Prepared remarks
Greetings and welcome to the Aurora Innovations Fourth Quarter 2024 Business Review Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Stacy Feit. Thank you, Stacy. You may begin.
Thanks, Julian. Good afternoon, everyone and welcome to our fourth quarter 2024 business review call. We announced our results earlier this afternoon. Our shareholder letter and a presentation to accompany this call are available on our Investor Relations website @ir.aurora.tech. The shareholder letter was also furnished with our Form 8-K filed today with the SEC. On the call with me today are Chris Urmson, Co-Founder and CEO; and David Maday, CFO. Chris will provide an update on the progress we have made across the key pillars of our business and David will recap our fourth quarter and full year financial results. We will then open the call to Q&A. A recording of this conference call will be available on our Investor Relations website @ir.aurora.tech shortly after this call has ended. I’d like to take this opportunity to remind you that during the call, we will be making forward-looking statements.
This includes statements relating to our future financial and operating performance and our financial outlook and guidance, including expected revenue for the 2025 fiscal year, our ability to reduce costs and general expectations beyond that year, the safety benefits of our technology and product, the achievement of certain milestones around and realization of the potential benefits of the development, manufacturing, scaling and commercialization of the Aurora Driver and related services, including relationships and anticipated benefits with partners and customers and on the timeframe we expect or at all the market opportunity, our product's ability to reduce fuel use and emissions, the expected future market size, our expected market share, the efficiency of our validation process, our remote assistance efficiency for driverless operations and profitability of our products and services, regulatory tailwinds and framework in which we operate, expected cash, runway and overall future prospects.
These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our annual report on Form 10-K for the year ended December 31, 2023 filed with the SEC as amended as well as current uncertainty and unpredictability in our business, the markets and economy. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended December 31, 2024. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof and Aurora disclaims any obligation to update any forward-looking statements, except as required by law. Our discussion today may include non-GAAP financial measures.
These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results may be found in our shareholder letter, which was furnished with our Form 8-K filed today with the SEC and may also be found on our Investor Relations website. With that, I’ll now turn the call over to Chris.
Thank you, Stacy. Reflecting on 2024 and the start of 2025, it's been a monumental time at Aurora as we near the culmination of years of innovation and preparation for our commercial launch planned in April. The word 'Aurora' means the dawn, and we're standing at the dawn of a new era in transportation, one defined by greater safety, mobility and efficiency. Our focused strategy, grounded in safety, positioned for scale and enabled by financial discipline, continues to differentiate Aurora as the leader in autonomous trucking. We've made tremendous technological progress. We're approaching closure of the safety case for the Dallas to Houston launch lane with ARM reaching 99%, and we've also been approaching our targeted 100% API loads commercial launch estimate since mid-October. On the financial front, we've consistently demonstrated strong financial discipline, managing our cash use under budget.
We also further strengthened our liquidity position with a successful capital raise last summer, ensuring we have the resources necessary to fund the initial phase of our scaling strategy. At the start of this year, we announced a three-way partnership between Aurora, NVIDIA and Continental, solidifying another key enabler to successfully deploy at scale. Our industry is also fortunate to have a supportive regulatory environment. Today, driverless deployment in the U.S. is already allowed by the federal government. At the state level, under existing laws and regulations, autonomous trucks can be deployed in the vast majority of U.S. states, including our Texas launch market. We're optimistic that the new Presidential administration's enthusiasm for innovation, safety and a nationwide framework for self-driving vehicles could further support this favorable regulatory environment for driverless deployment in the U.S. With nearly all the pieces in place, Aurora is poised for an extraordinary year ahead.
Our Analyst and Investor Day in March 2024 marked a defining moment for the investors who have supported our development journey. We gave them a chance to experience driverless truck rides and a first look at how our driverless trucks navigate advanced road scenarios at our test track. I'll never forget walking up to the track with our investors and analysts, seeing the truck speed by entirely driverless. At that moment, Aurora's vision became clear for everyone. As we approach the final steps of development, we're just months away from starting our commercial journey and making our vision a reality. We plan to launch our first driverless trucks hauling customer loads between Dallas and Houston in April. To commence driverless operations, we must first close the safety case for the Dallas to Houston launch lane. Our safety case framework is a comprehensive evidence-based approach to confirming that our self-driving vehicles are acceptably safe to operate on public roads.
