Is Aurora Innovation overpriced? It is operating on empty

Autonomous truck manufacturer Aurora Innovation may have overpromised

Some tech companies have reached enormous valuations based only on the promise of future profits, while many others appear to have reached the point where they are profiting from AI. Additionally, some have yet to successfully commercialize their technology. These businesses are especially susceptible to any change in the mood of the market.

Aurora Innovation (Nasdaq: AUR) is one that might have made much more promises than it can fulfill. Aurora Innovation focuses on the development of self-driving trucks, claiming that by eliminating the need for a driver, it will lower transportation costs and be able to capture a significant portion of the US trucking market, which generated £987 billion in revenue in 2023. The company claims that it has already carried out numerous tests to demonstrate the technology's functionality on a variety of US highways and is prepared to implement it throughout the remainder of the nation.

Flaws in Aurora Innovation's plan.

Analysts are dubious, though, with Sahm Adrangi of Kerrisdale Capital claiming that the group's product has two significant problems.

First of all, like many other self-driving companies, Aurora's custom system depends on the company investing a significant amount of time and resources into mapping every one of the 50,000 miles in the US Interstate Highway System. Only 200 miles of highway have been completely mapped and tested despite years of research and development (R&D), with several hundred more miles planned.

It won't be able to function inside cities, only on highways, even after this task is completed. Accordingly, businesses that utilize them will have to transport their products from their factories or warehouses to designated terminals, where Auroras trucks will pick them up. Once they arrive at their destination, the process will be reversed. Due to the additional step, using Auroras technology will actually cost more than using regular manned trucks for all but the longest tripswhich make up a very small percentage of deliveries.

It should come as no surprise that Aurora's gross revenues are projected to drop to a pitiful £40 million in 2026, while the company's annual losses are expected to increase to £864 million during the same time period, up from £91 million in 2019. It is difficult to see how Aurora's valuation of about £10-5 billion can be sustained when you factor in competition from other companies pursuing comparable technology.

Not surprisingly, the share price of the self-driving truck company has dropped by half since its peak at the beginning of this year, suggesting that the market is cooling on the company. Moreover, it is below its 200-day and 50-day moving averages. You should short Aurora at the current price of £5.73 at 2.25 per £0.01, in my opinion. If it rises above £9.73, which gives you a total downside of 950, you should cover your short in this scenario.