Executive Summary / Key Takeaways

• Serve Robotics is executing an ambitious plan to scale its autonomous delivery robot fleet to 2,000 units by the end of 2025, aiming to capture a significant share of the last-mile delivery market, particularly for food.
• The company's third-generation robots feature substantial cost reductions (reaching 35% of Gen 2 cost for later batches) and performance improvements (increased battery, speed, compute power), which are critical for achieving target unit economics and profitability.
• Recent capital raises, including an $80 million registered direct offering in Q1 2025, have bolstered cash reserves to nearly $200 million, enabling the company to self-fund its fleet build-out and providing significant financial flexibility to navigate growth and competitive pressures.
• While Q1 2025 revenue saw a decrease driven by lower software services, fleet services revenue increased with a larger fleet, and management anticipates significant Q2 delivery volume growth (60-75% Q/Q) as new robots are deployed and utilized in expanding markets like Miami, Dallas, and Atlanta.
• The long-term outlook targets an annualized revenue run rate of $60 million to $80 million by 2026 once the 2,000-robot fleet reaches full utilization, though execution risk, intense competition from larger players, and the need to improve operational efficiency remain key challenges.

The Embodied AI Race: Serve Robotics' Play for the Last Mile

In the burgeoning landscape of autonomous systems, Serve Robotics (NASDAQ: SERV) is carving out a niche in the complex, high-volume world of urban last-mile delivery. Born from a special project within food delivery pioneer Postmates (later acquired by Uber (UBER)), Serve leverages its deep roots in the delivery ecosystem and its AI-powered robotics mobility platform to tackle the challenge of automating short-distance deliveries in public spaces. The company's mission is ambitious: to deliver a sustainable future by transforming how goods move, starting with food delivery, where approximately half of all orders are less than 2.5 miles – a distance well-suited for sidewalk robots.

Serve's core strategy centers on deploying a large fleet of low-emission, self-driving robots that can complete deliveries at a lower cost than human couriers at scale, thereby making on-demand delivery more affordable and accessible. This strategy is underpinned by continuous technological advancement and strategic partnerships with major players like Uber Eats and manufacturing giant Magna International (MGA). The company's journey into the public markets via a reverse merger in July 2023 and subsequent Nasdaq listing in April 2024 has provided the capital necessary to accelerate its fleet expansion and operational footprint, positioning it for a critical phase of growth.

At the heart of Serve's competitive approach lies its differentiated robotic technology. The company's third-generation robots represent a significant leap forward, designed specifically for the rigors and complexities of urban environments. These robots boast approximately 70% more battery capacity than their predecessors, enabling longer operational hours per day. They are also designed for roughly twice the speed and possess five times more compute power, allowing for more sophisticated on-board processing and navigation.

Crucially, Serve has achieved substantial cost reductions with the Gen 3 platform. The initial batch of Gen 3 robots cost nearly one-third of the previous Gen 2 units. Furthermore, the company has engineered an additional 30% cost reduction for subsequent batches planned for later in 2025, bringing their cost down to approximately 35% of the Gen 2 robots. These quantifiable improvements in both performance and cost are vital for the investment thesis, directly impacting the potential for improved unit economics and accelerating the path to profitability as the fleet scales. Management notes that these cost savings are significant enough to offset potential impacts from current tariffs, which they view as immaterial due to supply chain diversification and the magnitude of the cost reductions.

The company's strategic positioning within the competitive landscape is distinct. While facing competition from tech giants like Uber, Alphabet (GOOGL) (via Waymo), and Amazon (AMZN) (via Amazon Scout) who are developing autonomous delivery capabilities, Serve focuses specifically on the sidewalk robot niche for urban last-mile delivery. Management believes this focus, combined with their technology optimized for public spaces, allows them to lead in this particular segment. They observe that some competitors who started with less capable robots are now more focused on controlled environments like campuses, while Serve is tackling the more complex urban challenge. The company aims to be one of the largest autonomous vehicle fleets in North America by the end of 2025 with its 2,000-robot target, a scale that could provide significant operational data and efficiency advantages.

Beyond direct robot competitors, Serve also competes indirectly with traditional human-powered delivery services and emerging drone delivery technologies. The core value proposition against these alternatives is the potential for significant cost reduction in last-mile delivery at scale, coupled with benefits like reduced traffic congestion and zero emissions.

Recent financial performance reflects a company in the early stages of this scaling journey. For the three months ended March 31, 2025, Serve reported total revenue of $440,465, a decrease from $946,711 in the same period of 2024. This decline was primarily attributed to a decrease in software services revenue, which management notes can be inconsistent. However, fleet services revenue saw a significant increase, rising to $211,618 in Q1 2025 from $95,610 in Q1 2024, driven by the deployment of a larger fleet.

Cost of revenues increased substantially to $1.91 million in Q1 2025 from $352,438 in Q1 2024. This was due to startup costs associated with scaling the fleet and launching in new markets. Despite this, gross margins were 40% favorable quarter-over-quarter (Q1 2025 vs Q4 2024), although the increased share of early-stage operations and fleet revenues weighed on the overall mix. Management expects meaningful positive gross margin improvement as robot utilization increases and operating density improves.