We quantify our progress toward closing our Dallas Houston Launch Lane safety case through the ARM, a weighted measure of completeness across all claims of the safety case for our launch lane. We remain the only company in the industry that has provided this level of transparency. As of the end of January, ARM was 99%, up from 97% at the end of October, driven by the closure of a number of software claims. We've made meaningful progress on final behavior refinement and validation and expect to complete the remaining elements of our safety case over the next several weeks. Let's take a look at our rare surface street scenario we just recently encountered in Houston. In the video on Page 5 of our presentation, the Aurora Driver comes upon a large funeral procession, an unpredictable and complex scenario. As the truck approaches the intersection, the Aurora Driver detects a police motorcycle directing traffic at an uncontrolled intersection, which could potentially block the truck's lane.
It slows its speed as it prepares to stop and requests input from a remote assistance specialist. Importantly, given our system architecture and strict security protocols, our trucks cannot be operated by remote assistance specialists. All driving tasks can only be executed on board. Within seconds, the remote assistance specialist sees the police officers just blocking cross traffic and not the truck's lane and confirms the Aurora Driver should proceed. With the detection of the active police motorcycle at sufficient distance and rapid remote systems response, the Aurora Driver powered truck was able to continue on its journey without stopping. Adeptly handling scenarios like this helps reinforce our confidence that the Aurora Driver will behave appropriately even in the rarest surface street scenarios and the successful interaction with our remote assistance specialist underscores the power of the complete systems performance.
Turning to rare construction scenarios, the Aurora Driver is also delivering impressive performance. In the video on Page 6, an Aurora Driver powered truck encounters an upcoming construction zone warning. It lane changes to the left to prepare for the lane closure ahead and then seamlessly navigates a highly complex traffic crossover. As you'll see, this type of configuration redirects traffic to the opposite side of the road, bypassing the work zone with lanes separated by barriers and marked with cones. This is a great example of truly skillful performance of known construction zones. Once fully clear of the construction zone, the Aurora Driver returns to its preferred right-hand lane and continues its journey. Strong performance in these types of scenarios support our solid API results. API is another key metric we use to assess the Aurora Driver's performance and commercial readiness.
The indicator penalizes the use of on-site support, which will be the most expensive support provided to enable the Aurora Driver. We're focused on driving up the percentage of commercial loads that did not require any form of on-site support, which we refer to as 100% API loads. As a reminder, we do not anticipate that aggregate API will ever reach 100% even at launch because certain situations will always require on-site support. However, we believe the percentage of 100% API loads is a strong indicator of our progress and expect this metric to reach approximately 90% by commercial launch. We've been approaching 90% since mid-October, Specific to the fourth quarter, excluding the first two weeks, 88% of loads at 100% API, with many weeks exceeding our commercial launch estimate of 90%. This puts us in a strong position for our planned launch in April. During the launch, we expect to operate up to 10 trucks commercially starting with one driverless truck and then transitioning to balanced driverless operation.
We're deliberately starting with this crawl-walk-run approach as our early efforts will be focused on exercising the full product suite to ensure a seamless launch while demonstrating the value proposition for our customers and continuing to build trust with all of our stakeholders. In the second half of 2025, we'll focus on expanding our product capabilities to include night driving and rainy conditions. Beginning our lane expansion strategy with driverless operations on the Fort Worth to El Paso lane, with further extension to Phoenix and increasing the capacity of tens of trucks by the end of the year. Growing demand for autonomous trucking underscores the critical role the Aurora Driver will play in addressing industry challenges. As freight volumes continue to increase and shipping distance expands, the Aurora Driver is uniquely positioned to help solve staffing shortages and enable more productive and efficient transport.
