diff --git a/sdk_container/src/third_party/coreos-overlay/coreos-base/coreos-cloudinit/coreos-cloudinit-0.7.7.ebuild b/sdk_container/src/third_party/coreos-overlay/coreos-base/coreos-cloudinit/coreos-cloudinit-0.8.6.ebuild
similarity index 100%
rename from sdk_container/src/third_party/coreos-overlay/coreos-base/coreos-cloudinit/coreos-cloudinit-0.7.7.ebuild
rename to sdk_container/src/third_party/coreos-overlay/coreos-base/coreos-cloudinit/coreos-cloudinit-0.8.6.ebuild
diff --git a/sdk_container/src/third_party/coreos-overlay/coreos-base/coreos-cloudinit/coreos-cloudinit-9999.ebuild b/sdk_container/src/third_party/coreos-overlay/coreos-base/coreos-cloudinit/coreos-cloudinit-9999.ebuild
index 5b9adf56d6..646ac4f8f4 100644
--- a/sdk_container/src/third_party/coreos-overlay/coreos-base/coreos-cloudinit/coreos-cloudinit-9999.ebuild
+++ b/sdk_container/src/third_party/coreos-overlay/coreos-base/coreos-cloudinit/coreos-cloudinit-9999.ebuild
@@ -9,7 +9,7 @@ CROS_WORKON_REPO="git://github.com"
 if [[ "${PV}" == 9999 ]]; then
 	KEYWORDS="~amd64"
 else
-	CROS_WORKON_COMMIT="d0a6d6f92f376e9fea26f0291c753c39504ffc9c" # tag v0.7.7
+	CROS_WORKON_COMMIT="43be8c89965f4b1d19082742a0a3db27a3c103dd" # tag v0.8.6
 	KEYWORDS="amd64"
 fi
 
diff --git a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/cloud-config.yml b/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/cloud-config.yml
index 0551114a15..06a22f3d00 100644
--- a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/cloud-config.yml
+++ b/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/cloud-config.yml
@@ -2,30 +2,20 @@
 
 coreos:
     units:
-      - name: ec2-ssh-key.service
-        command: restart
-        runtime: yes
-        content: |
-          [Unit]
-          Description=Sets SSH key from metadata
-
-          [Service]
-          Type=oneshot
-          StandardOutput=journal+console
-          ExecStart=/usr/share/oem/bin/ec2-ssh-key
-      - name: ec2-cloudinit.service
+      - name: user-configdrive.service
+        mask: yes
+      - name: user-configvirtfs.service
+        mask: yes
+      - name: oem-cloudinit.service
         command: restart
         runtime: yes
         content: |
           [Unit]
           Description=Cloudinit from EC2-style metadata
-          Requires=coreos-setup-environment.service
-          After=coreos-setup-environment.service
 
           [Service]
           Type=oneshot
-          EnvironmentFile=/etc/environment
-          ExecStart=/usr/bin/coreos-cloudinit -ignore-failure=true -from-url=http://169.254.169.254/latest/user-data
+          ExecStart=/usr/bin/coreos-cloudinit --from-configdrive=/media/configdrive --from-metadata-service
     oem:
       id: @@OEM_ID@@
       name: @@OEM_NAME@@
diff --git a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/coreos-setup-environment b/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/coreos-setup-environment
deleted file mode 100755
index 4e3b0c4dee..0000000000
--- a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/coreos-setup-environment
+++ /dev/null
@@ -1,29 +0,0 @@
-#!/bin/bash
-
-ENV=$1
-
-if [ -z "$ENV" ]; then
-        echo usage: $0 /etc/environment
-        exit 1
-fi
-# test for rw
-touch $ENV
-if [ $? -ne 0 ]; then
-        echo exiting, unable to modify: $ENV
-        exit 1
-fi
-
-sed -i -e '/^COREOS_PUBLIC_IPV4=/d' \
-    -e '/^COREOS_PRIVATE_IPV4=/d' \
-        "${ENV}"
-
-/usr/bin/block-until-url http://169.254.169.254/latest/meta-data/public-ipv4
-
-# get public ip from metadata
-PUB_IP_URL=http://169.254.169.254/latest/meta-data/public-ipv4
-IP=$(/usr/bin/curl --fail -s "$PUB_IP_URL")
-echo COREOS_PUBLIC_IPV4=${IP} >> $ENV
-
-PRIV_IP_URL=http://169.254.169.254/latest/meta-data/local-ipv4
-IP=$(/usr/bin/curl --fail -s "$PRIV_IP_URL")
-echo COREOS_PRIVATE_IPV4=${IP} >> $ENV
diff --git a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/ec2-ssh-key b/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/ec2-ssh-key
deleted file mode 100755
index 65dfeaae55..0000000000
--- a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/files/ec2-ssh-key
+++ /dev/null
@@ -1,6 +0,0 @@
-#!/bin/sh -e
-
-KEY_URL="http://169.254.169.254/latest/meta-data/public-keys/0/openssh-key"
-
-/usr/bin/block-until-url "$KEY_URL"
-/usr/bin/curl --fail -s "$KEY_URL" | /usr/bin/update-ssh-keys -a ec2
diff --git a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/oem-ec2-compat-0.0.1-r14.ebuild b/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/oem-ec2-compat-0.0.1-r14.ebuild
deleted file mode 120000
index 653407e6ba..0000000000
--- a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/oem-ec2-compat-0.0.1-r14.ebuild
+++ /dev/null
@@ -1 +0,0 @@
-oem-ec2-compat-0.0.1.ebuild
\ No newline at end of file
diff --git a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/oem-ec2-compat-0.0.1.ebuild b/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/oem-ec2-compat-0.0.2-r1.ebuild
similarity index 90%
rename from sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/oem-ec2-compat-0.0.1.ebuild
rename to sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/oem-ec2-compat-0.0.2-r1.ebuild
index ba97b4ac5c..a7042cfc5a 100644
--- a/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/oem-ec2-compat-0.0.1.ebuild
+++ b/sdk_container/src/third_party/coreos-overlay/coreos-base/oem-ec2-compat/oem-ec2-compat-0.0.2-r1.ebuild
@@ -40,10 +40,6 @@ src_prepare() {
 }
 
 src_install() {
-	into "/usr/share/oem"
-	dobin ${FILESDIR}/ec2-ssh-key
-	dobin ${FILESDIR}/coreos-setup-environment
-
 	insinto "/usr/share/oem"
 	doins ${T}/cloud-config.yml
 }