Is Amazon Quietly Making its Way into the Auto Industry?

Article By : Egil Juliussen

Amazon is a major user of auto products for its logistics and goods delivery services, but that looks like only a start for the company.

Amazon keeps extending its tentacles everywhere. Few ever anticipated the company would move into the auto industry, but now that we’ve seen Amazon reach into the markets for groceries and medical care, nobody should be that surprised to see the company probing into yet another seemingly unrelated area. Much of Amazon’s activity in the automotive arena isn’t readily apparent, nor is its growing influence in the automotive market, which is a good reason to write this column.

Amazon is quite unique in its strategy and long-term thinking (other companies could learn much from Amazon). Amazon is participating in the automotive and transport industry in multiple ways:

  • To deliver its products, Amazon is a major customer and user of automotive and transport products and services.
  • Amazon is an investor in automotive technology startups to retain its status as a leading innovator. This often make Amazon an early customer of new technology. This has led to multiple acquisitions of startups and probably more in the future.
  • History tells us that Amazon will keep entering new markets. It is reasonable to consider Amazon a potential competitor in new transportation segment such as robotaxis and goods delivery AVs.
  • Amazon AWS is a growing service provider to the auto industry across the four phases of creating, making, marketing, and using automotive products. AWS is especially growing in the development and usage phases of the software segments. AWS is also becoming a force in helping OEMs and Tier 1s managing automotive production and sales activity.

Amazon is doing so much in the auto industry that two columns are needed to cover it all. My first column will look at Amazon’s size, technology diversity and its role as a major user of automotive products for its logistics and goods delivery services. My second column will focus on Amazon’s impact on the autonomous vehicle industry and the growing involvement of Amazon AWS on automotive technology — from the software development to the decade-long software use phase of vehicle owners.

It is important to understand the size and growth of Amazon across multiple parameters. It is useful to understand Amazon’s four philosophies, mentioned throughout in its financial reports:

Amazon is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.

Amazon Size
Amazon is already one of the largest companies in the world and was ranked #9 the 2019 Fortune 500 list of the world’s largest companies. Amazon was #13 in the 2018 list and is likely to move up when the 2020 list is available.

The next table shows key Amazon financial information. I have extracted various segment information from Amazon’s 10K annual report and 4Q financial release.

(Source: Egil Juliussen)

Amazon’s total sales increased 37.6% in 2020 to over $386 billion including product sales of nearly $216 billion and service sales of $170 billion. Amazon uses three segments for its detailed financial reporting — N. America and International sales with AWS as the third segment. N. America is by far the largest segment at over 61% in 2020. International sales increased to 27% in 2020 from 26.6% in 2019.

AWS contributed 11.8% of Amazon’s revenue in 2020, a decrease from 12.4% in 2019 — due to AWS revenue “only” growing 29.5% in 2020 to $45.37 billion. AWS is by far Amazon’s most profitable business with 2020 AWS operating income at $13.5 billion or over 59% of Amazon’s total operating income.

Amazon’s 2020 net income was $21.33 billion or a growth of over 84% from 2019, which is much higher than sales growth. However, Amazon’s overall business profitability is on the low side with net income at 5.5% of total sales.

Amazon has added lots of employees in 2020 with much of the increase due to tremendous growth in e-commerce deliveries from pandemic impact. At year-end 2020, Amazon had 1.3 million full-time and part-time employees—an increase of 62.7% from year-end 2019. This excludes independent contractors and temporary personnel.

Amazon includes additional regional revenue information as shown in the above table. USA revenue was $263.5 billion or 68.3% of total sales. Germany provided 7.7% of revenue, UK had a 6.9% share and Japan accounted for 5.3% of revenue. Other regions had revenue of $46 billion or 11.9% of total sales.

Amazon also included net sales by revenue segments. The online store category was the dominant segment at over $197 billion or 51.1% of net sales in 2020. Third party sellers contributed over $80 billion or 20.8% of total sales.

Amazon’s subscription services include annual and monthly fees associated with Amazon Prime memberships, as well as digital video, audio book, digital music, e-book, and other non-AWS services. Total subscription revenue was $25.2 billion in 2020—an increase of over 31% from 2019. Subscription services reached 6.5% share of sales.

Other segments, primarily advertising services, and other service offerings, topped $21.4 billion or nearly 5.6% of net sales.

Amazon’s global shipping cost in 2020 was over $61 billion or 15.8% of total sales revenue. This is quite high compared to most companies and shows how important logistics and product deliveries are to Amazon. Amazon’s shipping cost as share of revenue has been increasing from less than 11% in 2015.