Aurora Driver powered trucks operating at high levels of autonomy are already achieving best-in-class fuel efficiency, 15% above the industry average. This isn't just a marginal improvement. It's a clear example of how autonomy can deliver tangible value in fuel saving and sustainability. As we work with customers and more deeply integrate the Aurora Driver with their operations, we see the potential to reduce fuel use and emissions by up to 32%, as we discussed in our sustainability white paper published last year. This will help the industry reduce emissions and bring down operating costs. This is just one example of how the Aurora Driver is meeting today's challenges and shaping the future of freight transport. With a mutual focus on sustainable operations guided by safety, Aurora and Volvo Autonomous Solutions, or VAS, continue to make significant progress in our partnership. During the fourth quarter, together with VAS, we launched pilot operations with DHL Supply Chain with the purpose-built Volvo VNL Autonomous powered by the Aurora Driver.
We're initially hauling DHL Freight on two lanes, Dallas to Houston and Fort Worth to El Paso. We also continue to autonomously haul freight for our other pilot customers, including FedEx, Werner, Schneider, Hirschbach, Uber Freight and others. Cumulative to date, we have autonomously delivered under the supervision of vehicle operators more than 9,500 loads, driving over 2.6 million commercial miles with nearly 100% on-time performance for our pilot customers. We're also excited to have recently executed an MOU with JB Hunt. As we prepare for commercial launch, we continue to run our Partner Success program, which gives customers the opportunity to more deeply evaluate and assess the Aurora Driver's performance as a final step to move forward with driverless operations. Hirschbach recently evaluated our system, leveraging the expertise of some of their most seasoned professional drivers who collectively represent over 75 years of on-road experience.
These drivers have logged millions of miles and have seen everything the road can throw at them. So understandably, they came into the program with a bit of skepticism. But during their rides, they were blown away by the Aurora Driver's performance and in turn, Hirschbach is ready to go driverless when we are. For me, it was awesome to hear how experienced truck drivers get it about what this technology can mean for their industry. You can hear from these drivers firsthand in the video on Page 8 of our presentation. Their shared belief in how autonomous and traditional trucks can work hand-in-hand to improve road safety and transform freight transportation is a true testament to Aurora's mission. Since our founding, our objective has been to deploy self-driving technology at scale. Our OEM and Tier 1 partnerships with Volvo Trucks, PACCAR and Continental are unmatched in the industry, and we believe position Aurora as the only company capable of deploying autonomous trucking at scale.
As I mentioned at the beginning of the call, in January, we further enhanced this ecosystem with a three-way partnership between Aurora and NVIDIA and Continental, solidifying another key enabler to successfully deploy at scale. NVIDIA's DRIVE Thor system-on-a-chip will be integrated into the Aurora Driver hardware kit that Continental plans to mass manufacture starting in 2027. Production samples of DRIVE Thor are coming in the first half of 2025 to start testing. DRIVE Thor will be the core of the primary computer for the Aurora Driver, which we're developing with Continental who will manufacture it. We also continue to make meaningful progress on other aspects of this generation of the hardware kit. During the fourth quarter, we completed the integration of our FirstLight LiDAR chip into a single photonics engine. Notably, the prototype performance is meeting our requirements for our next-generation LiDAR.
In January, Continental and Euro achieved another partnership milestone and are now beginning sample builds and firmware development. The significant progress we're making towards this generation of hardware is critical as it will unlock true scale on the order of tens of thousands of trucks. While we work toward Continental's start of production in 2027, our third-generation commercial kit. We also continue to advance our second-generation commercial hardware kit. We plan to introduce this kit later this year to support our ambitions to scale to hundreds of millions of miles traveled autonomously. This generation brings exciting performance gains. And importantly, we expect it to drive a step function reduction in our hardware costs, which is a critical element on our path to self-funding. During the fourth quarter, we received eight samples from our contract manufacturer, Fabrinet, and have integrated this prototype kit into its first vehicle for testing.
