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. Let's get started.
Awesome. So maybe first and foremost, you know, broadly, there's been a surge in interest in the robotaxi market, you know, in the United States, internationally. You know, Aurora, for the most part, has stayed steadfast in their commitment to trucking. Now, why the commitment there? Why do you think that's a more interesting market than robotaxis, at least for now?
Yeah. I think we have always been saying this, and I think it's all still true today, trucking is, in our opinions, 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, you know, the proof points are pretty obvious. 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. You know, the U.S. market for ride-hailing's, I don't know, in the $60 billion-$70 billion. If you think about the unit economics, truck drivers make three times as much as gig economy workers, right? 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. If you think about these carriers that have relatively thin margins, the ability to provide a better total cost of ownership, whether it be, you know, 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. Obviously, the 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. Our ability to take this and start to transform and operate in different areas is quite impressive. We think there's a big need, right?
You know, there's driver costs are escalating high. There are shortages, regardless of what the numbers claim. You know, the future, everybody would agree, you know, the average age of the driver is just getting higher, and we have to supplement that base. That said, you know, 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 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. For today and for now, trucking is the market. Now is the time, and we're gonna create tremendous momentum on that. Actually, when we do enter the ride-hailing market, we'll be at a really strong position, you know, from a cost perspective as well. 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 this sort of dual path, trucking and then someday ride hailing. Sounds like that's still maybe on the roadmap 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?
Yeah. 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 that 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. In our case, you know, when we launch our third-generation hardware that we're co-developing and Continental 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 in trucking. We'll be in a much better position for scaling and realizing all the economies of scale that we need to then transfer into ride hailing. I don't have a date for you. I can tell you it'll be sometime when we launch the third gen, and we haven't lost sight of the opportunity.
Mm-hmm
I think the trucking opportunity is massive, and we're really excited to lead that space.
Maybe to refocus back on trucking, the estimate is around 200 billion miles driven per year in the United States.
Mm-hmm.
Maybe for the audience, discuss your SAM, you know, over the foreseeable future, and maybe a little bit more around the geographic expansion that you plan to put into place over the next several years?
Yeah. I think the easiest way to do it is, it's 200 billion-plus vehicle miles traveled, and what we do is we look at the areas that we're gonna create the greatest value for autonomous driving. 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 five miles of a highway. Generally, you kinda look at it that way. For us, by the beginning of 2028, we expect to be operating in what we would call 50 billion SAM, right? Fifty billion vehicle miles traveled in the SAM.
This year our focus is gonna be on having a technology that can operate throughout the Sun Belt, and then we'll start to head north, and we'll continue to go from there. 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. You can see how it really grows relatively quick, and we're really excited about the growth of that. 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. Maybe just a little bit of an update around your relationships with PACCAR and Volvo and how those seem to be progressing?
Yeah. OEM partnerships has always been part of our strategy and our ecosystem. From day one, 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 lineside 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. It is the most efficient path. It's not the only path. It is the most efficient path. For us, you know, PACCAR and Volvo remain committed partners. They represent about 50% of the market. You know, we've made a lot of progress, especially with Volvo this last year, right?
We just started to have lineside installation of an Aurora Driver kit into their pre-production line to just really work out the processes so that we can be prepared for launch. For them, there's not gonna be any upfits. It's gonna be basically right from the Aurora Driver kit that will be sent from Fabrinet right over to Volvo. It will come right off the line, and it'll be a fully equipped truck. PACCAR, obviously, our first generation of trucks that we're operating 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, you know, 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. We're taking International stock trucks. We're putting an Aurora Driver hardware kit on them, as well as an overlay of a drive-by-wire system to have the necessary redundancies. We've worked on the design and engineering with folks. We're doing our first builds 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. With this second fleet of vehicles, it'll 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, you know, in the third quarter sometime. You know, Roush is gonna be building 20 a week of these. That's what gives us a ton of confidence in our ability to actually grow our fleet this year. We've had the technical. The technical's always gonna lead a little bit, right? Because you always wanna know where you can drive before you start contracting where you're gonna drive.
It's been a really exciting opportunity for us.
I'm kind of disappointed by the partnership. I was expecting to see you with a hard hat kinda screwing in some of the equipment, but, you know, I guess not.
