Embark: Autonomous Trucking On The Horizon

Summary

• Embark Technology offers an attractive way to play self-driving trucks after the stock falls below $9 following the de-SPAC transaction.
• The company only raised approximately half of the intended cash from the SPAC transaction due to nearly 30 million shares redeemed.
• The stock is cheap with a $4 billion market cap and the promise of AV trucking, but Embark likely needs to raise more cash in the near term.
• Looking for a portfolio of ideas like this one? Members of Out Fox The Street get exclusive access to our model portfolio. Learn More »

MikeMareen/iStock via Getty Images

One of the biggest technology areas to obtain investments via the SPAC process of going public in 2021 was various technologies related to autonomous vehicles. Embark Technology (NASDAQ:EMBK) is a leading player in the self-driving truck space with limited analyst coverage and a stock trading below the $10 SPAC price. My investment thesis tilts Bullish on such over looked SPACs trading below the IPO and PIPE pricing.

Focus On Trucking

Similar to Aurora Innovation (AUR) and TuSimple Holdings (TSP), Embark focuses on the autonomous trucking industry while most of the large technology players like Tesla (TSLA), Apple (AAPL) and Alphabet (GOOG) are focused on passenger cars in urban areas. The advantage in focusing on trucking is that highway lanes offer a simpler and much needed path to self-driving technology implementation. A lack of truck drivers combined with more consistent highway terrain provides autonomous technology with an easier path towards self-driving implementation on highways.

Embark just completed a SPAC deal with Northern Genesis Acquisition Corp. II with trading commencing on November 11. The stock has mostly traded below $10 since closing the deal and fell all the way to the $7s, as the market has mostly overlooked the AV trucking plays.

The Embark Universal Interface offers a self-driving platform for the trucking industry with partners from NVIDIA (NVDA) for computing to Luminar Technologies (LAZR) for Lidar sensors along with other industry partners. Embark is developing a flexible subscription system for integration with a variety of powertrain and propulsion systems.

The forecasted truck driver shortage is expected to top 100K in the next few years leading to a major push in the industry to solve the problem via self-driving technology. The major supply chain disruptions ongoing highlights the need for an improved trucking system more reliant on technology and far less reliant on human drivers. The domestic truck freight market is approaching a $1 trillion market ripe for innovation improvements.

Source: Embark Day presentation

As an asset-light software and technology platform, Embark forecasts strong economics with gross margins approaching 70% in 2025. The company forecasts only reaching 3.3% of the market in 2025 via 7.4 million autonomous miles driven leading to revenues of $2.7 billion.

Source: Embark Day presentation

Embark derives a business model based on a $0.44 per mile subscription fee while saving the industry $0.80 per mile. A big question is whether the freight market accepts a subscription model long term.

Not Risk Free

While the autonomous technology is clearly needed in the trucking space, Embark isn't a clear winner in the sector. The market has assigned higher valuations to TuSimple and especially Aurora Innovation. The later acquired technology from Uber (UBER) back in 2020 and is regularity discussed in the lights of the leading autonomous players in the industry due to a focus on passenger vehicles as well.

Source: Embark October 2021 presentation

Embark appears to have a similar, if not greater, chance of success while the stock valuation is half of Aurora Innovation. Similar to TuSimple, Embark forecasts a quicker path to material revenues while Aurora Innovation doesn't forecast revenues ramping until 2026 and revenue not topping $1 billion until 2027.

Only two analysts following the stock is a prime reason to consider the under valuation occurring due to a lack of analyst coverage. The analysts have an average price target of $11 providing for what actually amounts to 34% upside for Embark.

Source: TipRanks

The SPAC had ~300 million shares redeemed reducing the cash raised as part of the transaction by ~$300 million. Along with a $200 million PIPE, the SPAC had plans to raise up to $614 million in cash to fund growth.

Embark only raised ~$314 million in the transaction, or approximately half of the intended amount, due to the high level of redemptions. The one major negative outcome of these de-SPAC transactions are the redeemed shares leaving these companies with reduced cash balances and the likely need to raise more funds in the future.

Takeaway

The key investor takeaway is that Embark Technology is an appealing play in the AV trucking space. The company needs to raise more cash before investors should get 100% behind the stock, but the valuation level is attractive down around $4 billion due to the high level of redemptions and the stock falling below $9.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.