September 13, 2021 – On today’s podcast we welcome the Co-Founder and CEO of Embark Trucks, Alex Rodrigues. Embark is a leading developer of autonomous software technology for the trucking industry.
On the show, Alex discusses:
- What it was like to drop out of university to become a Thiel Fellow
- Embark’s self-driving technology and their value proposition to customers
- Insights into the $4.55 billion merger with Northern Genesis Acquisition II
- How they get investors comfortable with a pre-revenue stage company
- And more
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.
Julian Klymochko: Excited to have Alex Rodrigues from Embark Trucks on the podcast today, a bit of a wizkid and fellow Canadian. So welcome to the show. Alex, I initially wanted to touch on your background because it’s super interesting. I believe this is the first Teal fellow we have on the show. So, we do want to hear what that was about and what sort of opportunities that Thiel Fellowship provided?
Alex Rodrigues: Yeah, awesome. Thanks for having me guys. Nice to get a chance to chat. Yeah, I think I probably have a bit of a non-traditional background, so to speak. So, I did robotics in Calgary for five years, five years, if I’m using competition robotics in Calgary. We actually started; I don’t know if you guys have ever been to the first robotics competition in Western Canada, but we started pretty much all the teams in Western Canada which was pretty cool, that was a lot of fun. And then went to University of Waterloo for two years, kept building robots, build the first self-driving vehicle to operate on public roads in candidates. And then winter of 2016 dropped out of school. Got into Y Combinator and really started chasing this self-driving concept. Really originating from that early self-driving work, we doing in Waterloo. And then yeah, I did the Thiel Fellowship, amazing program. It’s probably the place of all my friends that I’ve met in the Valley that has the highest ratio of people who started interesting companies to companies that are now worth a billion plus. So, so super cool group and definitely a really unique opportunity.
Julian Klymochko: And in terms of the path of, because as I understand. The Thiel Fellowship, it basically encourages or gives people money and encourages young entrepreneurial minded folks to basically now go to school and pursue their dreams, their ideas with the backend of that Fellowship. Would you recommend others pursue this path? And if so, like what sort of fit would it be? Like clearly, it’s someone more independent with a great idea, creative and entrepreneurial?
Alex Rodrigues: Yeah, I would say I’m not a universal advocate of dropping out of school. As a general matter, I think school is great. It’s, a good way to learn and get into something. What I would say is I am a huge advocate for if you find something that you’re really excited about, like leaning into that, even when, how that’s going to be useful, isn’t necessarily clear, right? You think about, I spent five years doing competition robotics, founding teams, winning world championships. At that point it was not at all clear that robotics was really even an industry. Like today, you know? It’s obvious that going into machine learning is a high paying job that, you know? Takes people away from finance. But back in the day it wasn’t. The only people who did robotics were people who loved it and it was just because we loved it.
And I actually, there’s a few good stories from this. Like I switched high schools in sort of after first year because the high school I was at had the only team in Western Canada, but it was kind of just an okay team. I wasn’t about that. So, I switched high schools, I went to a new high school. I convinced them to let me start a team. Did all of those sort of groundwork to make that happen. And I picked this school specifically because it was self-directed. So, I went to Bishop Carroll and only the Calgarian listeners will know where that is, but you know? I went to Bishop Carrol and you know, the idea was competition robotics has a sixty-day season or so. And because it’s self-directed, I could just not do schoolwork during that period.
You’re supposed to do about thirty units a month, sixty units across the two months and one season I did two units. It was an interesting choice, I think at the time, because it meant that, you know? I was a very academically minded kid, but I didn’t do IV Courses. I didn’t sort of take the path that a lot of my peers took to do a lot of advanced academics and I really poured myself into robotics. And I think it was that foundational experience of building a team from the ground up of figuring out how to manage and sort of the different competing challenges of building production robots that sort of educated me for all of this. And we thought really, really hard about dropping out of school.
I mean, we were definitely against it for a while. And the only reason we did it at the end of the day, we’d built this self-driving golf cart. There was the first self-driving vehicle in Canada and it was it was clear to me that we were in a unique spot, there’s an amazing opportunity. This is a world changing technology that we had sort of stumbled our way into the front of, because of passion, the earlier parts of my life and this self-learn golf cart was a unique technology. That could be a starting point for something at the time in 2015. But if we waited to graduate three more years, it really wouldn’t be that special. It would be too late; we’d have missed the window. And so that was why we dropped out.