Well, in fairness, you probably wouldn't want me doing it. Our team is actually building the first 25, and they're really great. They put all the instructions together, and then they hand it over to Roush. It's an exciting partnership.
One question that I get a lot is about Volvo and when they launch their lineside manufactured trucks. Will they be observerless when they get on the road?
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. You know, the ride observer is a thing 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. The Aurora Driver behaves as anticipated.
In terms of timeline, you know, I can't share their timelines, but we're excited about the progress Volvo's making. I kinda shared with you where I think they're gonna slot in.
The industry has for a while now coalesced 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 year that's gonna happen? Well, I guess we'll get into the hardware question in a second, how about the cost downs for gen three hardware, but why 2027 I guess first?
Well, I think '27 is gonna be great. I actually think '26 is gonna also be awesome. If you think about our crawl, walk, run process, you know, we're now getting to the walk stage, right? We were in the crawl stage the first year, the walk stage where we're gonna 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 gonna be migrating over to our 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, you know, that we will be launching our third generation hardware kit.
Again, our first generation hardware kit, limited supply, hand-built by Aurora, great demonstration of 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 still have a limited supply of how many you can build on the contract manufacturing. 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. For us, 2027 is really a.
You guys might describe it as kind of going to more serial commercial production. For us, we think, you know, this is gonna be a great year in 2026. You're gonna get another bump up in 2027, and then 2028 it's gonna basically everything's gonna be feeling like serial production.
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 gonna happen? And particularly, this is sort of the same question, you know, 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 you've shared?
Yeah. 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. If you think about it. 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 of 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.
My degree of confidence on the ability to achieve both of those is sky high because 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. At this point in time, all the commercial agreements are locked in, right? We're also in finalizing our testing. Our testing supports our conclusion that these kits will be able to last 1 million miles. 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's doing as well as what Imovio 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 gonna get far more automation out of the manufacturing side. We got a lot of DFM work with the Fabrinet folks that are experts in this. Obviously scaling. There's a difference between buying 1,000 kits-2,000 kits and buying 10,000 kits-100,000 kits, right? Like, there's just a big stair step in each of these. 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, in some cases slightly worse, but overall roughly to where our plan is. This includes FirstLight. Every iteration of FirstLight is more capable and less expensive.
Part of the reason it becomes less expensive is it's just easier to manufacture, right? You know, we're going to the small, you know, LIDAR on a chip, which is infinitely easier to build and manufacture than the current LIDARs that we have on the road today. We are very confident in that, and the reason we're confident is the execution that we've had today. It's not like we're just starting out. We've been working with Innoviz for, you know, two years.
Maybe to go back to the OEM partnerships.
Mm-hmm.
You have very good relationships with PACCAR, with Volvo, but there are others who are trying to, you know, 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, you know, couple, few years? one, two, three suppliers of autonomous solutions.
Yeah, 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. Just to have a choice isn't particularly useful, if you don't have the confidence in being able to deploy that technology. I do think we have a kind of a multi-year 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 gonna 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 gonna choose us just because we are gonna be the supplier of choice, right? Because we're creating value, we're driving, you know, fundamental improvements and changes in the industry, and we're kinda leading the way in this. 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, you know, competitiveness breeds innovation, and that's always useful for an industry that is frankly been a little light on innovation over the last, you know, hundred years.
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. We would expect to see the Aurora Driver on all truck brands. We now have added a third with International. A slightly different approach on how we do it, but we've added a third. 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. Could there be International, 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 force, really high cost of labor, you know, a lot of restrictions in terms of use and a lot of inefficiencies and low margin. There are every geographic area has an opportunity and a need. Our focus today is in the U.S. We think it's an enormous opportunity. We would like to make sure that we do U.S. great. I think global expansion is something you would expect.
Maybe for in the last few minutes, you know, 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 gonna 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. Like, the two 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 2026. We'll see where that goes. It's political season, so you're already starting to see some political slants 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 AVIA. At the federal level, you know, 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 and the Department of Transportation. We are trying to play an active leadership role, talking about the benefits and the capabilities and a 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, you know, fighting that goes on from time to time.
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. We'd like to be a part of, you know, helping to develop that technology that gets us a leadership position. We're positively optimistic. 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.