing, it's when we should go into ride-hailing. We have already demonstrated the transferability of our technology, right? This is not a challenge for us. In 2024, we were operating in Toyota Siennas between their headquarters and DFW Airport. We know our technology, the exact same software, the exact same hardware, operating on different use cases. So we know that we can do it. But for today and for now, trucking is the market, now is the time, and we're going to create tremendous momentum on that. And actually, when we do enter the ride-hailing market, we'll be at a really strong position from a cost perspective as well. So we're incredibly excited about the trucking market.

Can I ask you a question about the ride-hailing market because you did mention that there are still -- I mean when you originally came to market, there was a sort of dual path trucking and someday ride-hailing. It sounds like that's still maybe on the road map further out. When should we sort of expect maybe more news or a path to hear more about the path to ride-hailing from Aurora?

Yes. I don't know that we have anything to share today. We have always said we would go into ride-hailing at some point, and it's just a matter of when. I would say that one of the things we have to do is, the ride-hailing market, to be really successful, you have to help grow the market. To be able to do that, you have to have a competitive cost structure because you need to actually drive down the cost of ride-hailing, so that you're able to actually grow the market. And in our case, when we launch our third-generation hardware that we're co-developing and AUMOVIO is going to manufacture. At that point, we'll be building tens of thousands of kits. Our cost structure will be way lower on the hardware plus we'll be driving billions of miles and trucking. And so we'll just have a -- we'll be in a much better position for scaling and realizing all the economies of scale that we need to, to then transfer into ride-hailing. So I don't have a date for you. I can tell you it will be some time when we launch the third gen and we haven't lost sight of the opportunity. I think the trucking opportunity is massive, and we're really excited to lead that space.

So maybe to refocus back on trucking. The estimate is around 200 billion miles driven per year in the United States. Maybe for the audience, discuss your SAM over the foreseeable future and maybe a little bit more around the geographic expansion that you plan to put in place over the next several years.

Yes. I think the easiest way to do it is -- and it is it's 200 billion-plus vehicle miles traveled. And what we do is we look at the areas that we're going to create the greatest value for autonomous driving. So the lane should be relatively long and they're predominantly highway, but there's also you have to go off-highway, you have to deliver to where customers are on their endpoints. The vast majority of these distribution centers and warehouses are within 5 miles of a highway. But generally, you kind of look at it that way. For us, by the beginning of we expect to be operating in what we would call 50 billion SAM, right? So 50 billion vehicle miles traveled in the SAM. So this year, our focus is going to be on having a technology that can operate throughout the Sunbelt and then we'll start to head north and we'll continue to go from there. So we've always said like 50 billion is a really great number. I mean, to be honest, that where we're operating today represents, I think, it's like 3.6 billion vehicle miles traveled just today on the lanes that we are operating on. So you can see how it really grows relatively quick, and we're really excited about the growth of that. And again, we create great value, especially on these long haul, over-the-road trips, and that's our predominant focus area.

Maybe to focus on the OEM partnerships. There was a while early days when those were deemed to be not as important. I think the industry has realized that they're incredibly important. So maybe just a little bit of an update around your relationships with PACCAR and Volvo and how those seem to be progressing.

Yes. And OEM partnerships has always been part of our strategy in our ecosystem from day 1, we have been talking about that, and we think it's important. We think it's important because it is the best path to scale to tens of thousands of trucks, right? When you can get a line-side installation of an Aurora Driver kit, into the vehicle assembly lines, then you're utilizing existing capacity, existing footprint, existing processes and you're building on top of that. And so it is the most efficient path. It's not the only path. It is the most efficient path. For us, PACCAR and Volvo remain committed partners. They represent about 50% of the market. We've made a lot of progress, especially with Volvo this last year, right? We just started to have line-side installation of an Aurora Driver kit into their preproduction line to just really work out the processes so that we can be prepared for launch. So for them, there's not going to be any upfit. It's going to be basically right from the Aurora Driver kit that will be sent from Fabrinet right over to Volvo. It will become right off the line, and it will be a fully equipped truck. PACCAR, we obviously -- our first generation of trucks that we're operating in driverless is with PACCAR trucks, Peterbilt trucks. They're a little bit further behind, to be honest, we expect them to be ready when our third-generation hardware kit comes into play, but I don't have specific timing on either of them. I would say also what we looked at this last year, especially in the last half of the year is the technology was really advancing nicely. The customer demand was very high. We were really a little bit short on supply of trucks and so that is why we decided to introduce another fleet of trucks to our portfolio. So we're taking international stock trucks. We're putting an Aurora Driver hardware kit it on them as well as an overlay of a drive-by-wire system to have the necessary redundancies. So we've worked on the design and engineering with folks, we are going to -- we're doing our first build right now of those trucks, and they're actually out driving around. We will shift the upfit capabilities over to a partner called ROUSH, very well recognized in the automotive industry for upfitting, and with this second fleet of vehicles, it will be the first time we've introduced our second-generation hardware kit. They'll be based on international trucks. They will be driverless. We expect to grow that fleet. As a matter of fact, in the third quarter, sometime ROUSH is going to be building 20 a week of these. And so that's what gives us a ton of confidence in our ability to actually grow our fleet this year. So we've had the technical. The technical is always going to lead a little bit, right, because you always want to know where you can drive before you start contracting where you're going to drive. But it's been a really exciting opportunity for us.

