Amazon (AMZN 1.49%) has announced it's agreed to acquire Zoox, a company building autonomous vehicles from the ground up with a robotaxi service in mind. While neither company disclosed terms of the deal, the price is expected to be more than $1 billion, but less than the $3.2 billion valuation of Zoox's last round of funding in 2018. And Amazon will have to invest a lot more into the money-losing business as it builds and tests its technology, products, and services.
Amazon will reportedly allow Zoox to continue its independent operations, much like it's allowed Twitch to remain its own entity. With Amazon's funding, Zoox will have a long runway to build out its driverless vehicles.
But the real value of the acquisition will stem from Amazon's ability to integrate Zoox's technology with its existing operations, namely its growing logistics network. As a result, Amazon's investments in Zoox could start showing returns for shareholders much more quickly than other companies' efforts in autonomous vehicles.
Image source: Amazon.
The potential for autonomous vehicles inside Amazon
A robotaxi service with autonomous vehicles shuttling people around cities may be a long way away, but autonomous trucking along America's interstates may be closer than you think. And Amazon runs a lot of trucks. It had about 20,000 as of the end of 2019, and with the surge in sales over the last few months, it's likely increased even further.
Driverless technology isn't a new area of interest for Amazon. Amazon invested in Aurora's series B funding round last year. The retail giant also previously partnered with Embark Technology to test autonomous trucks hauling cargo along I-10 in the southwestern U.S.
The potential to reduce its shipping expenses and speed up delivery is huge. Amazon spent $38 billion on shipping last year. Those costs accelerated in the back half of the year after Amazon started promising one-day delivery for its Prime members. But Morgan Stanley analyst Brian Nowak estimates autonomous vehicles in Amazon's delivery network could save the company $20 billion per year. If that estimate is even close to accurate, Amazon could see a return on its acquisition and additional investments in relatively quick order.
Moreover, driverless trucks will give Amazon an advantage in its growing interest in providing logistics solutions to third parties. In April, the company expanded its freight brokerage service to all 48 contiguous United States. The move enables Amazon to sell excess capacity on its trucks traveling across the country. Importantly, it will allow Amazon to scale its trucking capacity even further for its own fulfillment needs while monetizing that scale. That could make investments in autonomous trucking even more valuable, as it could enable it to undercut competitors and turn a cost into a profit.
Amazon's advantage in robotaxis and food delivery
Amazon can also help Zoox bring its robotaxi vision to life thanks to its Prime membership base along with loads of customer information, including payment cards and home addresses. Launching a consumer service could be nearly frictionless for the users. Download an app, log in with your Amazon credentials, and start riding. No need to add your address or payment info, Amazon already has it.
It's likely Amazon would also incorporate the service into its Prime membership, perhaps offering a discount. Existing ride-sharing networks offer subscription services that provide discounts, so there's already a model indicating heavy users are willing to pay. Those subscriptions increase rider loyalty. If Amazon integrated that kind of subscription into Prime, it could quickly steal away loyal riders while continuing to grow Prime membership.
Furthermore, Amazon could use Zoox cars and smaller robots for grocery delivery from Whole Foods or its new grocery chain. The same system could facilitate delivery for restaurants.
These advantages will allow it to catch up quickly with existing ride-sharing and food delivery networks. In the meantime, it can capture the benefits of Zoox's technology in its logistics business.
