Amazon.com, Inc. (NASDAQ:AMZN) struck a deal with Plug Power Inc (NASDAQ:PLUG) about a month ago and the investment was considered a major one for both firms.
Plug Power was struggling prior to the investment but once the news about the deal broke, the struggling firm’s stock rallied by more than 70 percent. It obviously meant that there was a silver lining for Plug power, but more so, there were questions as to why the giant online retailer decided to invest in the fuel cell manufacturer. Sources have reported that the deal will give Amazon the mandate to purchase up to 55.3 million shares valued at around $600 million according to analysts.
Amazon’s interest in Plug Power goes beyond the stock
Questions have been raised as to why Amazon would be interested in the shares of a firm that is struggling. However, Amazon is not just interested in purchasing the company’s stock. According to the terms of the recent deal, Amazon agreed to buy Plug Power fuel cell products worth more than $70 million. The fuel cells will reportedly be used in the company’s distribution centers and warehouses to supplement the power demands.
According to reports, Amazon was interested in the deal because it will be a beneficial move to its fulfilment centers for faster delivery to its prime members. The online retail giant has thousands of custom-made robots in its fulfilment centers. These robots are tasked with picking, packing and sorting the products and they have contributed towards reducing the company’s operating expenses by roughly 20 percent.
Amazon plans to push operating efficiency to the limit and that is where Plug Power comes in. The retailer wants to use the fuel cell manufacturer’s product to provide the power requirements of the robots operating at the fulfilment centers. For example, the company plans to replace the traditional batteries that power its forklifts with the fuel cells. The advantage of the latter is that it provides a steady power output unlike the traditional batteries which are prone to dropping voltage as they discharge, thus causing the forklifts to be slow. Amazon believes that the fuel cells from Plug Power will be a better investment.
Amazon stock closed the latest trading session on Tuesday at $996.70.