Aurora has always been a mission-driven company with an immensely capable team, bold enough to dream big and skilled enough to make those dreams a reality. We're on the cusp of our planned commercial launch, a pivotal step toward realizing our mission and our team is more focused and energized than ever with a team like ours impossible becomes achievable. Our extraordinary progress would not be possible without the unwavering commitment from our team, partners and investors. Thank you for your trust. We believe 2025 will be a defining year for Aurora as we begin to reshape the future of freight. With that, I'll now pass it over to Dave who will review our financial results.
Thank you, Chris. Let's discuss our financial results. We have provided a summary on Page 13 of the slide deck for reference. During the fourth quarter of 2024, we continued to demonstrate strong fiscal discipline. Fourth quarter 2024 operating expenses, including stock-based compensation, totaled $199 million. Excluding stock-based compensation, operating expenses totaled $164 million. Within operating expenses, our R&D expenses, excluding stock-based compensation, totaled $142 million. This amount includes $714,000 in pilot revenue, which we record as a contra R&D expense. 2024 pilot revenue of $2.8 million increased 59% year-over-year. SG&A expenses, excluding stock-based compensation, were $22 million. We used approximately $142 million and $611 million, respectively, during the fourth quarter and fiscal 2024. Capital expenditures totaled $8 million and $34 million, respectively, during the fourth quarter and fiscal 2024.
This cash spend was below our externally communicated target for both the quarter and the year, reflecting our continued commitment to fiscal prudence. We ended the year with a very strong balance sheet, including over $1.2 billion in cash and short-term investments. Given efficiencies we found in the business and cash preservation decisions we have made, we now expect this liquidity to support our planned commercial launch and fund our operations into the second half of 2026. In 2025, we expect quarterly cash use to be within the $175 million to $185 million average range. This accounts for an increase in capital expenditures and continued development of our new hardware programs as we prepare to scale our business. At commercial launch, we will begin recognizing revenue. This will include driverless revenue as well as continued pilot revenue, which up to this point has been recorded as contra R&D expense.
With our deliberate approach to launch, we expect our 2025 revenue to be modest in the mid-single-digit millions. For modeling purposes, we expect revenue to build sequentially throughout the year. Revenue recognition associated with our driver's launch will be a meaningful milestone for Aurora, but will have a negligible impact on our overall financials during our launch year. Our focus in 2025 will be on expanding our driverless operations to prove the promise of the Aurora Driver technology. In addition, our team will be focused on key cost reduction levers, including the introduction of our next-generation hardware kit to support achieving our initial scaling cost reduction initiatives. With that, we'll now open the call to Q&A.
Questions and answers
And our first question comes from George Gianarikas with Canaccord Genuity. Please go ahead with your question.
Hi, good afternoon, everyone. Thank you for taking my questions. I'd like to be optimistic and look past the April commercial launch to gather some insights from you about how comfortable you feel regarding scaling. This question has several parts. First, can you share your confidence in lane scaling, especially in relation to the operational remote assistance specialists you mentioned in one of your examples? Additionally, from a hardware standpoint, particularly regarding NVIDIA, could you provide more details on the cost reductions you anticipate achieving as you scale the operation?
Yes, I'm happy to address that, George. Thanks for the question. I'm very optimistic about lane scaling. One of the key considerations in pursuing trucking applications is the high self-similarity of the freeway network in the United States, meaning that one segment of freeway closely resembles another. If you can navigate one part, you should be able to navigate another. We're observing this in practice. Last quarter, we shared an update on our capacity to quickly map the route from El Paso to Phoenix and demonstrated comparable performance levels to what we've seen in other areas. We anticipate this will roll out fairly quickly, and as we look towards 2025, we expect to see evidence of that progress throughout this year. One point I'd like to emphasize is that as we tackle this challenge, rolling out each new lane will actually become easier. Once we complete the first lane between Dallas and Houston, we will have established the core competency necessary for driving.
Moving to a new lane involves adding only a small set of incremental capabilities on top of what we already possess. In our previous discussions, we mentioned that the significant difference with routes like Fort Worth to El Paso is the need to operate through a customs border patrol station. We can manage that today; we simply need to validate that process, which is relatively modest in comparison to what we've achieved over recent quarters. I'm genuinely optimistic and confident in our ability to succeed there. On the hardware front, we have outlined a strategy where we will begin with our first commercially viable hardware generation. We have this hardware ready, enabling us to produce it in small batches. Our focus is not on becoming a manufacturing company; we have emphasized in the past the importance of concentrating on our core strengths. We excel at designing and integrating hardware rather than manufacturing it.
