SERV's food delivery robots will fail and I can prove it
You thought it would be because of crackheads and homeless people? Nope, those are the least of Serve Robotics' worries.
The company has a history of not only being unprofitable, but also having negative gross margins. That's REALLY bad, the cost of operating their robots is higher than the revenue generated from them. It's the equivalent of buying high and selling low, I'm sure you regards are familiar with that.
This would be fine if the company focused on improving the robot's efficiency, autonomy and costs until they can demonstrate potential future profitability...
But instead, this year they suddenly decided to start manufacturing 2000 of their 3rd generation robot. That's a 20x increase from their current fleet of 100 robots. These robots cost more to produce than an average car, this sudden ramp up will put a lot of financial pressure on the company. The CEO's reasoning: this mass production contract will help drive the robot's cost down.
By the way, did you know their robots are actually remote controlled with a PS5 controller 20% of the time?
From SERV's 10-K 2023 SEC filing
Anyways, let's run the numbers down. Don't skip to the TLDR yet I'll try to make it interesting.
What we want to figure out is a future projection of:
- a robot's average yearly revenue
- its associated yearly costs as well as production costs
- calculate the years it takes to get a return on investment
Let's first take a look at their fleet's current revenue.
From SERV's latest quarterly report
Extrapolated yearly, that's $450k in delivery revenue generated by the robots. But how many robots were active during that period?
The "daily supply hours" indicate a daily runtime of about 8h per robot.
On average, 59 daily active robots. Extrapolating the quarterly data, that gives us an average yearly delivery revenue per robot of... $7612.
Does that sound bad? We haven't even looked at the cost of operating each of these robots, and just comparing that yearly revenue to the manufacturing cost of the robot makes you question how they could ever reach profitability.
I dug into their SEC filings and found out their current 2nd generation robots cost them $63,654 each. It's very unsurprising the CEO never talks about that number in any of his numerous interviews. It would currently take a robot 8 years to gain enough delivery revenue to pay back its initial production cost.
We haven't even talked about the cost of revenue yet, Is it already all over for Serve robotics? No, remember, what we're interested in is a projection of their future profitability.
According to the company, their 3rd gen delivery robots that will begin manufacturing will have more battery autonomy, higher top speeds (up to 11mph, looking forward to the inevitable accidents and lawsuits), and a production cost per robot slashed by half.
I booted up excel and ran the numbers. Considering the delivery revenue efficiency per robot hours barely went up between 2023 and 2024, I'm projecting a charitable improved daily robot runtime (currently at 8h) and delivery efficiency increase based on the new gen robot specs. Also accounting for the halved robot cost ($32,000):
Not looking great...
And I'm not done, lets get to the fun part! Expenses.
These are the expenses that directly scale with the number of robots:
- Robot remote control and monitoring:
As I've mentioned before, the robots need to be remote controlled 20% of the time to navigate "complicated" situations like intersection crossings. For a robot daily uptime of 10 hours, that's 2 hours of human work time. In reality, more than 2 hours would be necessary as the amount of robots needing human control at the same time will spike. Let's go with 2.5 hours as a conservative estimate. At a rate of 20$/hour, that's... $18,250 spent yearly per robot.
- Robot repairs and maintenance:
Yearly robot repairs and maintenance typically amount to 10 to 20% of their initial cost. Considering SERV's robots operate outside, sometimes under rain and other bad conditions, their maintenance costs are probably higher but let's use the conservative estimate of 10%, so $3200 per year.
Those are the two biggest expenses, I'll ignore mobile internet costs (each robot livestreams video feed to human operators), the cost to physically help the robot when it gets toppled over, energy cost to repair batteries, etc.
Before we get to the final projection, it's important to take into account a secondary revenue source for their robots: advertisement revenue. Ads they stick on the sides and top of the robot. I chose an estimate of $800 a month per robot in ad revenue. For reference, full car wrap ad services typically pay at maximum $400/month.
And here we have the final projection:
Even with the most charitable projection, 6 years to recoup the robot's production cost is way too long to be profitable. The robot's lifespan might not even exceed 5 years. The real cost of operating the robots will also very likely be much higher than my estimation.
A bit of history
SERV is currently valued at over 1 billion dollars. When it IPOed, at the beginning of 2024, it was priced at a valuation of 100 Million, and its stock quickly dropped by half once it hit the market. Since then, it diluted its shares by more than 2x.
So why did the stock massively pump 2000% in the middle of the year? That happened after the reveal of NVIDIA's $12M investment (at the time, 10% ownership) in the company.
NVIDIA's venture capital arm (Nventures), invested in the company back in 2022. It invests in all sorts of innovative AI companies who use their products. NVIDIA has a vested interest in the company successfully operating autonomous delivery robots, it's great advertisement for their Jetson modules and the advancement of AI. That does not mean NVIDIA believes or really cares that much about the company being able to generate a profit.
My prediction
The 2000 robots, all supposedly manufactured during 2025, will cost the company an initial 60 million dollars. As the robots begin operating, costs will balloon 20 times over and revenue won't catch up. Serve Robotics will continue bleeding money at a much faster pace, and will keep diluting shares. Insiders started selling a lot of shares in the past 2 months ($3M). I expect it might take a while for the price to correct itself, but considering how overvalued SERV is right now I'm confident in shorting it and I expect it to drop during future financial reports.
I am short $3200, 180 shares at $17.80. Not financial advice.
I'd also like to declare myself the official winner against u/Remarkable_File9128 who challenged my DD on KULR