Operating expenses totaled $13.54 million in Q1 2025, up from $8.31 million in Q1 2024. This increase reflects continued investment in research and development (the largest expense category at $6.88 million), operations ($1.67 million for infrastructure and field personnel), and general and administrative functions ($4.75 million, including increased stock-based compensation and headcount). These investments are necessary to build the capabilities required to support the planned scale-up.

The company reported a net loss of $13.22 million for Q1 2025, compared to a net loss of $9.04 million in Q1 2024. This resulted in an accumulated deficit of $120.74 million as of March 31, 2025, underscoring the company's pre-profitability stage.

A notable positive in the Q1 2025 financials was interest income, which surged to $1.79 million from just $9,994 in Q1 2024. This significant increase is a direct result of the company's substantially improved cash position following recent financing activities.

Liquidity is a major strength for Serve Robotics currently. As of March 31, 2025, the company held $197.76 million in cash and cash equivalents. This robust cash balance was significantly boosted by an $80 million registered direct offering completed in January 2025, following other capital raises in 2024 that brought total funding since January 2024 to over $250 million. This financial strength has allowed Serve to become debt-free and make the strategic decision to self-fund the build-out of its 2,000-unit fleet, avoiding an estimated $20 million in future interest and purchase option costs associated with equipment financing.

Management believes this cash position is sufficient to fund operations through the end of 2026 and provides flexibility for potential opportunistic investments.

Looking ahead, Serve's outlook is centered on the rapid deployment of its Gen 3 fleet. The company built the first 250 Gen 3 robots in Q1 2025 and expects to have them fully deployed by the end of Q2 2025. The larger batches of 700 robots are planned for build in Q3 2025, with the remainder of the 2,000 units to be built in Q4 2025.

Management guided to Q2 2025 total revenue in the range of $600,000 to $700,000, representing anticipated quarter-over-quarter growth of 35% to 60%. This growth is expected to be driven by an anticipated 60% to 75% quarter-over-quarter increase in delivery volume in Q2, resulting from bringing more robots online and increasing utilization in both existing and new markets.

Geographic expansion is a key part of the 2025 plan. Following launches in Miami (February 2025) and Dallas (April 2025), the company is on track to launch Atlanta by the end of Q2 2025 and plans to announce additional new markets later in the year. These expansions have already significantly increased the number of restaurants (over 1,500) and households (over 320,000) served. Management employs a disciplined playbook for new market entry, focusing on high-density areas, building local operations, and onboarding merchants, while also prioritizing public acceptance through community engagement.

The long-term financial target remains an annualized revenue run rate of $60 million to $80 million by 2026, contingent on the full deployment and target utilization of the 2,000-robot fleet. This run rate is expected to be primarily driven by delivery services, with branding fees also contributing. Reaching the upper end of this range will depend on maximizing robot utilization and increasing ad conversions.

Beyond core delivery, Serve is exploring new revenue streams leveraging its technology platform and collected data. Recurring software platform revenues are expected to begin in Q2 2025, starting small but projected to grow. Strategic initiatives like the partnership with Wing Aviation for multimodal robot-drone delivery and the potential acquisition of kitchen robotics company Vebu (currently paused due to closing conditions) are aimed at broadening offerings, deepening relationships with national food chains, and potentially accelerating revenue growth and the path to profitability.

Despite the ambitious plans and recent progress, Serve faces significant risks. Customer concentration with Uber and Magna poses a vulnerability. The business is susceptible to fluctuations in demand for last-mile delivery, which can be influenced by economic conditions and competition. Achieving target robot utilization and operating density in new markets is crucial but challenging to predict. Supply chain constraints could impact robot build plans, potentially causing delays and increasing costs. Regulatory environments in different municipalities could impose limitations on operations. Furthermore, the company has identified material weaknesses in its internal control over financial reporting related to control environment, segregation of duties, accounting policies, and IT general controls, which, while not resulting in past misstatements, could impact future financial reporting accuracy if not fully remediated. Management has initiated a remediation plan involving hiring qualified personnel and establishing more robust processes.

Conclusion

Serve Robotics stands at a pivotal juncture, transitioning from a development-focused company to one prioritizing scaled commercial deployment. The core investment thesis rests on the successful execution of its plan to deploy 2,000 technologically advanced, cost-reduced robots into expanding urban markets. Supported by a significantly strengthened balance sheet, the company has the financial runway to pursue this strategy and navigate the inherent challenges of scaling a novel autonomous service. While recent financial results reflect the upfront costs and revenue mix shifts typical of this phase, the anticipated acceleration in fleet deployment and delivery volume in the latter half of 2025, coupled with the long-term revenue run rate target, paints a picture of potential future growth and profitability. The ability to achieve high robot utilization, manage operational complexities in new geographies, and effectively compete against larger, well-resourced players will be critical determinants of whether Serve can realize its vision and deliver value for investors. The strategic exploration of new revenue streams, leveraging its core technology and data, adds further potential upside, positioning Serve as more than just a delivery company but a broader autonomous platform play in the long term.