That's why we have partnered with Fabrinet. As you have heard, we are already integrating initial components from that partnership onto trucks and starting to enhance our processes. This will support mid-level scaling, transitioning from tens to small thousands of units. Moreover, we've been proactive in planning ahead with our partnership with Continental, which will help us achieve automotive scale. They understand the necessary processes and manufacturing requirements and can integrate seamlessly into the just-in-time manufacturing frameworks for our OEM partners. Given the foresight in building our relationship with Continental and our collaboration with Fabrinet, I am highly confident in our ability to provide the hardware required to grow this business. As production volumes increase, the costs typically decrease due to the investments in engineering and the manufacturing expenses that get distributed across a larger number of units.
We are very confident in the reduction of costs as we scale, and we already have detailed projections indicating favorable outcomes. We expect that, especially with the Continental hardware, we will reach the healthy margin business we've discussed for several years. Overall, I have a strong sense of confidence regarding both the software scalability and our ability to roll out across lanes, as well as the hardware delivery that will support the business at a price point aligned with our goals. I apologize if that was more extensive than you anticipated.
No, that's great. Just a follow-up on the NVIDIA partnership. At CES, there were several companies discussing their collaboration with NVIDIA. Could you provide more details about how proprietary your hardware is compared to others that might be using the same GPU?
Yes. The GPU we are referring to is an integrated system on a chip from NVIDIA, which is a standard product. It plays a significant role in our offering. However, what truly sets this application apart is how we integrate it into our system, design it for manufacturability and reliability, and ensure it meets performance standards to provide a safe product. This is the unique value that Continental adds to the NVIDIA technology. The component itself is not particularly distinctive, but our approach in utilizing it and the value we create around it is what makes it unique.
George, I just heard from someone via e-mail that there was a bit of a cutoff in the connection on our side, and maybe there was a loss in the hearing. Could you hear the answer? I'm not sure if it may have broken?
I heard the whole thing.
And to whoever it got cut out with, we apologize for that.
Hey everyone, good afternoon. Congratulations on the quarter and all of the recent developments, maybe just to start off, regarding your commercialization strategy, I'm wondering if you can maybe flesh out a bit more your crawl, then walk, then run approach. So obviously, starting with 1 driverless truck and then ramping up to tens of trucks by the end of the year. Just wondering what is the best way to think about Q3 and Q4 of this year in terms of those trucks in operation. And also, is there a certain number that you might be targeting for commercial loads and cumulative miles driven by your April date?
Yes. So maybe I'll take the first part and talk a little bit about how we introduce it, and then I'll let Dave talk more about the numbers. So for us, the crawl walk run is really about acknowledging that this is kind of a change, a step function change in transportation, and we want to make sure that we're able to bring stakeholders along on that journey. As we close the safety case for Dallas to Houston, we're confident in our ability to operate multiple trucks in that lane. But other stakeholders kind of expect a natural progression. And given that while it will be an important moment and kind of a watershed moment in terms of delivering this technology, it won't have a material impact on our financials over the course of the next year. So why not operate in a way that works well with local stakeholders and regulators and just kind of build up in a way that they'd expect and gives further confidence in our approach and collaborative nature. So that's how we think about that. We'll start with 1 and then we'll build to, as you said, up to 10. And then by the end of the year, be at tens of trucks is our expectation.
