Can Serve Robotics Translate Lower Robot Costs Into Margin Leverage?

Serve Robotics SERV reported meaningful progress in lowering robot unit costs during the third quarter of 2025, marking an important step in strengthening its long-term operating model. Management highlighted that the company’s Gen 3 robots now cost roughly one-third as much as prior-generation units, reflecting improvements in design simplification, manufacturing efficiency and supply-chain optimization.

These cost reductions stem from several structural changes. Management pointed to a more modular robot architecture, fewer custom assemblies and tighter supplier relationships, alongside broader ecosystem improvements. In particular, the growing availability of lower-cost sensors such as LiDAR — supported by suppliers shipping at scale — has contributed to materially lower hardware costs. Collectively, these developments position Serve Robotics to deploy robots more efficiently as fleet size expands.

However, third-quarter gross margin performance reflected the company’s continued investment ahead of scale, rather than immediate benefits from lower unit costs. During the quarter, Serve Robotics expanded its operational footprint, launched additional cities and integrated recent acquisitions, including Vayu Robotics. These initiatives increased near-term costs as the company builds capacity for future growth. In the third quarter, total operating expenses came in at $30.4 million (compared with $8.2 million reported in the prior-year quarter), while adjusted EBITDA came in at negative $24.9 million (compared with negative $6.2 million reported in the prior-year quarter).

Management emphasized that margin improvement is expected to come primarily through higher utilization, rather than hardware cost reductions alone. In the third quarter, average daily operating hours per robot increased 12.5% sequentially, intervention rates declined and autonomous miles rose meaningfully. These efficiency gains supported a 66% sequential increase in delivery volume, while delivery reliability remained near 100%. Management noted that recent efficiency improvements are still in the early stages, as the company continues to invest in fleet expansion and new market launches ahead of reaching utilization levels that would meaningfully improve margins.

Looking ahead, Serve Robotics’ ability to convert falling unit costs into sustained margin improvement will depend on whether utilization gains continue to compound across new markets and platform partnerships. While the foundation for improved economics is taking shape, management indicated that meaningful margin expansion is expected to follow scale as utilization improves across a larger and more autonomous fleet.

SERV’s Price Performance, Valuation & Estimates

Shares of Serve Robotics have gained 1.6% in the past three months against the industry’s 2.7% fall. In the same time frame, other industry players like Vertiv Holdings Co VRT and BigBear.ai Holdings, Inc. BBAI have declined 0.9% and 16.7%, respectively, while Leidos Holdings, Inc. LDOS has gained 4.8%.

SERV’s Stock Three-Month Price Performance

SERV stock is currently trading at a premium. It is currently trading at a forward 12-month price-to-sales (P/S) multiple of 44.94, well above the industry average of 15.99. Then again, other industry players, such as Vertiv, BigBear.ai and Leidos have P/S ratios of 5.31, 15.58 and 1.39, respectively.

SERV’s P/S Ratio (Forward 12-Month) vs. Industry

The Zacks Consensus Estimate for Serve Robotics’ 2026 loss per share has widened in the past 60 days.

EPS Trend of SERV Stock

The company is likely to report dismal earnings, with projections indicating a 15% fall in 2026. Conversely, industry players like Vertiv, BigBear.ai and Leidos are likely to witness growth of 29.3%, 72.8% and 4.6%, respectively, year over year in 2026 earnings.

SERV stock currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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