I would say like in general, I’m an advocate of graduate in school. But in the unique opportunity where we built something really incredible, we knew it was incredible. We knew that we would have a unique opportunity. And initially the pitch was basically, you know? Once you graduate, the dream would be to someday get to do something in robotics to get to build something of our own that was really cool. Here I can do it right now. Let’s go do it. We’ll learn a lot. Worst case we’ll learn a lot, we’ll end up back at school, obviously that didn’t happen. That maybe the second thought is that, if you’re going to start a company, you have to be pretty comfortable with the value you’re getting out of it, that you love doing the things. And it’s okay if it doesn’t work out. I think people were like, I’m here, I’m going to make a ton of money. Then, you know? The end of the first year, when something challenging happens, you don’t have the grit to keep going.
Julian Klymochko: Oh yeah. That’s a great message. Clearly, you’re passionate about technology and robotics as you’ve been in it for basically, you know? Your entire life.
Alex Rodrigues: I have been in it longer than I haven’t, yeah.
Julian Klymochko: Exactly, and probably for many, many years, grinded it out, just doing it for fun, without any really a chance of economic benefit I imagined.
Alex Rodrigues: Yeah, yeah, exactly.
Julian Klymochko: Which is cool to see and with respect to the, in dropping out of school. Obviously, you saw that once in a lifetime opportunity and just had to take that chance because as you indicated, if you waited until graduation, then perhaps it would be way too late and sort of watched it go by and have that regret. So, it’s great to get that background. Now, I wanted to get into some of the tech that you have developed at Embark. Can you discuss, you know, the main drivers of this technology and ultimately what the product is?
Alex Rodrigues: Yeah, maybe I’ll start with what the product and that’s probably a good background. So, sort of the one-minute elevator pitch for the listeners. Embark is a company developing software to power self-driving trucks. So, we built driverless software. One of the things that makes us unique is our focus. So instead of trying to do a little bit of everything and trying to build a general-purpose product, one of the key lessons I took away from all those years of competitive robotics is that the people who win are the people who build something that’s just simple enough to do the job. And so, we focus on a niche application where we’re really doing highway driving for trucks. And then we pass trailers back to local drivers who do the sort of pickup and drop-off in a given city. And this is really valuable in part because it fits with, if you know anything about trucking, you know, there’s a huge driver shortage. And that driver shortage is really driven by the fact that it’s hard to hire drivers to work over the road, to work away from their families for weeks at a time.
Julian Klymochko: And is there a fear that they’re going to get replaced by robots? I mean, Embark technology, like is that somewhat limiting people’s career or ideas of career prospects in the trucking industry?
Alex Rodrigues: I actually think that when we look five, ten, fifteen years out, what Embark technology will do is create the next generation of jobs in trucking and actually make it a more attractive industry. Because today people don’t want to be in trucking because they know they’re going to have to live this crazy lifestyle that leads to divorces that, you know, it’s a very challenging lifestyle. And what we’re saying is trucking doesn’t have to be that way. Trucking can be an industry that has a lot of local jobs where you can work in a city, a regular shift, and then you can go home to your family that night. And so, the creation of these new local jobs, we actually see as being a thing that attracts that next generation of trucking. And I don’t think that you’re going to see major job losses. There was actually a USDA study that came out earlier this year, and they basically estimated that there was never going to be significant job losses even under a really accelerated rollout. And this will be interesting that the average worker in the United States, not just the average trucker, but the average worker across the whole economy would have an average wage increase of two hundred plus dollars a year as a result of the rollout of driverless trucks because of the improved competitiveness in manufacturing, in commodities, in retail that this drives.
Julian Klymochko: So, with respect to the effect on drivers, that’s not at all a replacement, but more so augmentation such that you’re taking basically the most boring part, the most tedious part, automating it, such that they can do the more high value city drivers,
Alex Rodrigues: Right, it’s really a partnership, right. And it’s, you know? Very analogous to the famous case study with ATM’s, right. People put ATMs in place and they thought it would decrease banker jobs. But the reality is there are more tellers today than there were before the advent of ATM’s because ATMs took out sort of a piece of the ecosystem, but then allowed tellers to do more high value work and ultimately lead to more jobs.
