Reports indicate that Amazon CEO Jeff Bezos is training his gaze on the auto industry, and despite the company's share price trading relatively flat since reports emerged, investors may want to stay tuned.
Amazon [AMZN] CEO Jeff Bezos has expressed interest in several automotive trends, from autonomous vehicles to electrification and car sharing, according to a CNBC report, setting the stage for investment in an industry where newcomers and heavyweights alike have been burning cash in pursuit of new technologies.Amazon 1-year share price performance, CMC Markets, 23 May 2019
“[In the] auto industry right now, there’s so many things going on with Uberisation, electrification, the connected car … It’s going to be something very interesting to watch and participate in,” Bezos told employees in an internal meeting in March.
The Seattle-based giant is not new to venture investments outside its core operations. In February, it led a $700m investment round in Michigan-based electric carmaker Rivian and participated in a $530m Series B funding round in Californian self-driving startup Aurora, whose partners include Volkswagen and Hyundai.
Amazon’s equity investments in other companies totalled $2.1bn as of 31 March, according to its latest filings, of which around a third was in publicly-traded companies. The company’s huge cash reserves – $37bn as of the same period – gives it potentially unrivalled firepower for acquiring stakes in promising startups.
|PE ratio (TTM)||75.67|
|Quarterly Revenue Growth (YoY)||17.00%|
Amazon share price vitals, Yahoo finance, 23 May 2019
Every investment helps
Investment in self-driving tech may well benefit Amazon’s core e-commerce business by reducing shipping costs. In January, reports emerged of the company using autonomous trucks from startup Embark on the I-10 Interstate Highway, across the southern US. The company is also testing out a freight brokerage service in several northern US states, bringing it into closer competition with the likes of UPS [UPS] and Uber Freight. But breaking into this space is tricky, as Jason Seidl, an analyst at investment bank Cowen noted. “Past entrants to the brokerage space have used discounting to achieve market share and Amazon is likely to do the same,” he said in a research note in April.
“Past entrants to the brokerage space have used discounting to achieve market share and Amazon is likely to do the same” - Jason Seidl, analyst at Cowen
Its cash has been deployed overseas too: in January, it invested in Balyo, a French firm developing robotic forklift trucks, with clear applications for Amazon’s warehouse network, where humans are still a critical component.
Also fitting are Amazon’s AI investments, which mirrors similar moves by Chinese competitors Alibaba [BABA] and Baidu [BIDU]. Over the past decade, the company made nine acquisitions and five equity investments in AI firms, according to an analysis by Inc. magazine. Many of those acquisitions contributed to the development of the Alexa virtual assistant.
The dark side of AI
Not all of Amazon’s investments have been equally well-received. The company has faced backlash from shareholders over the sale of facial recognition software to US law enforcement, including the Immigration and Customs Enforcement (ICE) border agency. The American Civil Liberties Union appealed to shareholders to restrict sale of the technology, saying that “Amazon may soon become known more for its role in facilitating pervasive government surveillance than for its consumer retail operations”.
Internally, it appears that Amazon is already deploying AI to a pervasive extent. In April, The Verge reported that the technology was used to monitor warehouse workers’ productivity. Employees that failed to meet quotas were subsequently fired.