Uber sells self-driving unit Uber ATG in deal that will push Aurora’s valuation to $10B

Aurora Innovation, the autonomous vehicle startup backed by Sequoia Capital and Amazon, has reached an agreement with Uber to buy the ride-hailing firm’s self-driving unit in a complex deal that will value the combined company at $10 billion.

Aurora is not paying cash for Uber ATG, a company that was valued at $7.25 billion following a $1 billion investment last year from Toyota, DENSO and SoftBank’s Vision Fund. Instead, Uber is handing over its equity in ATG and investing $400 million into Aurora, which will give it a 26% stake in the combined company, according to a filing with the U.S. Securities and Exchange Commission. (As a refresher, Uber held an 86.2% stake (on a fully diluted basis) in Uber ATG, according to filings with the SEC. Uber ATG’s investors held a combined stake of 13.8% in the company.) Shareholders in Uber ATG will now become minority shareholders of Aurora. Notably, once the deal closes, Uber together with existing ATG investors and the ATG employees who continue their employment with Aurora are expected to collectively hold about 40% interest in Aurora on a fully diluted basis.

Uber CEO Dara Khosrowshahi will take a board seat in the newly expanded Aurora.

Aurora, which was founded in 2017, is focused on building the full self-driving stack, the underlying technology that will allow vehicles to navigate highways and city streets without a human driver behind the wheel. Aurora has attracted attention and investment from high-profile venture firms, management firms and corporations such as Greylock Partners, Sequoia Capital,  Amazon and T. Rowe Price, in part because of its founders Sterling Anderson, Drew Bagnell and Chris Urmson, all of whom are veterans of the autonomous vehicle industry.

Urmson led the former Google self-driving project before it spun out to become the Alphabet business Waymo. Anderson is best known for leading the development and launch of the Tesla Model X and the automaker’s Autopilot program. Bagnell, an associate professor at Carnegie Mellon, helped launch Uber’s efforts in autonomy, ultimately heading the autonomy and perception team at the Advanced Technologies Center in Pittsburgh.

Aurora plans to bring autonomous trucks to market first. However, Urmson has maintained that the company is still pursuing other applications of its self-driving stack such as robotaxis. The deal with Uber ATG provides Aurora with talent and operational facilities. But it delivers on two other important areas: relationships with Uber ATG investors, specifically Toyota, as well as a partnership with Uber that will give it access to its vast ride-hailing platform.

“The way we want to build this company has been with this mindset of let’s build it to scale — let’s create an environment where people can do their best work,” Urmson said in an interview Monday. “And then let’s go look for great teams and bring them in. It’s one way to get a combination of talent and technology, and in this case, also relationships.”

The announcement, which confirms TechCrunch’s reporting in November, marks the beginning of what promises to be a huge undertaking to merge Uber ATG, a 1,200-person business unit with operations in Pittsburgh, San Francisco and Toronto with its smaller competitor.

It’s not clear if all Uber ATG employees will be folded into Aurora, which has 600-person workforce and operations in San Francisco Bay Area, Pittsburgh, Texas and Bozeman, Montana. At least one executive — Uber ATG CEO Eric Meyhofer — will not be joining the company.

Urmson emphasized that work to integrate the companies and their technology will begin without haste.

“One of the most fun things we’ll be doing over the next 60 days is bringing the two teams together,” Urmson said. “And then kind of dispassionately looking at what is the technology that accelerates our first product to market and then amplifying that — whether it’s from the existing Aurora team or to the new Aurora team — and pushing that forward, whether it’s ideas or code or bits of hardware together to accelerate our time to market.”

The company plans to assess the workforce and technology as quickly as possible, Urmson said.

Uber’s AV history

For Uber, the deal marks one of the last expensive pursuits that it had yet to either spin or sell off as the company narrowed in on its core businesses of ride-hailing and delivery. In the past year, Uber has dumped shared micromobility unit Jump, sold a stake in its growing but still unprofitable logistics arm, Uber Freight and acquired Postmates. Uber is also reportedly in talks to sell off its autonomous air taxi business Uber Elevate.

Uber ATG was one of those businesses that promised financial benefits in the long term, but delivered lots of pain, controversy and upfront costs since almost the moment it was created.

In early 2015, Uber kicked off its pursuit of autonomous vehicles when it announced a strategic partnership with Carnegie Mellon University’s National Robotics Center. The agreement to work on developing driverless car technology resulted in Uber poaching dozens of NREC researchers and scientists. A year later, Uber acquired a self-driving truck startup called Otto, a startup founded by one of Google’s star engineers, Anthony Levandowski, along with three other Google veterans: Lior Ron, Claire Delaunay and Don Burnette.

Two months after the acquisition, Google made two arbitration demands against Levandowski and Ron. Uber wasn’t a party to either arbitration. While the arbitrations played out, Waymo separately filed a lawsuit against Uber in February 2017 for trade secret theft and patent infringement. Waymo alleged in the suit, which went to trial but ended in a settlement in 2018, that Levandowski stole trade secrets, which were then used by Uber.

With the trial over, Uber pressed on, but almost immediately was involved in another deadlier controversy when one of its autonomous test vehicles — which had a human safety driver behind the wheel — struck and killed a pedestrian in March 2018. The entire industry took pause and Uber halted all testing.

Uber spun out Uber ATG in spring 2019 after closing $1 billion in funding from Toyota, auto parts maker Denso and SoftBank’s Vision Fund. Even with the spin off, Uber still faced a costly enterprise. Uber reported in November that ATG and “other technologies” (which includes Uber Elevate) had a net loss of $303 million in the nine months that ended September 30, 2020. In its S-1 document, Uber said it incurred $457 million of research and development expenses for its ATG and “other Technology Programs” initiatives.

What Aurora values

Despite the trail of problems that have plagued Uber ATG, Urmson insists that the company has the talent and some interesting technology that makes it a worthy asset.

“Some of the work they’ve been doing in designing their next-generation hardware for the vehicles is exciting and interesting,” he said. “On the software side, they have really cool stuff in prediction, and how they’ve combined prediction and the perception system together.”

Others close to the deal said Uber ATG has valuable and talented mid-level and low-level engineers, making the acquisition particularly appealing to Aurora.

This is not Aurora’s first acquisition, although it is certainly its largest and most complex. In 2019, Aurora acquired Blackmore, a Bozeman, Montana-based lidar company, and simulation startup 7D Labs. Aurora has touted its  “no jerks” policy and its company culture, which is now about to absorb hundreds of new people.

Post-merger integrations can take months, even years, which can in turn slow down technological or operational progress. Urmson thinks differently.

“If anything, this accelerates our objectives,” he said.