Uber to Sell ATG Self-Driving Unit to Aurora

A year and a half ago, Uber’s division dedicated to autonomous vehicle development, known as Uber Advanced Technologies Group, carried an estimated valuation of $7.25 billion. This assessment came after receiving a $1 billion investment from Toyota, DENSO, and SoftBank’s Vision Fund. Currently, this unit is being offered for sale, and discussions are underway with a rival company specializing in self-driving technology for a potential acquisition, as reported by three individuals with knowledge of the negotiations.

Aurora Innovation, a startup established by three experienced leaders in the autonomous vehicle sector – previously holding key positions at Google, Tesla, and Uber – is engaged in discussions to purchase Uber ATG. While the specific details of the prospective agreement remain undisclosed, sources indicate that conversations have been ongoing since October and the process is considerably advanced.

A representative from Uber declined to provide a statement, referencing the company’s standard practice of not addressing inquiries of this nature. A spokesperson for Aurora stated that the company does not offer commentary on speculative matters.

These discussions are not guaranteed to result in a finalized agreement. However, should they prove successful, the outcome could significantly expand Aurora’s workforce threefold and enable Uber to divest from a substantial, long-term project that has faced numerous challenges during its existence.

Uber is ‘Exploring Sale Options’

Divesting Uber ATG would align with a recent trend of strategic streamlining and cost reduction for Uber, concentrating its resources on its primary businesses of ride services and delivery. Previously, Uber pursued a broad-based strategy, investing in a wide range of transportation options, encompassing ride-hailing, micromobility solutions, logistics, package and food delivery, and the future potential of self-driving vehicles.

This approach has evolved since Uber’s initial public offering, and has been further impacted by the economic disruptions and lifestyle changes brought about by the COVID-19 pandemic. Over the last eleven months, Uber has discontinued its Jump shared micromobility service, divested a portion of its logistics division, Uber Freight, and completed the acquisition of Postmates. (The Postmates acquisition is anticipated to be finalized in the fourth quarter of 2020).

Uber ATG represents the company’s remaining significant, high-cost investment. While Uber ATG demonstrates considerable long-term potential, it also involves substantial current expenses; Uber reported a net loss of $303 million for ATG and “other technologies” (including Uber Elevate) during the nine-month period ending September 30, 2020. Uber’s S-1 filing detailed $457 million in research and development expenditures for ATG and related “Technology Programs” initiatives.

According to four sources familiar with the matter, Uber “has been exploring a sale” of ATG to various companies, including automotive manufacturers, throughout this year. These sources also indicated that Uber ATG was potentially facing a funding round with a lower valuation, which may have further encouraged discussions with Aurora.

Aurora, established in 2017, is dedicated to developing a complete self-driving system – the foundational technology enabling vehicles to navigate roads and urban environments without human intervention. Aurora has garnered attention and investment from prominent venture capital firms, investment management companies, and corporations, including Greylock Partners, Sequoia Capital, Amazon, and T. Rowe Price, largely due to its founders: Sterling Anderson, Drew Bagnell, and Chris Urmson.

Urmson previously oversaw the Google self-driving project before its transition into Waymo, an Alphabet company. Anderson is recognized for leading the development and launch of the Tesla Model X and the automaker’s Autopilot system. Bagnell, a professor at Carnegie Mellon University, played a key role in initiating Uber’s autonomy efforts, eventually leading the autonomy and perception team at the Advanced Technologies Center in Pittsburgh.

Aurora has expanded from a small startup to a company employing 600 individuals, with operations in the San Francisco Bay Area, Pittsburgh, Texas, and Bozeman, Montana – the location of Blackmore, the lidar company it acquired in 2019. Approximately 12% of Aurora’s current employees previously worked at Uber, as indicated by LinkedIn records.

Despite this growth, Aurora remains smaller in scale than Uber ATG, the self-driving subsidiary in which Uber holds a majority stake. Uber ATG employs over 1,200 people across multiple locations, including Pittsburgh, San Francisco, and Toronto. Uber owns an 86.2% equity stake (on a fully diluted basis) in Uber ATG, with investors collectively holding a 13.8% stake, according to filings with the U.S. Securities and Exchange Commission.

Uber’s significant investment in autonomous vehicle technology began in early 2015 with a strategic partnership with Carnegie Mellon University’s National Robotics Center. This collaboration to develop driverless car technology led to Uber recruiting numerous researchers and scientists from NREC. A year later, under the leadership of co-founder Travis Kalanick, Uber acquired Otto, a self-driving truck startup.

The acquisition encountered difficulties from the outset. Otto was founded earlier that year by Anthony Levandowski, a former Google engineer, along with three other Google veterans: Lior Ron, Claire Delaunay, and Don Burnette. Uber completed the acquisition of Otto less than eight months later.

Two months following the acquisition, Google initiated two arbitration proceedings against Levandowski and Ron. Uber was not involved in either of these arbitrations. Simultaneously, Waymo filed a lawsuit against Uber in February 2017, alleging trade secret theft and patent infringement. The lawsuit, which proceeded to trial but concluded with a settlement in 2018, claimed that Levandowski misappropriated trade secrets that were subsequently utilized by Uber.