Julian Klymochko: That makes sense. And you mentioned specifically, you guys focus on that one area of trucking with respect to the self-driving software. Is there any plans to expand beyond that? I know you started out in a self-driving golf cart, which I’m sure it doesn’t have nearly the total addressable market, the trucking industry, but, you know, there’s a ton going on and as self-driving cars and buses and things of that nature.
Alex Rodrigues: Yeah, what I would say is that we’ve bitten off enough to chew for a good while. You know, I love robotics. I came to this industry because I thought it was the first real chance for robotics to make an impact on the lives of everyday people. And I think that’s just incredibly cool, you know, huge, huge proponent and supporter of the folks that are trying to use robotics to allow disabled people, to get around cities or use robotics, to fold your laundry and remove housework, those all sound great. But Embark has a mission. Our mission is self-driving trucks, and we believe that mission is best served at least for the near term, by us putting our resources into delivering just that.
Michael Kesslering: And as I understand for your customers, it will be selling the software as opposed to being a manufacturer of trucks. And so, can you talk a little bit about your value proposition to these customers and as well, if you can touch on the decision that you made to focus on partnering with the carriers, as opposed to competing with them.
Alex Rodrigues: Yeah, that’s exactly right. So, Embark partners with big fleets who are the ones who ultimately buy the truck and they also sort of own the whole operations, right? If you think about end to end, there’s a pickup, there’s a drop-off, there’s these handoffs in the middle, there’s a relationship with the customer. There’s a lot going on besides just the self-driving software and they’re handling all of that operations. And what Embark is doing is, we’re licensing them driver’s software on a per mile basis. And we think that makes a huge amount of sense for a couple of reasons. One is, I think you want people to be doing what they’re the best at. We are really great at building world-class self-driving software, but it requires a completely different type of expertise to be really good at building these sort of operations, heavy institutions.
We have a small research development fleet inside Embark. And let me tell you, that’s its own challenging business to create. And one that we think, you know, when we raised six hundred million in the SPAC transaction. We’re looking to put all of those dollars into creating an asset that is self-driving software, right. And we took half those dollars and we put them into buying trailers. We were doing a massive disservice to our investors, right. And so, I think it makes a lot of sense from that perspective. And then it makes a lot of sense from a scalability perspective. Embark has partnerships with some of the biggest fleets in the country. People like Knight-Swift, people like Werner Enterprises, like AB InBev. And these big fleets, they have the scale and the ability to rapidly deploy huge number of traps, where if we were trying to build our own fleet from scratch, that’s inevitably going to be the bottleneck. And so, I think it’s about, you know, knowing what you’re good at, and it’s about finding the partners that are able to bring this to market at scale.
Julian Klymochko: That makes a lot of sense. And you did mention that SPAC transaction, which I do want to touch on, but prior to getting into that, I wouldn’t mind getting more of a lay of the land in terms of the competition, opportunities, challenges. So, can you talk a bit about the competitive environment? I understand this is a big total addressable market and there’s a number of companies going after it. And how has Embark technology differentiated within that competitive environment?
Alex Rodrigues: Yeah, so there are five self-driving truck companies with north of a hundred million dollars of funding. Two of them are sort of unified general-purpose products. So, one of those is Waymo and the other is Aurora. So those two are sort of both built off of the original Google self-driving car platform. And then the other two are multinational players. So, you have a Plus and TuSimple, both of which have some amount of U.S. presence in both, which also have some significant Chinese presence. And then Embark, I think sort of sits uniquely. We’re the one that’s been tackling this problem, the longest out of those five. We’ve been road testing trucks on public roads longer than anybody. But we’re also the one that has by far the most focused approach. We’re focusing just on the U.S. Sunbelt, just on trucks, and that’s allowed us to build very differentiated software. Things like vision map fusion, that really tackle the key problems of highway driving for trucks in a way that nobody else really is
Julian Klymochko: Testing the longest. I thought it was interesting. You mentioned focusing on the U.S. Sunbelt, because one thing I did want to address are some of the biggest technical challenges with respect to self-driving platforms and growing up in Calgary. Going to school in Eastern Canada, I’m sure you are no stranger to waking up to one foot of snow. So obviously that is not a challenge that you necessarily have to deal with. Although Texas recently did have this big ice storm, but from a technical perspective, what challenges emerge, because as I understand self-driving technology, it’s not perhaps one hundred percent of the way there yet?