Yes. And thanks, Andrew, for the question. Let me talk about the last part. It may not be the message you want to hear. But I think for us, what Chris said is important for us, it's about ensuring that we have a great product that delivers on the value that we've promised to our customers and working closely with our partners and our regulators. So for us, we're really focused in on one, demonstrating that we have a commercial driverless product that everybody is going to love. And the second thing is continuing to expand the technological areas where we can operate in. So going into nights, going into range, going into new lanes, those for us are more important thresholds than the absolute number of miles that we drive because we really want to have a great product first and the miles are going to come naturally. The other thing is that we also want to make sure that we get to our next-generation hardware kit. So we don't want to abnormally drive a ton of volume into the first generation hardware kit as we're waiting for the second. So for us, it's a very deliberate approach. We want to make sure that our customers are completely satisfied with the product we're delivering to our expectations. And for us, technology proof points, we think in '25 is more valuable than a mileage guidance.
Wonderful. That's super helpful. I appreciate all that color. Maybe just as a quick follow-up. So for 2025, you disclosed that you expect your quarterly cash use to be in the range of $175 million to $185 million. I'm wondering if you can maybe give us a bit more granularity as to how to think about CapEx specifically for this year, CapEx was about $8 million in Q4 and $34 million for the year. Just trying to figure out what's the best way to model it for this year?
I don't anticipate a significant increase in CapEx. There will be some increases in CapEx, but overall, let me focus on OpEx. We have all the necessary personnel and operations ready to scale the business. We will see slight increases in OpEx as we implement our new hardware programs. However, I expect these increases to be modest. I foresee a mild rise in OpEx, with the remainder contributing to the $175 million to $185 million being in CapEx. This should be useful for your modeling purposes.
Hey, thanks. Afternoon, guys. I am wondering, anything specific you guys still need to accomplish in order to be ready for April?
No, there's just a bit of work left. Thanks for the question, Scott. As we discussed last time, we need to wrap up a few remaining items. There's not much to do; we've moved ARM to 99%, which reflects the small amount of work needed to finalize the safety case. API is nearing the target we've set for a successful launch. We feel very positive about this, evident in our performance and the quality of the experience. Honestly, I'm really excited right now because everything is progressing as we anticipated.
I appreciate the clarification that this year isn’t focused on the number of miles and trucks. However, when can we expect to see a significant increase, like ending the year with dozens of trucks and potentially reaching hundreds next year? Will next year be a major milestone, or will the growth be more gradual into 2026, with the major jump occurring later?
Yes, let me address that and then Chris can provide additional insights. We anticipate a significant change in the metrics you are accustomed to seeing once we confirm our rollout and demonstrate that we have a reliable and high-quality product. As Chris mentioned, we'll continue to launch more lanes in the coming years, which we expect will lead to a notable increase in the number of trucks we operate and the miles we drive. This increase will not only depend on the number of trucks but also on their utilization. By 2026, we expect to show a substantial rise in utilization compared to previous figures. This year is pivotal for us in achieving solid financials. One of our goals is to demonstrate positive gross profit in 2026. While that isn’t a formal guidance at this time, it remains an objective that we discussed during our Analyst and Investor Day, and achieving it will require a significant increase in the mileage we are driving.
I want to expand on what Dave mentioned by emphasizing that I see 2025 as a year where we will strengthen our position. When we launch commercially, it will be our first time fully engaging the process, and we can expect momentum to build as we finalize this phase and introduce new capabilities and features. This will enable our team and the company to establish a consistent approach to rolling out product extensions that are essential for supporting our customers and the necessary scale. We’ll be in a position to confidently address the questions raised by George earlier, as we already have promising early indicators, but we will be able to conclusively validate these points and showcase our technology's scalability in a market that is in urgent need. It's an exciting time for the company, and I'm eager about what lies ahead.
Yes. At the latest, when we have our hardware kit produced by Continental, it will be installed directly with our OEM partners for customers. There may be a possibility to implement it a bit earlier, but that will depend on the specific needs of our customers. Therefore, by the latest, you can expect to see a significant rollout of driver-as-a-service to customers in 2027. There will likely be a gradual transition before that, tailored to individual customer requirements.
And I think this is going to be on us, right, that as we roll out that second generation of commercial hardware at the end of this year, as we are able to demonstrate to customers that this can go to places they need that it does it at a level of performance in practice, not just in theory that they're expecting. It's going to become obvious that it's transformational. And I think for the customers who get that earlier, they'll begin to build an advantage through the experience to gain early on in this next phase of transportation. And I think that's going to perhaps drive earlier acquisition and adoption of the hardware.
