Amazon-Zoox Talks Are Another Sign of a Self-Driving Shakeout

Deep-pocketed tech firms stand to gain as more financially-challenged peers rethink their autonomous driving efforts.
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Should startup Zoox sell itself to Amazon.com  (AMZN) - Get Report at a discount, it would be one more chapter in the story of an autonomous driving shakeout that has been gradually unfolding over the last couple of years.

According to The Wall Street Journal, Amazon and Zoox are in “advanced talks” about a deal in which Zoox would be sold for less than the $3.2 billion it was valued at in a 2018 funding round. One source cautions that a deal might be weeks away, and that talks could fall apart.

The WSJ’s report arrives three weeks after The Information reported that Zoox had hired investment bank Qatalyst Partners to help find a buyer. It also arrives a month after Zoox laid off 100 full-time workers and 120 contract workers.

Presumably, Amazon, which last year led a $700 million funding round in electric vehicle maker Rivian, would want to use Zoox’s technology to help deploy a fleet of driverless delivery vehicles. With Amazon now making massive investments in its last-mile delivery infrastructure, driverless vehicles could in theory help Amazon bring more deliveries in-house and lower its per-order delivery costs.

But either way, from the perspective of Zoox and its investors, a sale to Amazon at a lower valuation than what Zoox got in 2018 would be a disappointing outcome for one of the higher-profile self-driving startups out there.

Zoox has raised $955 million since being founded in 2014, per Crunchbase, and not long ago was planning to launch an autonomous ride-hailing service in San Francisco this year. And over the years, the company has received quite a lot of favorable press about its autonomous driving systems, which rely on Nvidia  (NVDA) - Get Report Drive computing boards, several types of sensors and proprietary software to help cars make sense of their surroundings and predict how nearby people and objects are about to move.

But with the path to commercializing autonomous driving technology proving longer and more challenging than proponents hoped a few years ago, and with the funding environment having gotten a lot tougher lately for startups with significant cash burn, Zoox is apparently rethinking its plans. And it’s hardly alone among self-driving companies on that count.

Since the start of 2019, we’ve seen:

  1. Ford  (F) - Get Report delay its plans to launch an autonomous vehicle service until 2022.
  2. General Motors’  (GM) - Get Report Cruise self-driving unit call off plans to launch an autonomous ride-sharing service in 2019.
  3. Self-driving startup Drive.ai sell itself to Apple  (AAPL) - Get Report just before it was about to run out of funding.
  4. British self-driving startup Five abandon plans to launch a ride-sharing service in favor of attempting to license its technology to third parties.

In a way, Alphabet’s  (GOOGL) - Get Report Waymo -- still seen by many as the technology leader in this space -- hasn’t been unscathed, either.

With Waymo’s effort to commercialize its self-driving tech still in their early stages, Alphabet decided that it doesn’t want to be the only company to shoulder Waymo’s losses for the time being, and raised $3 billion through a pair of funding rounds. And while Waymo was reportedly granted a $30 billion-plus valuation in its first round, that’s well below the valuation estimates that many analysts had for the company.

With that said, Waymo did get enough funding to cover its bills for a little while, and can still probably lean on its parent company for additional funds if absolutely necessary.

Likewise, though Elon Musk’s 2020 robotaxi promises should be taken with a grain of salt, Tesla  (TSLA) - Get Report should have little trouble funding its autonomous driving R&D efforts in the near-term. And the same will undoubtedly hold for Amazon, should it buy Zoox.

In that context, autonomous driving could prove to be another area where deep-pocketed tech firms are -- thanks to the financial challenges faced right now by both startups and incumbent automakers -- able to strengthen their hand in the current environment relative to more cash-strapped peers.