Amazon spends $ 1 billion on Zoox, will have to invest billions more

Blue Origin and Amazon founder Jeff Bezos.

Mandel Ngan | AFP | fake pictures

Amazon is spending more than $ 1 billion on driverless car company Zoox, one of its most expensive acquisitions. But CEO Jeff Bezos will have to invest many multiples to bring nascent technology to market.

The deal, which was announced Friday and had been in the works for the past few months, pits Amazon directly against Alphamo spinout Waymo, GM’s Cruise, Uber, Tesla and even Apple, which is doing its best to keep its project secret. autonomous driving. Waymo raised $ 2.25 billion in external funds in March, its first external financing, in preparation for the long term.

Autonomous driving is a pure gamble in the future, requiring a ton of capital to build and test systems and put pressure on policy makers, with no certainty as to when or if the market will tilt in their favor. For the six-year-old Zoox, which had been valued by private investors at $ 3.2 billion in 2018, selling to Amazon at a discount became their best option, as the coronavirus pandemic made it particularly difficult to raise capital for any company. that lacks a running business. model.

From here, Amazon will likely have to spend $ 2 billion a year on ongoing development to bring Zoox technology to market, according to people familiar with the matter who asked not to be identified because the projections are confidential. Katrin Zimmermann, managing director of TLGG Consulting, agrees with that estimate, adding that $ 33 billion was invested in the autonomous car market last year. She predicts that Amazon will likely have to invest 10 times the purchase price before Zoox is ready to start.

While it could be a decade or more before we have fully functional, marketed autonomous cars wandering the streets of the U.S., Zimmerman said Amazon can use pieces of technology for its last-mile delivery operations, which are critical to your broader business.

“Amazon is about effective, fast and efficient delivery solutions, and they have been researching all the components that will enable them to do so,” said Zimmerman. “We could see that before the commercialization opportunities in the mass market.”

Forecasts for the autonomous car market have been all over the map. In a 2017 report, McKinsey predicted that autonomous cars were five to 10 years away, although advanced driver assistance technologies, such as emergency systems and automatic parking, already represented a $ 15 billion market. Morgan Stanley acknowledged last year, by cutting its rating at Waymo, that it “underestimated how long security drivers are likely to be present inside cars and the timing of the launch of autonomous ride-sharing services.”

Expensive proposal

Tesla’s Elon Musk has said that robotaxis will be on the way later this year, but he is notoriously aggressive and often wrong with his predictions. And BMW and Daimler formed a joint agreement last year, which aims to launch autonomous vehicles on the market by 2024.

Not many companies have the size and capital structure to compete adequately in the long term, particularly with the uncertainty caused by the coronavirus. Several automakers participated in the bidding process for Zoox, but withdrew when Covid-19 became a pressing concern, people familiar with the matter said.

A Zoox representative said the company was not offering interviews and that Amazon did not respond to a request for comment.

Amazon said in a blog post that the termination of the deal is “subject to customary closing conditions.” Zoox CEO Aicha Evans, who will stay after the acquisition, said in the post, “We now have an even greater opportunity to achieve a fully autonomous future.” Jeff Wilke of Amazon, CEO of the consumer company, said, “We are excited to help Zoox’s talented team realize their vision for years to come.”

Amazon had been playing on the edges of the autonomous car market, leading a $ 700 million investment in Rivian electric vehicle startup in 2019 and also backing Aurora, co-founded and led by Chris Urmson, the former chief technology officer at Autonomous cars in alphabet. Buying Zoox is by far its biggest leap to the market, especially considering that the business is nowhere near generating revenue.

Their a stark contrast to previous Amazon purchases of more than $ 1 billion. When Amazon bought Whole Foods for $ 13.7 billion in 2017, it acquired one of the major supermarket chains and a company with a broader operating margin than its core business. After that, Amazon’s biggest deals include the purchase of smart ring maker Ring last year, online pharmacy PillPack in 2018, game streaming site Twitch in 2014, and online shoe retailer Zappos in 2009. Each deal was close to $ 1 billion and brought strong business.

Zoox will be a new experiment for Bezos. David Somo, senior vice president at ON Semiconductor, said in an email that the acquisition is likely to be more focused on beefing up distribution, rather than developing a fleet of autonomous cars to compete with Uber and Lyft.

“This fits well with Amazon’s model to automate its distribution network that ranges from warehouse robotics to last mile delivery services,” Somo wrote. He added that the acquisition should “drive operational efficiencies, scale and eventually result in substantial cost savings across its distribution network.”

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