Thank you. Good evening. Just had a couple of questions on my side. I was wondering how should investors categorize or characterize success with the April launch and the months thereafter recognizing you're not giving guidance as it relates to miles, but just as you were to look back maybe in the fall of '25 over the prior 4 or 6 months that you had been commercialized? How should we give you a report card, so to speak?
Yes, I believe there is a significant milestone ahead, which is having trucks operating on the roads without anyone inside. From an investment perspective, I consider the major risks and questions surrounding our business. First, is the technology operational? Next, can we provide the product at a profitable price point? Lastly, can we scale it to a level where the business becomes self-sustaining and represents the exciting opportunity we all envision? By the end of this year, we expect to affirm that the technology works, meaning there will indeed be trucks on the road without drivers. Towards year-end, we aim to demonstrate our ability to scale the product. While we may not yet reach a self-sustaining operation, you will see that we are progressing, successfully deploying routes, and that our expansion is proceeding as planned. We also anticipate getting our initial hardware to support profitability. It is set to be an exciting year.
Just two other quick ones. How would you characterize the competitive landscape?
It's ours to win, right? As we look out at the landscape, we look at the partnerships we have, we look at the technology and team we have. We think we're well ahead of the competition and accelerating. And that is just incredibly exciting. When we think about an opportunity where freight in the U.S. is a trillion-dollar market and we have the opportunity to win for ourselves, for our customers, a big piece of that. I feel very bullish about our position.
Good to hear. And the last one, there was a lot of questions on the cost reduction potential. You've obviously talked about Fabrinet here in '25 and '26 at the lower volumes and then Continental longer term. Are there any other one or two key variables that you would highlight that are initiatives for '24? Or sorry, for '25 that we should be monitoring as it relates to cost out plans?
We have previously discussed that the main economic factors affecting our costs include hardware expenses and their depreciation over the truck's lifespan, the costs associated with on-site support whenever maintenance is needed on the road, and the costs of remote support when a remote agent assists a truck. Additionally, the expenses for insuring the vehicles are also a factor. In this call, we've outlined how we plan to reduce hardware costs. As we enhance product reliability through improved on-site support, we believe that we can achieve better efficiency. Moving from in-house built hardware to the hardware manufactured by Continental is expected to increase reliability as well. Our business review from last year has shown a clear vision for remote support, and we anticipate a operator-to-truck ratio of better than 10:1 by 2025. Regarding insurance, we are optimistic that the rationality of the insurance market will yield better pricing as we showcase increased safety and consequently lower losses. Overall, we recognize the essential factors to lower costs in delivering our product, and we are making significant strides in these areas. Thank you for the insightful question, Jeff.
Given the news in research out on DeepSeek, I'm curious, Chris, if you think there are new training techniques that Aurora could adopt. And more generally, if you think there are ways for Aurora to materially reduce its AI training cost in the future?
Yes, it has been interesting to observe the recent news regarding rapid advancements in the distillation of large models and the implications of these developments. This reinforces what we have been emphasizing for years: the quality of data is more important than the quantity. For instance, a report from Stanford demonstrated that they were able to replicate the performance of a larger model using a smaller, more cost-effective model by supplying it with just 1,000 high-quality examples. This approach achieved 80% to 90% of the performance for a fraction of the cost, illustrating that success is less about having a massive amount of data and more about ensuring that the data is relevant and of high quality. This principle has guided our strategy since the beginning. We are also exploring other intriguing aspects of large models to enhance our current offerings, and we remain optimistic about the future.
Very interesting. Dave, you said your objective is to have a positive gross margin in 2026, but guidance. And you talked about one of the key variables being around utilization and getting more miles in 2026. Maybe you talk about some of the other factors, though, in particular, an update around how pricing is trending in some of the commercial contracts and then how you think input costs and operations are progressing toward that positive gross margin target for next year?
