Struggling to survive, ride-sharing companies face a potential new threat: Amazon.com Inc. (NASDAQ: AMZN). The Wall Street Journal reported Monday that Amazon is in advanced talks to buy Zoox Inc., a self-driving car company.
“Zoox, founded in 2014, has been working to develop the hardware and software needed to create electric-powered, robot taxis that would be summoned by smartphone app starting this year,” the Journal reported.
Amazon has long been interested in the potential of driverless vehicles, which could revolutionize its delivery services. The company previously invested in Aurora Innovation Inc., a Silicon Valley autonomous car startup.
But what if Amazon entered the ride-sharing space currently dominated by Uber Technologies Inc. (NYSE: UBER) and Lyft Inc. (NASDAQ: LYFT)? It would clearly be a game changer.
Zoox Deal
The proposed deal could value the company at less than the $3.2 billion Zoox was valued at in a 2018 funding round. Zoox has struggled to raise cash as the driverless car industry has developed more slowly than expected. It’s not clear how far along the Amazon-Zoox talks have proceeded.
Morgan Stanley analyst Brian Nowak said the Zoox deal would allow Amazon to “compete in the ride sharing and food-delivery industries,” according to Barron’s. Lyft doesn’t currently offer food delivery, but Uber does through its growing Uber Eats service. It’s been one bright spot for Uber during the pandemic.
Nowak said an Amazon ride-sharing service would tie in nicely with its Prime memberships. Prime customers could be offered discounts and other perks when using the company’s cars. All of this should scare companies like Lyft.
Ride-sharing companies are also watching Alphabet Inc.’s (NASDAQ: GOOG) Waymo, formerly Google’s self-driving car project. Using robotic cars, the Waymo One ride-hailing app is already live in the Phoenix area.
And Waymo Via is Alphabet’s move into the delivery business. The company is currently testing driverless trucks in Arizona and California.
“Investors over the past seven months have pumped at least $6 billion into more than two dozen companies involved in autonomous delivery of goods and food, from drones to heavy trucks,” Reuters reported.
Pandemic is a Heavy Lift
Lyft executives already have plenty to worry about. The coronavirus crisis has been devastating, as most of the country went into stay-at-home mode.
Faced with a huge drop in ridership, Lyft cut 17% of its workforce by laying off 982 employees permanently, as well as instituting double-digit pay cuts, and furloughs, and exiting from some of its facilities.
Lyft expects to take a $28 million to $36 million restructuring charge in the second quarter as a result of cuts. Competitor Uber has made similar cuts, slashing 3,700 full-time jobs from its corporate team.
Both Lyft and Uber continue to battle states and cities over the employee classification of drivers. They scored a victory recently when an initiative they favor secured a spot on the November ballot in California.
The ride-sharing ballot initiative was proposed in response to Assembly Bill 5, which passed the California legislature last September. The bill, which took effect Jan. 1, requires companies to reclassify so-called gig workers as employees, which would cover them under laws regarding minimum wage, overtime pay and unemployment insurance.
Uber and Lyft haven’t complied with the law, so California Attorney General Xavier Becerra filed suit against them this month. The cities of Los Angeles, San Francisco and San Diego joined the legal action.
If voters approve the initiative, the ride-sharing companies can continue to classify drivers as independent contractors.
Lyft’s stock rebounded a bit this week, but is down almost 25% year to date. Uber stock is up about 17% for the same period.
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