Uber and Aurora – Outsourced future.

Uber’s autonomous driving technology finally goes in the bin.

• Aurora signals the end of the road for Uber’s woeful autonomous offering in a deal where I think ATG investors should be thankful they are only taking a 50% haircut on the valuation they paid as I estimate that the haircut should have been closer to 100%.
• Aurora is effectively acquiring Uber’s autonomous driving unit as Uber’s technology looks like it will be thrown out in favour of developing Aurora’s middle-of-the-road offering for autonomous cars and trucks.
• Uber will transfer the ATG unit and $400m to Aurora in return for a 40% stake in Aurora of which 14% will go to ATG’s other investors (Uber, Toyota, Softbank and Daiso) and staff.
• This values ATG at $3.6bn as somehow the valuation of Aurora has increased from $2.5bn at its last round in 2019 to $10bn today.
• I suspect this has been achieved via the $400m cash that Uber is putting in resulting in a 4% stake in the company as I have seen no real sign of commercialisation or a sudden improvement in performance that would lead to such an uplift.
• Hence, this looks very much like a valuation-of-convenience that keeps Aurora investors happy with a paper profit and limits the write down for ATG investors, but I see no real basis for it at all.
• This is especially the case as Amazon recently acquired Zoox which has demonstrated much better performance than Aurora for a figure closer to $1bn.
• So how a company with worse performance is worth 10x as much is a great mystery.
• Amazon is also an investor in Aurora and so I suspect that it looked at Aurora as part of its decision to acquire Zoox but passed on the opportunity.
• This indicates that it thinks that Aurora is overvalued and that Zoox offers a better investment as well as being a better overall strategic fit for Amazon (see here).
• The key statement that highlights Aurora’s intentions is as follows “ATG will strengthen and accelerate the first Aurora Driver applications for heavy-duty trucks while allowing us to continue and accelerate our work on light-vehicle products.”
• In plain terms, this means that some of ATG’s workforce will be moved onto working on the Aurora autonomous truck effort while the rest will be focused on getting the passenger vehicle offering to market more quickly.
• Aurora is very sensibly putting the Uber offering in the bin and focusing all of its substantially increased resources (increased 4x) onto its own technology.
• It will need to do this as Aurora has a lot of catching up to do.
• In 2019 Aurora ranked 15^th out of 36^th of all the companies that test in California putting it solidly in the also-ran category.
• While this measure of quality is deeply flawed, it has to date been a reasonable measure of reality which is why I continue to use it as an indicator.
• The net result is that the extra manpower needs to quickly accelerate Aurora up through the performance ranks as failure will result in it being late to market and potentially being consumed in the current round of consolidation that looks set to continue.
• Uber is now putting its future in Aurora’s hands as it needs a first-rate autonomous driving solution to survive in the long-term.
• This is because when autonomous driving is commercialised, it will go from being a marketplace to a service where the quality of its driving solution will be key to its differentiation and long-term success.
• However, I don’t think that Uber is thinking that far ahead as it is desperate to return to profitability as its share price is currently demanding.
• While the case count continues to grow during the winter, I think that the sharing economy will continue to suffer, and I remain very cautious for the next couple of quarters.
• This remains especially the case while the valuation of the technology sector remains disconnected from any fundamental reality.