JD.com (NASDAQ:JD), China's biggest direct online retailer, is set to become the first company in the world to deploy an autonomous delivery vehicle program at scale. The company says it's operating an autonomous delivery robot project in Changshu, Jiangsu province, China, and plans to have 100 autonomous delivery robots in operation in the city by year's end.

JD, which is sometimes referred to as the Amazon (NASDAQ:AMZN) of China, runs its own fulfillment network and third-party marketplace in China, in addition to direct online sales. But the comparison with Amazon often understates the advances the Chinese company has made in areas like fulfillment, grocery sales, and automation, where JD has been consistently ahead of Amazon. 

In 2017, JD opened a fully automated warehouse in Shanghai that requires just four workers but ships 200,000 packages a day. Now, the company has raised the bar again in automation, setting up the world's first Level 4 autonomous vehicle network.

A JD autonomous vehicle on the road

Image source: JD.com.

The next level

At its Global Smart Supply Chain Summit earlier this month, JD announced that it would have a network of 100 Level 4 delivery vehicles operating in Changshu by the end of the year. The company first put this self-driving vehicle on the road in Wuhan in February to help facilitate contactless delivery to hospitals and residences. JD's autonomous vehicle in Wuhan logged nearly 4,000 miles and delivered more than 13,000 packages in a 107-day deployment, and the company says the technology is now ready to be scaled. The company developed the core of its autonomous driving system in-house, and the current robot is the result of several iterations after it first deployed an autonomous delivery vehicle in 2016. 

Level 4 automation is generally defined as self-driving without a driver, but only within a specific mapped area, known as geofencing. The reliance on geofencing makes package deliveries in a city an ideal application for Level 4 technology. Other conditions, like severe weather, can also limit Level 4 autonomous vehicles.

JD's autonomous vehicles drive themselves from destination to destination and notify customers with texts and phone calls that include a verification code to ensure packages are given to the proper recipient. Delivery demand in China has boomed during the pandemic, as China's equivalent to the postal service reportedly delivered more than 60 billion packages year-to-date through Oct. 18. According to the company, JD's robots can both alleviate capacity concerns and assist human couriers.

JD expects to have more than 100,000 automated delivery robots on the road within five years, making them a key part of its logistics infrastructure. JD Logistics CEO Zhenwui Wang said: "We will continue to increase the investment in logistics technology and we will also make logistics technologies available to the general public, facilitating social infrastructure upgrades."

A woman presses a touch screen on a delivery robot.

A woman receiving a package from a JD robot. Source: JD.com

Endless possibilities 

It's easy to see the direct benefits of the automated delivery vehicles. They can help JD save on labor costs and expand capacity, especially as such vehicles could be operated 24 hours a day. The company also says that their power consumption is just 10% of the industry average, or the equivalent of a standard light bulb.

Being able to deploy a network of the vehicles should also make JD even more appealing as a third-party logistics provider, potentially allowing it to charge lower prices. Or it could license the technology, as Wang alluded to in the quotation above. Third-party logistics is already one of the company's fastest-growing businesses, as the segment saw 54% revenue growth through the first half of 2020, to $2.2 billion.

It's also notable that JD is the first company to roll out a scalable network of Level 4 vehicles, beating Amazon, which recently acquired AV tech company Zoox, known for developing robotaxi technology, and agreed to buy 100,000 electric vehicles from Rivian. Tesla (NASDAQ:TSLA), meanwhile, has long promised to roll out or enable a fleet of "robotaxis," but has yet to do so, though it just introduced its full-self-driving beta, which is currently meant to be used with driver supervision. Its vehicles offer a number of self-driving features under its "autopilot," generally considered to be between Level 2 and Level 3.

Despite JD's technology advances, investors continue to underestimate the potential of the stock. JD.com is also at the forefront in areas like drone delivery, further boosting its logistics capabilities. The Chinese tech stock trades at a price-to-earnings (P/E) ratio of just 36 based on next year's expected earnings, barely more expensive than the S&P 500 and much cheaper than Amazon and Tesla. 

Considering its momentum coming out of the pandemic, logistics prowess, growth potential in multiple areas, and its technological innovations, JD stock looks poised for serious long-term gains.