Yes. Some key drivers of this can be found by analyzing the gross margin and breaking down the cost of goods sold. The elements mentioned by Chris are significant factors. Additionally, it's important to consider how we operate at terminals, including our efficiency, the speed at which we can get trucks on the road, and the staffing needed in those areas. Our experience from pilot operations over the past three years has greatly informed us, and we have brought in many experts who know how to operate trucks effectively and efficiently. This expertise helps us maintain lower costs in terminal operations, which is an important aspect that we need to monitor closely. On the revenue side, the quality of our product directly influences our pricing potential. While I can't predict overall market pricing, I anticipate that we will provide a product that is safer, more fuel-efficient, and more reliable, which should enhance our pricing power once proven. We will concentrate on factors within our control, such as developing a high-quality product that we can price competitively and managing our costs. I believe we have a viable path to achieve this, though there is considerable work ahead. However, I am confident that we have the right team in place to accomplish our goals.
That's helpful. If I could ask one last one in. In the shareholder letter, spoke about the FMCSA ruling and how that didn't go your way. You did speak though about some workaround; you mentioned operational one in the near term. I don't know if you could elaborate a bit more what exactly that means and you also refer to a potential longer-term workaround even if the law doesn't change and what that might look like?
Yes. The FMCSA rejected our request to permit trucks to have flashing lights to indicate when they are stopped on the side of the road, similar to tow trucks and emergency vehicles. Currently, the standard practice involves placing triangles behind the truck, which is risky for drivers who must walk along the freeway to do so. We believe the rejection of this application was incorrect, and we are encouraging the federal government to reconsider this decision. With the new administration, we are hopeful for a positive change. However, this rejection does not affect our ability to launch commercially. We are exploring operational strategies and technical solutions that will keep us compliant with the law. I can't provide any further details on that, sorry, Mark.
Hi there. This is Justine Weiss speaking on behalf of David Vernon. So if you look at Slide 13, there are still a few areas where we know driverless operations and autonomous trucking are prohibited. So I'm wondering if you've had conversations with regulators about potential for more sweeping regulation under this new administration that could make it easier for you to enter into these currently restricted markets?
Yes. I think we approach this with two ways to think about it. One is that I think the biggest lever we have is demonstrating the value in other states and helping that grow and impact their economy and that and see the safety benefits of it on the roadway. And then other states, I think, will want that. We also do expect that there's a real chance that the new federal administration will actually push for a nationwide standard for this, and that would help mitigate the somewhat patchwork set of regulations we operate within across the United States. The reason why we have some optimism that for that is that Transportation Secretary, Duffy, in his remarks before Congress actually spent a fair bit of time talking about automated vehicles and talked about the importance of the technology for safety but also for America to be a leader in this space. Ed talked about the value he sees in there being a national framework for this. So we're optimistic that this administration will continue to be a strong supporter of the technology.
That's great to hear. And then I guess another question I'm wondering about is how are things progressing with a shift towards single operators other than two vehicle operators? Like what percentage is single operator? And how should that change by the end of 2025?
Yes. Well, I think the missions that are going to matter by the end of 2025 are going to be no vehicle operator. So I think that's going to be really exciting. A lot of our testing will continue to be a blend of a single and dual operator. And it's really about the mission and making sure that we could operate the mission in a way that is thoughtful and safe on the roadway. So, we actually don't even internally track the percentage of missions. So unfortunately, I can't share a number on that. But it's really about, again, operational efficiency internally without impacting safety.
Okay. Great. And then just one more if I could throw it in. So you speak about increasing capacity to tens of trucks by the end of the year. So could you maybe help us frame the upper bound of what tens of trucks could actually look like? Like what's the bear and bull case maybe on that?
Yes. I don't know that we have anything additional, Justine, to share on that right now. I think, again, I would focus us on the sequential growth in the mid-single-digit millions for revenue. I think that that's kind of a more important thing. For us, again, we're really focused in on the execution in the early stage. For us as we continue to launch more lanes, the demand for trucks is going to be really high, and we're going to have to fill that demand with our partners.
And that was our final question. And with that, that does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.