Alex Rodrigues: Yeah, you’ll notice that Embark isn’t based in Waterloo. Part of that is because I think the willingness to put the dollars behind to research projects that have huge payout, but required longer timelines, isn’t necessarily quite there yet in the Canadian ecosystem, but a big part of it is because we wanted to be able to test year-round without snow. I do think that focusing on the U.S. Sunbelt makes a huge amount of sense. It has allowed us to move very quickly towards commercialization. And now with this transaction, basically having the money in the bank to be looking at commercialization in 2024. However, I will say that, I don’t think snow is insurmountable, particularly if you’ve architected the system correctly. It’s more a question of what do you do when and how do you sequence it?
Right, and that’s one of the things I learned from my competitive robotics days is, you have to be smart about which pieces you try and take on to create a cohesive, in that case solution. In this case product and sort of the first cohesive product you can make is one that can drive consistently in good weather in the U.S. Sunbelt where there’s a good regulatory framework already. So, we think about sort of where can you hit first? That’s where you can hit first. I mentioned vision map fusion. This is a technology that we’ve built. We’re in the process of patenting that allows our trucks to update the map in real time. So instead of relying on sort of a historical view of the road, which is what our competitors do, it actually is fusing in two additional sensor streams. You’re getting data from the camera, you’re getting data from the LIDAR, you’re fully extracting the road geometries from that. And then you’re fusing it all together. And this sort of dynamic adaptation to the road also works for personnel, right? So, we mainly use it for construction today. To be able to deal with repainted lane lines that might’ve shifted around a little bit.
Julian Klymochko: Right.
Alex Rodrigues: But also, when you’re looking at a snowy road, you need to be able to recognize, okay, where are the car is driving? Where things shifted around? Obviously, the road surface looks completely different. But that dynamic adaptation, it’s not impossible. It’s something we’re already doing in certain contexts. It’s just a question of getting a commercial product in the road as quickly as possible. It makes sense to sequence the order of technical projects.
Michael Kesslering: So then in terms of looking at your cap table, I mean, it’s who’s, who’s list of prominent VCs, such as Sequoia, but your series C was financing was led by Tiger Global. And so, they operate quite a bit differently than traditional VCs in terms of the pace that they move preemptively offering term sheets to companies. Can you talk a little bit about how that process went with Tiger Global?
Alex Rodrigues: Yeah, so obviously we’re really happy to work with Sequoia and with Tiger and also a DCVC who let our A. The Tiger process in particular. So, you guys are probably thinking of, there’s obviously famously a lot of rounds being led by Tiger maybe in the last twelve, eighteen months. Tiger invested in Embark before it was cool. Back when they were still the number one growth investor in terms of unicorns invested in the United States. But before they’d really gotten their feet under them for sort of the current sprint or Tiger, you know, everywhere now. I really enjoyed working with them, they’re really great. We work with Evan over there, and I would say they’re obviously very quick, they’re obviously have high conviction. And, you know, in this case that, that obviously worked out pretty well for them. And we expect that we will continue over the next many years to actually take, I think we’re only part of the way to the vision that them and Sequoia saw in Embark when they made those investments. So, there’s a lot left in the road to executing that investment vision.
Julian Klymochko: And I believe they did follow up by participating in the pipe that is happening concurrently with the merger, SPAC merger with Northern Genesis Acquisition II. You guys got a four point five, five-billion-dollar enterprise value. So that is super exciting going public. How did this deal come about?
