Last week, Amazon.com announced that it had made a major investment in fuel cell provider Plug Power, Inc. contingent on the company making major milestones.

The deal reportedly concerns the development of a new generation of hydrogen powered electric forklifts and other equipment services, and is valued at upwards of $600 million. The CEO of Pure Power indicated to media sources that his company plans to work more closely with the online giant in collaboration of the application of fuel cell technology, including faster charge times of powered industrial trucks in Amazon’s customer fulfillment centers. Both companies have been working together for a year now in installing the technology. amazon

Pure Power reportedly had nearly $85 million in total revenues in 21016, and with this agreement, Amazon plans to invest $70 million in equipment purchases this year. With the agreement, Amazon has been granted warrants which will vest when certain spending is met, and if fully vested, Amazon would gain a 19 percent stake in Pure Power.

In the case of material handling equipment, charging of conventional lead acid batteries can take considerable hours of electrical power draw, along with dedicated chargers. Fuel cell technology can fuel equipment in a matter of minutes, saving on energy costs and they do not require dedicated chargers.

In its reporting of the Amazon move, The Wall Street Journal indicated that Wal-Mart has invested heavily in Plug Power’s technology.  In 2016, the global retailer was the only customer contributing more than 10 percent to Plug Power’s top-line revenue. It will be interesting to observe how the Wal-Mart relationships fares now that Amazon has invested in the company.

This deal has parallels to that of 2012, when Amazon acquired warehouse robotics technology provider Kiva Systems for $775 million.  At the time, there was considerable speculation as to why Amazon would pay so much for such technology. Since that time, Kiva robots now proliferate Amazon distribution centers in assisting with picking operations and fulfillment center space optimization. Kiva became an in-house fulfillment center automation innovator for Amazon. The Kiva technology was essentially removed from the market and solely dedicated to Amazon’s internal operational deployment needs. In 2014, a security equities analyst estimated that Amazon was reaping $400-$900 million in annual cost savings as a result of Kiva technology deployment, more than compensating for the investment.

Last year when Amazon began leasing air freighters for dedicated operational support, it also took equity investment positions in the air transport carrier firms providing and operating the air freighters. This is consistent with an Amazon policy for having equity interests in strategic partners. As technologies and services become more mainstream to Amazon’s operational plans, it can leverage its equity investments to secure additional leverage in negotiations.

Bob Ferrari

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