Amazon and logistics
It is time to look at Amazon’s logistics and delivery strategy to better understand the future of delivery methods and technologies. Amazon initially used logistics services from other companies but have been adding its own logistics capabilities—especially in the last decade. Amazon now has one of the largest logistics capabilities of any company in the world.

The next table summarizes most of Amazon’s logistics activities where data was available. The table has information on air and ground logistics capabilities. Note that Amazon’s various autonomous vehicle development and other activities will be covered in the next column.

(Source: Egil Juliussen)

Amazon Air, which was previously named Prime Air, is Amazon’s fleet of aircraft to move its freight in the USA and some foreign countries. Currently, Amazon has a fleet of 74 aircraft with more on order. Vast majority of the planes are leased, but Amazon has started buying its own. Amazon purchased 11 aircraft in January 2021 that will be operational in 2022 or possibly sooner.

Amazon’s focus is to cover the U.S. since the US is its main package delivery market. Amazon is expanding its airport gateway operations. Amazon is mostly using small airports that are located close to its package sorting and fulfillment centers.

The Amazon Prime Air name is now reserved for its future autonomous drone delivery network. Amazon started developing delivery drones in 2013. Amazon got FAA permission to start testing its drones in June 2019. By August 2020, the Amazon drone fleet experience surpassed several thousand flight hours. Amazon received FAA permission to test autonomous drone deliveries at the end of August 2020.

Amazon’s drones use a sensor-based electronics system to avoid crashes. Amazon is also developing its own autonomous drone management system that will provide low-altitude drone operations. The drone management system will enable communication and cooperation between drones regardless of who is operating them.

Amazon has not started package delivery via drones to consumers yet. Autonomous drone deliveries are clearly an important part of its long-term vision for 30-minute delivery windows.

This episode includes our conversation with Robin Gaster, author of the book “Behemoth: Amazon Rising.”

Ground transportation
For Amazon, ground transportation is a strategic weapon to deliver its e-commerce products faster and with less customer cost than its online and retail competitors. Amazon is using ground transportation in two main ways:

  • Long-haul and middle-mile transport between airport gateway locations and package sorting and fulfillment centers. Trucks are the main vehicles used for these transport routes. Autonomous trucks are sometime in the future.
  • Last mile delivery from fulfillment centers and Prime Now hubs to the customer locations. The main vehicles used are vans, but special electric bikes for goods delivery are used in some cities. Use of airborne drones and goods AVs are only a question of when and how fast.

Amazon’s current trucking strategy is to build a large third-party logistics network that is mostly based on small and independent companies. The recent addition of a proprietary truck brokerage app, Amazon Relay, is a key to grow and manage the transport business activities between Amazon and its Relay users. With this strategy, Amazon has built an in-house network of truck drivers who can pick up loads on a freelance basis.

Amazon takes an active role in helping entrepreneurs start and manage their trucking or delivery business. This has been a key to building Amazon’s delivery and trucking operation. A 2020 Amazon report provided some numbers on Amazon’s impact on small business including Amazon’s number of drivers in Amazon’s network. The link is here.

The table above show that Amazon has 82,000 last mile drivers with over 1,700 Amazon delivery partners. Many of the Amazon delivery partners participate in a program called Delivery Service Partner (DSP). Through its DSP program, Amazon helps entrepreneurs build their own business delivering Amazon packages. The DSP program provide discounts on a suite of assets and services, including vehicle leases and insurance. As part of DSP, there are 50,000 Prime-branded last mile vehicles on the road delivering packages.

Amazon auto
One of Amazon’s Rivian vehicles, in Los Angeles (Source: Amazon).

Middle mile and long-haul service providers are small businesses that haul Amazon packages to and from fulfillment centers, and in and out of air hubs. They can build their business with delivery volume from Amazon. They have access to Amazon’s growing delivery technology and receive hands-on training. This has resulted in network of 13,000 drivers for Amazon’s middle-mile and long-haul transport business. However, these drivers can work for other companies if they want to.

I was able to find some data on Amazon’s transport equipment as shown in the above table. Amazon has around 2,000 Prime-branded trucks primarily from Volvo and Kenworth. Many of these trucks are equipped with driver monitoring systems (DMS) for safety. Amazon also have around 30,000 Prime-branded trailers.

