Amazon & Zoox – Bottom fishing

Consolidation wave gathers momentum.

• Zoox would make a good fit for Amazon which clearly intends to capitalise on autonomous driving being much later than expected meaning that the smaller players run out of money before the market emerges.
• In my opinion, Zoox is one of the better players in the autonomous driving world.
• This view is based on the DMV disengagement data which is full of caveats but to date has been a reasonable representation of reality.
• However, what makes Zoox different and a perfect fit for Amazon is that it has always been focused on fleets for both passengers and for goods.
• Fast, reliable and cost-effective distribution of goods from its warehouses is a key challenge for Amazon and is an area where it is spending and investing heavily.
• Hence, Zoox is a good fit as it could be widely used for package delivery thereby making it easier and more cost-effective (no drivers).
• Zoox last raised $500m in 2018 at a valuation of $3.2bn bringing the total raised to $800m.
• Zoox’s task is easier than most because by focusing its solution on robotaxis and deliveries, it is able to geofence its vehicles.
• This means that the size and uncertainty of the environment (data set) being driven is greatly limited because the vehicle only needs to operate within a specific area.
• Size and data instability is where deep learning-powered AI systems start to go wrong demonstrating that deep learning is not well suited to this use case.
• The net result has been that autonomous driving has been significantly delayed beyond what many people thought just two years ago.
• For a company like Zoox, this is existential because it was planning on having vehicles (and revenues) in 2020 meaning that it will run out of money before the market is ready to pay for its product.
• RFM’s current forecast for commercial autonomous vehicles is 2028 with geofenced robotaxis and deliver fleets slightly earlier but even this is way beyond what Zoox was originally planning.
• Hence, Zoox is out of money and must now face the spectre of consolidation in order for its solution to survive.
• This trend has already begun with Aurora in 2019 (see here) and I suspect that Zoox will be far from the last.
• The mooted valuation is around $1bn, some 69% below the last round in 2018 and clearly demonstrates that the sector has historically been significantly over capitalised and that there are still far too many players.
• The net result is likely to mean that only those solutions that are part of much bigger organisations like Waymo, Cruise, Yandex, Mobileye are going to survive the long wait for commercial reality.
• Amazon looking at Zoox is a sign that the wave of consolidation is gathering momentum and has a long way to go.