Surviving autonomous vehicles on the frontier

There’s a phrase that gets thrown around all the time autonomous vehicle business: trough of disappointment.

This was announced by Cruise CEO Kyle Vogt General Motors Company‘ last salary call, and Aurora Innovation CEO Chris Urmson used the option to describe where the industry is right now. Their comments come after Ford and Volkswagen-backed Argo AI shut down and a year-long rout in driverless technology stocks.

What’s happening is a violent shakeup among companies trying to monetize the new technology. Money poured into startups in the heady days before and during the pandemic. Many of these investments do not bear fruit. Companies with money, technology and ownership of patients are still in the game. Any company that lacks even one of these three pieces is out.

The rest of the players are still getting funding and are still hoping for a big prize if they can scale the business before investors lose interest.

“Laggards lag behind and leaders add value,” Vogt told me in an email. “Only the laggards are publicly traded because of the bad decisions made during the SPAC bubble, and not surprisingly, their downward prospects seem to be reflected in their stock prices.”

Two leading companies continue to forge ahead. Alphabet’s Waymo is expanding its Los Angeles-based robotaxi business. Cruise is doing the same, starting operations in Phoenix and Austin.

Vogt said the Cruise system can be quickly unpacked and deployed in new markets. During GM’s latest earnings call, he said expansion in San Francisco, as well as new markets, will start bringing in real business. Next year will see a big push as Cruise ramps up operations and “starts to make significant profits,” he said.

Analysts pressed Vogt and GM CEO Mary Barr about the rate of investment in Cruise, which is just over $500 million a quarter. Cruise’s revenue target is $1 billion in 2025. Savvy investors will understand that Cruise is in the early stages of monetizing drone technology, but they may still worry about burning cash.

Other companies remove the driver and expand. Gautam Narang, CEO of closely held Gatik AI, said his mid-mile delivery company has a solution to limit risk and generate quick profits. Its robot driver drives trucks on relatively simple routes between distribution centers and retail stores of Wal-Mart in Arkansas and the Loblaws supermarket chain in suburban Toronto. Because travel is easy and routes are limited, Gatik requires less mapping data to enter new markets and can scale quickly.

Gatik has raised $120 million and is in the process of raising an undisclosed amount more. That gives the company three to four years of runway with “aggressive growth,” Narang told me in an interview.

Aurora, whose shares have fallen 85 percent this year, raised a lot of money in 2021 and has $1.2 billion on the balance sheet. The company plans to roll out its driverless semi-truck technology in 2024, and Urmson said last week that it has enough money to get there by mid-2024. That cuts him short, so he’ll likely need to both generate more revenue and find willing investors before then.

Tight capital markets will accelerate the current upheaval. Or, as Urmson put it, “The opportunity is so exciting that we just have to go for it. There will be at most a few companies that will cross the chasm.”