I'm kind of disappointed by the partnership. I was expecting to see you the hard hat kind of screwing in some of the equipment, but I guess not. Well, in fairness, you probably wouldn't want me doing it. But our team is actually building the first 25, and they're really great. And so they put all the instructions together and then they hand it over to ROUSH. So it's an exciting partnership. One question that I get a lot is about Volvo. And when they launch their line-side manufactured trucks, will they be observerless when they get on the road.

Yes. There will be no need or request for a ride observer from Volvo. There's none from international. There won't be any from the PACCAR trucks that are built at their plants and those that aren't upfitted. The ride observer is a thing that just for this current fleet of trucks it's not an indictment on the Aurora Driver at all. It is a reflection of the fact that PACCAR has prototype parts, and they're very conservative and they would like to have that added value of safety in their mind, for us, the Aurora Driver has to handle everything as anticipated, and that's what it does. So the Aurora Driver behaves as anticipated. In terms of time line, I can't share their time lines, but we're excited about the progress Volvo is making, and I kind of shared with you where I think they're going to slide in.

The industry has for a while now coalesce around this 2027 date when everyone seems to expect scale, right? You've said it, others have said it as well. What is it about that year specifically? How confident are you that that's the gear that's going to happen? And well, I guess we'll get into the hardware question in a second about the cost downs for Gen 3 hardware. But why 2027?

Well, I think '27 is going to be great. I actually think '26 is going to also be awesome. If you think about our crawl-walk-run process. We're now getting to the walk stage, right? We were in the crawl stage of the first year, the walk stage where we're going to start to have a meaningful number of trucks on the road. 2027 is the year though, that we are going to do a couple of things, right? Number one, we're going to be migrating over 200 driver as a Service business model which is the ultimate model that our customers want. It's the capital efficient model for us. The second thing is that we will be launching our third-generation hardware kit. So again, our first-generation hardware kit, limited supply, hand built by Aurora, great, demonstrates the technology, but pretty expensive, not designed to 1 million miles. The second-generation hardware kit, which is being designed by us but manufactured by Fabrinet. We'll be able to build over 1,000 of them, but we have -- still have a limited supply of how many you can build on the contract factory. And then that third generation kit, which we'll launch in 2027, that's when you're starting to be able to build tens of thousands. If you're putting in the capacity to build tens of thousands, you need to make sure you have truck supply, customer demand as well to match that capability. So for us, '27 is really a -- you guys might describe it as kind of going to more serial commercial production. For us, we think this is going to be a great year in '26. You're going to get another bump up in '27 and then '28, it's going to -- basically, everything is going to be feeling like serial production.

And what about bringing the costs down to -- in the Gen 3 hardware? How confident are you? What kind of line of sight do you have that that's going to happen? And particularly, and this is sort of the same question, you have your own lidar, right? And that's -- you see that as one of your competitive advantages. How confident are you that you can bring the costs down there to get to the gross margin targets that we -- that you've shared?

Yes. I think our confidence is based on the execution and track record that we're seeing on Gen 2 and the early work that we're seeing on Gen 3. So if you think about -- and I also think this is what separates us from any other AV trucking company out there, to be honest. We are the only company that I know that has a first-gen kit in operation getting ready to launch a second gen kit and also in development of a third gen kit, all with a different level of scalability. Our second gen kit is appreciably cheaper than the trucks that we have on the road today. It also is designed to meet 1 million miles. And my degree of confidence on the ability to achieve both of those is sky high because we're -- we've already sourced all the parts. We're doing builds, we're getting ready to do our C builds that go on commercial trucks. So at this point in time, all the commercial agreements are locked in, right? We're also in finalizing our testing and our testing supports our conclusion that these kits will be able to last 1 million miles. So I'm really confident today. Now I'm building upon that into the third gen. And there's a couple of additional things we have. Now we've got engineering capabilities where we get to share the best of what Aurora is doing as well as what AUMOVIO is doing. We're able to have better manufacturing processes because contract manufacturing is still relatively labor-intensive. Full production serial manufacturing is far more automated. So you're going to get far more automation out of the manufacturing side. We've got a lot of DFM work with the AUMOVIO folks and are experts in this, and then obviously scaling. There's a difference between buying 1,000 to 2,000 kits and buying 10,000 to 100,000 kits, right? Like there's just a big stair step in each of these. And we've seen -- in our early work, we're already getting cost quotes in. We're already starting to do our early builds. And what we're seeing is that the cost is coming in roughly where we planned in some cases, better and in some cases, slightly worse, but overall, roughly to where our plan is. And this includes FirstLight every iteration of FirstLight is more capable and less expensive. And part of the reason it becomes less expensive is just easier to manufacture, right? We're going to the small lidar on a chip, which is infinitely easier to build and manufacture than the current lidars that we have on the road today. So we are very confident in that. And the reason we're confident is the execution that we've had today. So it's not like we're just starting out. We've been working with AUMOVIO for 2 years.