Amazon is rapidly growing its van fleet for last mile delivery and is shifting to battery electric vehicles (BEVs). Amazon ordered 20,000 Mercedes-Benz Sprinter vans in September 2018. These are being used in Amazon’s DSP program. In February 2020 Amazon ordered 100,000 BEVs from Rivian and deployment of these vans started in Los Angeles in January 2021.

The last item is the above table is about Amazon’s delivery centers. Amazon has around 70 package sorting centers and about 60 Prime Now hubs. Prime Now hubs are used to shorten deliver times to a few hours in some cities. Amazon has around 110 large fulfillment centers in the U.S. and another 75 international centers.

Amazon is likely to open a large number of small fulfillment centers in the future. This may be needed to compete with Walmart’s thousands of stores that can provide rapid product delivery of online orders.

Other interesting Amazon projects
Since one of Amazon’s guiding principles is “passion for invention” it has and is developing many interesting and innovative products and services. The next table summarizes some of these innovations. Most of these products will have some impact on the auto and/or transportation industries.

Most of Amazon’s innovation create products and services that require lots of chips, electronics, IT systems and even more software—from embedded software clients to cloud software and SaaS.

Alexa is already well established in homes and many other systems. Alexa is also growing rapidly in car infotainment systems. Currently, Amazon’s Alexa website lists 27 car brands that come with Alexa functionality with a total of over 180 auto models. The brands include Audi, BMW, Buick, Cadillac, Chevrolet, Chrysler, Dodge, Ford, GMC, Honda, Hyundai, Jeep, Kia, Lexus, Lincoln, Mercedes-Benz, Mini, Nissan, Toyota, VW and Volvo.

Key to Amazon’s In-Garage Delivery is a secure and convenient way to receive Amazon packages and groceries inside your garage. This requires select garage door openers that work with one-time codes that the delivery person can use to open the garage for drop off. The service was first launched in 50 cities in April 2019 to Prime members. In November 2020, the coverage expanded to over 4,000 cities. The potential user base is in  tens of millions of Prime members in the United States.

In April 2019 Amazon announced its Project Kuiper, a large broadband satellite constellation for broadband internet access. It may take up to a decade to deploy all 3,236 satellites planned for the constellation at a cost in the $10 billion range. Amazon won approval from the Federal Communications Commission to deploy the satellites, with at least half of them to be launched by 2026. Amazon is developing innovation antenna technology that should result in a lightweight, low-cost customer terminal with an antenna that’s only 12 inches wide. The satellite network will likely be providing a lot of bandwidth to Amazon and its Prime customer in a few years.

Amazon’s Project Kuiper is competing with SpaceX’s Starlink satellite constellation for broadband internet access. which already has 1,000 satellites launched and is planning for a total of 11,000 satellites.

Amazon’s Climate Pledge Fund — with an initial $2 billion in funding — will invest in visionary companies whose products and solutions will facilitate the transition to a low-carbon economy. The fund is focused on multiple technologies that will impact the auto and transportation industries:

  • Transportation and logistics
  • Energy use, storage, and management
  • Manufacturing and materials
  • Circular economy
  • Food and agriculture
  • Renewable energy technology

Amazon’s investments in wind and solar power will supply its operations with more than 18,000 gigawatt hours (GWh) of renewable energy annually. If successful, Amazon will achieve 100% renewable energy by 2025. Amazon is investing in building 26 new utility-scale wind and solar projects in Australia, France, Germany, Italy, South Africa, Sweden, UK, and U.S.

A recent Amazon project, named Vesta, received considerable coverage in the last week—a home robot. Information from Business Insider says it is a small home robot with cameras, display, microphone, and Alexa user interface. It will need substantial amount of processor, memory, sensor, and other chips. It sounds like proto-type product that with unknown market entry timing.

Next Amazon column
The next column will focus on two topics that has major implications for the auto industry — Amazon’s autonomous vehicle activities and the growing influence and use of AWS in the auto industry.

This article was originally published on EE Times.

Egil Juliussen has over 35 years’ experience in the high-tech and automotive industries. Most recently he was director of research at the automotive technology group of IHS Markit. His latest research was focused on autonomous vehicles and mobility-as-a-service. He was co-founder of Telematics Research Group, which was acquired by iSuppli (IHS acquired iSuppli in 2010); before that he co-founded Future Computing and Computer Industry Almanac. Previously, Dr. Juliussen was with Texas Instruments where he was a strategic and product planner for microprocessors and PCs. He is the author of over 700 papers, reports and conference presentations. He received B.S., M.S., and Ph.D. degrees in electrical engineering from Purdue University, and is a member of SAE and IEEE.

Leave a comment