As part of the settlement, Uber agreed not to integrate Waymo’s confidential information into its hardware or software. Uber also agreed to a financial settlement equivalent to 0.34% of Uber equity, based on its Series G-1 round valuation of $72 billion, which was estimated at approximately $244.8 million in Uber equity at the time.

In the initial stages of the Otto acquisition, Uber projected the potential for 75,000 autonomous vehicles on the road by 2019 and the operation of driverless taxi services in 13 cities by 2022, as detailed in court documents reported by TechCrunch. To achieve these ambitious objectives, the ride-hailing company was investing $20 million monthly in the development of self-driving technologies.

Uber did not achieve these targets, a trajectory impacted by technical challenges, the legal dispute with Waymo, its complex relationship with Lewandowski, and a fatal accident in March 2018 involving one of its self-driving test vehicles in Tempe, Arizona.

Following the accident, Uber suspended all testing and has gradually resumed its more visible operations over the past 18 months. The substantial costs associated with developing autonomous vehicles led Uber to spin out the company in spring 2019 after securing $1 billion in funding from Toyota, Denso, and SoftBank’s Vision Fund.

The spin-out, which occurred shortly before Uber’s public debut, was widely speculated upon as a means for Uber to share the financial burden with other investors and concentrate on its core businesses and more immediate profitability goals.

What Aurora gains

Despite facing challenges, Uber ATG possesses two particularly valuable assets that make it appealing to Aurora: its skilled personnel and its connection with Toyota.

Prior to the $500 million investment made in 2019, the Japanese automotive manufacturer had already committed significant funding to Uber. Simultaneously, the two organizations revealed plans to introduce limited deployments of automated ridesharing vehicles, utilizing Toyota Sienna models, into the Uber network by 2021, integrating Uber ATG’s self-driving technology with Toyota’s Guardian advanced safety system.

This 2019 investment further strengthened the collaborative relationship between Toyota and the Uber ATG division.

As Uber navigated a legal dispute with Waymo concerning trade secrets, Aurora made a notable entry into the market. Within a year and a half, Aurora established various partnerships with companies including Hyundai, Byton, and VW Group. While some of these collaborations ended, new opportunities emerged, most notably with Fiat Chrysler Automobiles. These frequent shifts highlight the competitive landscape within the self-driving industry—a sector still grappling with both commercial and technological uncertainties—and the willingness of established automakers to seek out the most promising technologies and agreements.

VW Group, which had previously emphasized its partnership with Aurora in January 2018, informed TechCrunch in June 2019 that “activities related to our partnership have been completed.” VW Group subsequently directed its resources toward Argo AI, another autonomous vehicle technology firm that had secured both funding and a customer agreement with Ford.

Although Hyundai holds a minority ownership stake in Aurora, the company also established a joint venture with autonomous driving technology company Aptiv in the fall of 2019. This agreement resulted in the creation of Motional, with both parties holding a 50% ownership stake and a combined investment valued at $4 billion, encompassing engineering services, research and development, and intellectual property.

Nevertheless, Aurora has achieved successes. Last spring, the company secured $530 million in a Series B funding round, spearheaded by Sequoia, with substantial investments from Amazon and T. Rowe Price. This funding round established Aurora’s post-money valuation at $2.5 billion. Industry sources indicate that Aurora is currently experiencing increased activity, particularly within the team led by David Maday, the company’s new vice president of business development, who previously oversaw corporate development and mergers and acquisitions at General Motors for 21 years.

Aurora has consistently maintained that its complete driving system—the integrated combination of software and hardware that powers an AV—will be adaptable to various vehicle types. However, initial testing and partnerships initially suggested a focus on robotaxi applications rather than logistics. Over the past year, Aurora has increasingly discussed applying its technology to long-haul trucking and has expressed growing optimism about this application, especially following the acquisition of Blackmore.

In July 2020, Aurora announced its expansion into Texas and its intention to test commercial routes in the Dallas-Fort Worth area using a combination of Fiat Chrysler Pacifica minivans and Class 8 trucks. The company anticipated the initial arrival of a small fleet of Pacificas, with the trucks expected to be operational in Texas by the end of the year.

The Jump precedent

The specifics of how a potential acquisition of Uber ATG could be arranged remain uncertain, as does whether Uber will maintain any stake in the business. Even accounting for a likely decrease in Uber ATG’s valuation, a purchase by Aurora would appear difficult without securing further external funding or structuring an agreement that allows Uber to retain some ownership.

A similar situation occurred previously this year when Uber spearheaded a $170 million funding round for Lime. As part of this intricate agreement, Uber transferred Jump, its bike and scooter-sharing division, to Lime.

Reports suggesting Uber CEO Dara Khosrowshahi’s desire to sell Uber ATG have surfaced periodically over the last year. However, with the onset of the COVID-19 pandemic, Khosrowshahi and other leaders shifted their attention to the company’s primary business of ride-hailing and increased investment in delivery services. Alongside its micromobility division and the Uber Freight spin-off, Uber has also sold off several international operations that were proving too expensive to expand given strong local competition.

According to two sources, discussions regarding the potential sale of Uber ATG gained momentum following the Jump transaction.

An industry investor characterized this as a compelling alternative strategy for Uber, enabling the company to remove ATG from its financial statements while still potentially realizing some future gains.