Zoox Looks To Be Sold

Zoox, the well funded self-driving start-up whose test ride I wrote about earlier this week, is reported by “The Information” to be shopping itself for sale. Zoox confirms it has hired investment bank Qatalyst to work on investment and possible acquisition. Zoox has raised almost $1B in funding with a $2.7B most recent valuation.

This is not an unexpected move. Last week, I had reached out to Zoox for comment on their financial situation and they simply expressed, as would be expected, that they are “confident that [they] will continue to secure … capital.” But there may be less confidence than hoped.

Zoox is following an ambitious plan, not changed much from the original vision of its ousted designer/founder Tim Kentley-Klay. That vision is that a custom vehicle, designed from the ground up to be self-driving, without the legacy issues of a traditional automobile, is the winning formula. They feel that the advantages of the custom vehicle are strong enough to justify the high cost of trying to develop a self-driving system and a whole new car at the same time. In fact, they will go further and feel that the freedom to design the car without legacy constraints in the end is easier than trying to conform to the previous designs.

That’s a strong claim, and not one that most others agree with. There certainly are some things that are easier. If you plan to build 10 million cars, it’s probably the right path. Zoox plans to build 10 million cars, but nobody gets to start there or do it all at once. That’s why almost everybody else has decided to do their first 100,000 with traditional car techniques, and worry about switching to a custom design much later.

Starting with a new design is expensive. Still, when the prize is so valuable — dominance of a multi-trillion-dollar industry — it’s a cost worth spending, if you know you’re right.

The problem is, expensive paths need constant re-investment. Rarely do people give you all the money for that up front. Now we’re in a double-downturn. First, we had the pullback from some of the car OEMs, which has put a chill in all robocar funding. Now we have the general cooling thanks to Covid-19. This is making money harder to get, and if you can get it, it’s not at the valuations which happened during the upward slope of the hype cycle.

That does not bode well for Zoox. They have laid off staff, and presumably used a lot of their $1B war chest. It’s the worst possible time to have to go to the well again. If the company is internally good, they will get money, but at a lower valuation than they would like.

That leaves the option of acquisition. A very large partner, such as an automaker or logistics giant like Amazon
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or JD, could have the money to see the Zoox vision through. Several car OEMs are clear laggards in the robocar space and have no other way to survival once the robocar era begins other than acquisition of a good project or buying from a Tier 1 supplier who will then be in control of the most important part of their car. The same logic which made GM buy Cruise and Ford fund Argo could make it worthwhile to buy Zoox.

A car OEM does have the money to carry out the Zoox vision, but does it have the desire to? Building traditional cars is what it’s all about, after all. Selling them to customers is also what a traditional OEM is about — but Zoox always planned to be strictly a robotaxi service company.

What Zoox has built so far would catapult a laggard OEM into a decent position. Not as good as Waymo, probably not as good as Cruise, but more than that OEM could do on their own. As such, I think such a sale can happen, though perhaps not at the price Zoox’s investors will want. That will depend on how much competition there is. There certainly are several laggard OEMs so that’s a good sign, but there are also several other companies (such as Aurora and Cruise itself for starters) willing to solve that problem for an OEM, as well as Aptiv
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and other Tier One suppliers. Still, what Zoox has built is too valuable to let collapse for lack of money. Sadly, that won’t be true for some of the lesser funded startups.

Presumably, the new owner would still want to eventually carry out the custom robotaxi vision. It’s a vision I have long believed in — in fact the reason Tim Kentley-Klay came to me before he started Zoox was that I often wrote about it. The real opportunity comes in making special vehicles to carry different amounts of passengers in different ways, to make transportation much cheaper and more efficient than it is today when we mostly have solo drivers in 5 passenger SUVs or 9 people in average on giant city buses. But I never expected that to be the first thing to happen. We’ll see if it does.