Amazon set to acquire self-driving start-up Zoox for less than $3.2bn
In 2018 Zoox was valued by investors at $3.2bn. Today, analysts at PitchBook expect a significant decrease in valuation as Amazon prepares to acquire the self-driving start-up.
There’s an expectation of a 66% haircut, bringing the price down to $1.1bn. If successful, it will be another example of Big Tech shopping spree during Coronavirus in search for companies to acquire at discounted prices.
What is Zoox?
Zoox is a self-driving start-up founded in 2014. It is unique in the self-driving sector as it is seeking to succeed in the triple challenge of:
- developing a driveless system
- building a ride hailing network (similar to Uber and Lyft but with robots)
- manufacturing bespoke autonomous vehicles
Through a comprehensive focus, on the entire autonomous ecosystem, including a purpose-built vehicle, software and mobility service, they are planning to develop a safe autonomous mobility platform.
All of their software is being developed in-house, including all components of the autonomous mobility technology, such as spanning perception and prediction ability of the software.
Zoox has also recently announced that they developed a fully autonomous vehicle that lacks a steering wheel or pedals. They haven’t yet showed it to the public, but a trial of the vehicle is expected to be launched this year.
The next generation of mobility is for riders
- not drivers. ~ Zoox
Why Zoox is likely to be acquired by Amazon?
Zoox has very ambitious goals, but creating an entirely new autonomous vehicle targeted at the robo-taxi market requires enormous amount of capital which they lack, unlike their competitors. For example:
- Cruise is backed by major automotive partners, such as GM, Volkswagen or Ford
- Aurora, secured $530m in funding from Amazon in 2019
The cash required to achieve Zoox’s goals runs into billions. In 2018 Zoox collected $500m in Series B funding round, but venture capital firms who took part in the funding rounds for Zoox think that it would require another $1 billion over next 2 years to continue.
This isn’t a problem for cash-rich Amazon which can afford it and is quietly expanding its reach within the auto world. In 2019, Amazon had around $55bn in cash on hand.
What will be the potential benefits of the acquisition?
Amazon will probably leverage Zoox’s self-driving expertise to enhance it’s core operations and grow their presence in new markets.
CORE OPERATIONS
Warehouse robotics
Warehouse robotics are a simpler task than open road automation. This is why, in the short-term, an acquisition of Zoox might help accelerate Amazon’s warehouse operations. As a result, we could see more autonomous “pickers” driving the products around the warehouses to be packed, significantly improving Amazon’s logistics and reducing their operating costs.
Supply chain automation alongside electrification
In 2019 Rivian, an electric vehicle start-up which took $700m investment from Amazon, announced it is going to make 100,000 electric delivery vans for Amazon.
At the time, the rationale behind this investment was that delivery vans are perfect for electrification. They have relatively short routes with a lot of city driving, and the petrol savings make them economically viable.
It looks as Amazon is trying to build upon this rationale with its planned acquisition of Zoox. Automation of delivery will optimize the supply chain through reduced delivery costs. Automated vans are far less likely to be involved in a crash and will probably be also more efficient and quicker at optimizing routes real-time than their human counterparts, creating efficiency gains and reducing expenses associated with supply of products.
Increased quality of grocery business
Automated supply chain may enable a quicker delivery of fresh groceries to Amazon’s Whole Foods Market stores which they acquired in 2017. Fresher food on the shelves may win over more customers, challenging the likes of Lidl and Aldi, potentially generating more sales in the longer run.
NEW MARKETS
Third party delivery service
Recently, Amazon launched a third party delivery service called Amazon Shipping which poses a direct challenge to UPS and FedEx. Automation of the delivery process with self-driving autonomous vans would create significant cost synergies for Amazon. As result they would be able to offer shipping services at more convenient and cheaper rates, potentially stripping away FedEx’s market share which currently stands at over 30%.
Ride hailing
With Amazon’s capital, Zoox may be able to significantly expand its R&D, enabling them to fulfil the founder’s goals faster than expected. If Zoox outpaced rivals such as Uber at developing autonomous cars then Amazon could potentially tap into another market which is expected to grow by 18% between 2020–24, further expanding its revenue streams.
(Electric) self-driving consolidation
The acquisition will likely mark the beginning of a consolidation in the self-driving world. That’s because there are arguably only two companies (Amazon and Google) that can support the research and development intensity required without having to constantly return to the capital markets.
Also, because a future where all cars operate in the same technological environment, and can interact with the required state infrastructure, will require a level of standardisation which will naturally favour the two biggest players. It is likely that in 20 years the self-driving industry will resemble Airbus and Boeing’s stranglehold over aerospace.
Prepared and written by
Aron Adamski, BSc in Economics @LSE
M&A Hub
