Autonomous Deliveries

When it comes to autonomous vehicles, self-driving cars and trucks tend to get the most attention.

It’s no surprise. It’s an exciting prospect to imagine cars and trucks zipping their cargo and passengers around, freeing up time and dramatically reducing accidents.

But autonomous technology comes in many shapes and sizes. We’ve been exploring this in The Bleeding Edge, most recently in ”If I Only Had a Brain.” Tesla has already leveraged its autonomous driving software in its Optimus humanoid robot, allowing Optimus to navigate factories, offices, and even homes, albeit at a much slower speed than a car.

We also explored the eventuality of autonomous short-distance air transportation in The Bleeding Edge – eVTOLs – The Future of Short Distance Air Transportation.

Initially, these electric vertical take-off and landing aircraft will be piloted. But it won’t take long to make them fully autonomous, which will dramatically lower the cost of flights and make autonomous services more widely accessible.

And while autonomous transport of passengers tends to get the most press, adoption will happen more quickly with aircraft, trucks, and robotics for delivering cargo and packages.

Aurora Innovation (AUR) is a good example of what’s happening in autonomous trucking right now.

Aurora’s background is quite interesting…

Understanding Uber’s Aurora Deal

Back in December 2020, in order to improve operating margins and reduce R&D spend, Uber (UBER) spun out its autonomous technologies group into Aurora.

It was an interesting transaction, and deeply misunderstood.

Most of the press stated that Aurora acquired Uber’s autonomous division. But what really happened was that Uber paid Aurora $400 million to take its autonomous unit off its hands.

In exchange, Uber ended up with a large stake in Aurora, valuing Aurora at $4 billion at the time.

Mission accomplished. Uber got its expensive autonomous R&D team off its books, improving its financials. And it held onto future industry upside through its equity ownership of Aurora.

Today, Uber still owns just shy of 25% of Aurora, having increased its ownership by 25 million shares last quarter.

The Aurora Driver autonomous semi-truck | Source: Aurora Innovation

If we look closely at the image above, we can see the LiDAR arrays to the left and right above the windshield, almost looking like the horns on a steer.

Long-haul trucking like this is a great application for autonomous technology, given the massive shortage of truck drivers around the world.

And traveling primarily by highways from one warehouse and logistics hub to another is a far easier task than navigating urban environments. Routes are predictable. And human drivers can teleport in and take control of a truck if they ever get stuck in a difficult situation.

Roughly around the same time as the Aurora transaction, Uber affected a similar deal… by spinning out its air taxi division to Joby Aviation (Joby)…

Autonomous Delivery Vehicles – Today

Uber paid Joby $75 million to take its air taxi unit off its hands. That transaction came on the back of a $50 million investment in Joby’s Series C round.

While Joby is initially focused on passenger traffic, there are others – like Beta Technologies – that are entirely focused on eVTOL technology for middle-mile logistics.

Shown below is Beta’s ALIA eVOTL aircraft, which has made fantastic progress with its FAA certifications and business deals with major players in the logistics industry.

Source: Beta Technologies

Beta has been making great progress with building out its charging infrastructure for its aircraft, in preparation for daily cargo transport operations.

Shown below is Beta’s existing and planned charging network…

Source: Beta Technologies

By next year, Beta will have around 150 charging units, enabling a transformation in middle-mile logistics. Autonomous flights will follow quickly thereafter.

But what about even shorter distances?

What about the delivery of both cargo and perishable goods from businesses to consumers using autonomous technology?

We explored one mode of delivery in June in The Bleeding Edge – Walmart Takes a Rare Lead Over Amazon. Small autonomous drones have made great progress, specifically for serving more rural communities where packages can be dropped off in front of a home.

Source: Walmart

Autonomous tech company Nuro has developed an autonomous vehicle and software to enable multi-mile deliveries in suburban areas.

Nuro’s vehicles are designed to drive on surface roads, however, and will require regulatory approvals for wide-scale operation.

Source: Nuro

And for shorter-range distances that would be likely measured in blocks, we would have a company like Serve Robotics (SERV), which just this week made some major announcements for its autonomous delivery plans.

Serve… Not Yet a Full Meal

Serve’s delivery robots are waist-high, level 4 autonomous vehicles.

They are designed for more urban areas and to travel on sidewalks for deliveries.

The technology has been in use in Los Angeles, having made more than 50,000 deliveries.

Source: Serve Robotics

One of the more interesting findings by Serve Robotics has been that the rate of delivery completion of its delivery robots has been 10 times better than that of human drivers.

Serve’s robots have only seen one failed delivery in every 2,000 deliveries. This is a great example, again, where finding human labor has been a great challenge.

This week, Serve announced a partnership with burger chain Shake Shack in collaboration with Uber Eats. This new delivery service will start in the Los Angeles area and expand as Serve moves into new cities.

The deal with Shake Shack and Uber Eats comes on the back of a 2023 partnership with Uber to deploy 2,000 Serve delivery robots to support the Uber Eats delivery service.

The connection with Uber isn’t a coincidence. When Uber acquired the competitive delivery service Postmates in 2020 for $2.65 billion, it came with Postmates X, an autonomous delivery division of the company.

You’ve probably already figured out that that division was spun out and became Serve Robotics, which is now a publicly traded company. As a result, Uber owns more than 13% of Serve.

Serve just raised an additional $15 million in a private transaction last month to give it some operating runway as it scales its operations.

This kind of autonomous delivery service is the future. The technology is here today, it solves a major labor shortage problem, and it is incredibly convenient for consumers. Autonomous technology makes this convenience affordable to a mass market.

But does that mean a company like Serve is a good investment?

It certainly could be, in time… but not today.

As much as I like the company, its use of artificial intelligence, and the market potential… Serve went public way too early. It has a limited amount of cash, negative free cash flow of $4.1 million in the first quarter, and only about $1.7 million in revenue forecast for this year.

Yes, I expect Serve to grow a lot in 2025. Revenues are forecast to grow to around $16 million in 2025.

But with Serve’s $464 million enterprise valuation, the company is trading at 29 times 2025 forecasted sales. And with the amount of money that Serve is losing every quarter, I can all but guarantee that Serve will have to dilute its shareholders further within the next 12 months to raise additional capital.

Ironically, the winner here is Uber. Its moves to sell off its autonomous assets to improve operating margins and focus on its core businesses was an incredible success.

Uber Eats makes up about 33% of Uber’s total revenues, with Uber Freight at 14% and the rest from its ride-hailing business. Uber will generate $43.3 billion in revenue, is profitable, and throwing off $5.8 billion in free cash flow this year.

And it was able to do so while maintaining all of the equity upside in the future of autonomous transport through its equity deals.

Smart.