Maybe to go back to the OEM partnerships, you have very good relationships with PACCAR or with Volvo. But there are others who are trying to get into these OEMs as well and become their autonomous provider of choice. How likely is it that we'll see some of these OEMs adopt second, third suppliers? How difficult is it to break in? And sort of where do you see the steady state of the market over the next couple of few years, 1, 2, 3 suppliers of autonomous solutions?

Yes. I think if you're a carrier, right, or a private fleet that's looking to adopt autonomous technology, you would always like to have choices. It's the same reason as carriers buy multiple truck brands, right? They would like to have choices for leverage and understanding. In the case of AVs, it's a lot harder to have a really great product. So just the number -- just to have a choice, to have a choice isn't particularly useful, if you don't have the confidence in being able to avoid that technology. So I do think we have a kind of a multiyear lead in terms of building the trust with being kind of the technology of choice in the trucking. Others will come. I'm sure of that. I think it will be a small number of folks, to be honest. I think integrating into their systems is equally challenging, and you need to have a fair amount of respect and expertise and work to be able that you're integrating within each of these. We expect that our continued progress, our integration with these teams, we're going to create such enormous value for our carriers and for our customers that, sure, they may have an opportunity to try out different things and they probably will, but I think they're going to choose us just because we are going to be the supplier of choice, right? Because we're creating value, we're driving fundamental improvements and changes in the industry, and we're kind of leading the way in this. And so for us, we're really focused in on that. Will there be other players? Probably. Do we require exclusivity? No, not really. Do some people want exclusivity? Sure. But generally speaking, competitiveness breeds innovation and that's always useful for an industry that is, frankly, been a little light on innovation over the last 100 years.

So should we expect additional OEM partnerships from Aurora over time?

Well, I have nothing to share with you today. I think we've said many times that we believe that we will have the best system out there, the best engagement with our customers, the safest product out there. And we would expect to see the Aurora Driver on all truck brands. We now have added 1/3 with international, a slightly different approach on how we do it, but we've added 1/3. I would expect that we will continue to be the AV technology of choice and who knows what the future holds with other brands.

Fair enough. And could there be international, it's not the company, but just geographically international expansion over time?

For sure. I mean, I think some of the same challenges that exist across the globe exist here in terms of the need for the trucking industry. If you look at Japan as an example, it has a very similar challenge with aging driver for us, really high cost of labor, a lot of restrictions in terms of use and a lot of inefficiencies and low margin. So there -- every geographic area has an opportunity and a need. Our focus today is in the U.S. We think it's an enormous opportunity, and we would like to make sure that we do U.S. great. But I think global expansion is something you would expect.

Maybe in the last few minutes, we were talking offline about the regulatory environment. There was an announcement in a forum a few days ago, in which Aurora participated. Can you sort of talk about what you expect that framework to look like over the next few years? Right now, it's sort of a patchwork of federal and state regulators, but how should we expect that to evolve? And will it become easier for Aurora to deploy its trucks in other states over time?

Oh, boy, I don't know if I should be forecasting how the regulatory system is going to evolve and change over time. This is what I would say, we look at it predominantly from a state and federal level. There's obviously -- we work really well with local municipalities and agencies and things like that as well. But like the 2 fundamental frameworks are state and federal in terms of like trucking. From a statewide perspective, as you know, majority of states allow this driving one of the big states that hasn't allowed it in the past is California. They're working on some trucking regulations right now that they would like to adopt for '26. We'll see where that goes. It's political season, so you're already starting to see some political stance associated with that. But they've been very productive discussions. We work with state regulators to try to demonstrate and talk about the benefits, both ourselves as a company and through our coalitions and partnerships like EMEA. At the federal level, there's been a lot of positive momentum. If I was being honest, the prior administration, there wasn't a lot of forward momentum on this particular topic. The current administration, there's a lot more momentum. We've got the AMERICA DRIVES Act. We've got engagement with Secretary Duffy in the Department of Transportation. We are trying to play an active leadership role talking about the benefits and the capabilities and the responsible framework to roll out. If a framework came out from the federal government, I think it would be beneficial to avoid some of the state-by-state fighting that goes on from time to time, but we'll see. The thing that's most encouraging to us is, at the federal level, it's the support for innovation and competitiveness and kind of this American leadership perspective. And we'd like to be a part of helping to develop that technology that gets us a leadership position. So we're positively optimistic and we'll see where it goes.

Great place to stop. Thank you, Dave, so much. Best of luck. Talk to you soon.

All right. Thanks, George.