Alex Rodrigues: Yeah, so we have an amazing group of folks in the pipe, including Sequoia, including Tiger including Knight-Swift, the number one truck carrier in the United States, Anchor Investor in the pipe, and CPP IB. So, some, Canadians in there too. The spec deal, I think is really a unique opportunity for Embark to take the next step and fund the company fully through the commercialization plan that we’ve set out with buffer on top of that. And so that was really what got us excited about it. Embark actually is, I mean, and Mark actually has a lot of money in the bank. We didn’t really need to be fundraising at the beginning of the year. But we thought there was a unique opportunity seeing the public markets were finally, I think for the first time, in a long time. Looking to find really good growth stories.
And we thought that this aligned really, really well with what Embark was doing until we spoke to a handful of top tier folks. We really enjoyed working with Ian and Chris from Northern Genesis. This is their second SPAC; their first SPAC been doing really well. They’re also Canadian. So, we had that in common. Me and Ian actually both went to Waterloo. So, at some point we’ll have to go back and do some something there, that’d be fun. Yeah, I think it was a really unique. It wasn’t so much about the SPAC product as it was about the people we got to work with.
Julian Klymochko: Right.
Alex Rodrigues: And about the opportunity to fully fund the business.
Julian Klymochko: I think it’s interesting to note that a Canada Pension Plan now an investor with this pipe, so it’s basically every Canadian is now a shareholder of Embark. So that’s good to know. The other thing that goes with this SPAC business combination is, you’ll soon be a public company. How does that feel? Like, what do you hope to accomplish? How are things going to change?
Alex Rodrigues: Yeah, there’s obviously a lot of, you know, heightened expectations becoming a public company. People are going to expect more of you. We have to be reporting like on a quarterly basis. I think my thought and I thought a great deal about this before we pulled the trigger on this process is to make sure that Embark is ready. And then we have a set of milestones that we feel good about consistently executing against, right? And so, a big part of my job is going to be to help guide people, to see the roadmap from here to 2024 and the technical milestones we plan to complete along the way. It’s going to be a bit different because, Embark, we make money. We move freight with a lot of our fleet partners, but we don’t book it to revenue. Because it’s not the ultimate business model of licensing software where we’re sort of running trucks in our development fleet with our partners. And so, when people are looking at embark, they need to really be looking at the growth of the team, the execution of technical milestones, the establishment of the key factors to deploy this tech. And then of course the ultimate value proposition, which is just incredibly compelling knowing it’s a seven hundred billion industry that has clear and present need for access to this technology.
Julian Klymochko: That’s one thing that I wanted to dig into is, you don’t expect to have a commercial operations until 2024 in terms of generating a significant amount of revenue. So, being a public pre-revenue company, how do you get investors comfortable with that opportunity? It’s obviously different than a more mature, a slower growing public company where they have, you know, quarterly revenue, quarterly profit, et cetera, you spoke of milestones and key technical accomplishments as you go on your journey to commercialization. How should investors think about that?
Alex Rodrigues: Yeah, if you actually look at the pipe deck, we have a sixteen milestone roadmaps we put together. Eleven of those are technical capabilities that we’ve already completed and then five remains between here and sort of that beginning of operations. And so that’s one of the things that we’re going to be guiding people along is the technical roadmap. As we execute capabilities. There’s obviously a lot of other technical work that we’re doing that the people will see as we go along. But I think that’s a key part of what will be really important is, showing the progress quarter over quarters. There are certainly the larger investors have been able to come and sit in the truck. And will, you know? We spend time with high quality folks, including the Northern Genesis team that was part of how they were able to get comfortable. And so, I think that’s also a piece of it is, big investors and big partners are actually able to come, see the truck, feel in person. And we’re started doing our best to make sure that we can bring the whole universe along with us as we’re making that progress as well.
Julian Klymochko: And certainly, for investors that make sense to have a long-term outlook when taking a look at Embark from an investment perspective, because you know, revenue is still a few years away, so you’ll want to be following the story and obviously investors need to be patient with respect to the developments there. And if they are interested, Northern Genesis Acquisition II is trading on the market symbol, NGAB.
Okay, perfect. Well, thank you so much, Alex, for coming on the show today. Exciting stuff. I mean, I can’t wait to see it in action in a few years. I’ll be definitely watching out for that and wishing you guys the best of luck. You’re accomplishing something really, really cool and super innovative, so great job so far.
Alex Rodrigues: Awesome, thanks guys.
Julian Klymochko: All right. Bye, everybody.
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