Amazon is under discussion with self-driving technology startup Zoox in an acquisition attempt that would value the company at less than the $3.2 billion it had when it raised funding in 2018. As reported by The Wall Street Journal, the companies are still in talks, and a finalized agreement might not be reached for several weeks.
Zoox was founded to develop software and hardware needed to create an ecosystem of electric-powered self-driving taxis, which users can call on via a smartphone application. Zoox’s idea is built on three distinct trends within the transport industry – autonomous driving, vehicle electrification and on-demand cab-hailing.
It is here that Zoox might have bitten off more than it could chew. All three trends have highly specialized and extremely well-funded startups, mobility businesses, and automakers fighting to gain space within individual markets. For a startup like Zoox, realizing its vision meant massive financial injections.
But as investors understood the complexity and financial burden of developing self-driving technology, they increasingly shifted their investment towards established market leaders like Alphabet’s Waymo and GM’s Cruise, leaving early- and mid-stage startups in the lurch.
Amazon’s interest in Zoox is in line with its investment in self-driving startup Aurora Innovation; it was part of the company’s $530 million investment in 2019. Amazon also invested heavily in electric car manufacturer Rivian, while also placing an order for 100,000 delivery vans from the company by 2030.
For Amazon, investing in transport-related innovation is crucial as a bulk of its operational expenses are shipping-related costs. In 2019, Amazon’s shipping costs were roughly 12% of its gross merchandise value (GMV). The company is also expected to have a compound annual growth rate of 24% till 2023. Without any noticeable improvement in shipping operations, Amazon’s shipping costs will amount to $90 billion by 2023.
Morgan Stanley’s Brian Nowak believes that Amazon could save over $20 billion in annual recurring shipping costs if the company continues to focus on self-driving technology. “We think autonomous technology is a natural extension of Amazon’s efforts to build its own third-party logistics network,” said Nowak.
Though vehicles with SAE Level 5 automation are still under development, existing Level 4 automation can be used by long-haul trucks to move freight. This is because highways are generally less chaotic than city roads, providing an easier-to-navigate driving environment that can be handled by technology’s current level of sophistication.
That said, Amazon’s involvement in the autonomous vehicle (AV) space would not necessarily stop at providing for its own logistics needs. If Amazon can perfect self-driving technology, it can essentially create its own on-demand cab-hailing platform and deploy robo-taxis as direct competition to the likes of Uber and Lyft. Running robo-trucks on American highways could also be a starting point for Amazon to expand into the logistics forwarding market.
The market leaders within the AV segment have been Waymo and Cruise, both profiting from being one of the earliest to the business. Extensive simulated driving tests and a large number of pilot runs on city roads have helped the companies incrementally improve their technology.
As of 2019, Waymo vehicles clocked 13,219 miles on average before they required human intervention, while Cruise vehicles clocked 12,221 miles on average before taking assistance. No other competitor in the market has yet crossed 5,000 miles on average without needing human intervention in an actual physical driving environment.