“Hey, Mav, do you have the name of that truck driving school?” Three decades ago fighter pilots in the film Top Gun jokingly considered an alternative career in ground freight transport. Today, the profession looks less viable. Truck driver is one of many jobs expected to be automated in coming years.
On Wednesday, Embark, a software company for autonomous trucks, announced that it would list its shares through a Spac merger at an enterprise value of $4.5bn. Auto tech companies that have recently listed through blank-cheque deals have struggled to match their promised hype. Embark, like others, counts on investors both believing in the state of its existing technology and the accompanying revenue that it claims will appear years from now.
According to Embark’s calculations, a truck driver today costs roughly $1.75 per mile to his employer. Half of that figure is attributable to labour costs. Embark itself does not make trucks. Its software integrates with hardware made by the manufacturers and operated by truck carriers. Truck driving is considered easier to automate than passenger vehicles because the former, ideally, simply acts as a conveyor belt on highways.
Embark rents its software at a cost of 44 cents per mile. The overall cost of automation to the carrier is 96 cents, which roughly halves the expense of a truck with a human driver. Like all auto tech companies, Embark makes its projections by estimating how much of the total market it believes it can capture. It says that of the 300bn miles driven by trucks around the world, by 2025 its technology will be able to snag a couple of percentage points’ worth. By the company’s maths, that means revenue of nearly $3bn by 2025 with an operating margin that exceeds 20 per cent.
On those metrics, Embark insists that its valuation looks reasonable. But this is only true if it achieves these ambitious milestones years from now, and if the industry no longer offers refuge to fictional fighter pilots.
Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.