TuSimple Touts Milestones, But Investors Want Overhaul

Key Takeaways:

• TuSimple remains mired in controversy due to economic espionage allegations against its CEO and two co-founders
• The company has downshifted to focus on L2 autonomous driving technology from a previous focus on more-advanced L4 in a bid to commercialize faster

By Doug Young

Former autonomous truck driving superstar TuSimple Holdings Inc. TSP is boasting of two important new milestones, including the latest announced this week involving a new certification. But investors are more focused on the company’s rapidly accumulating problems, led by a reported economic espionage investigation against its two co-founders and CEO.

The company has also missed two Nasdaq deadlines – one for filing its third-quarter report and another for its 2022 annual report. Those lapses appear related to TuSimple’s lack of an official outside accountant, as it looks for a firm that will inspect and certify its financials.

Frankly speaking, finances are probably the least of TuSimple’s concerns right now. The company is actually spending relatively little at the moment, following a restructuring in December that saw it lay off a quarter of its workforce as it slipped into cash-conservation mode.

Some unaudited third-quarter data it released last October showed the company had just over $1 billion in cash at the end of September. That looks like more than enough to keep the company going for at least the next couple of years at its current cash burn rate, since its loss from operations in the third quarter totaled $119 million.

Instead, the biggest issues for TuSimple right now are convincing investors it has commercially viable technology that can start generating significant revenue soon – a prospect that looks difficult. The company will also need to convince investors it’s not in danger of being majorly penalized if Washington finds its co-founders and current CEO engaged in economic espionage. And last but not least, the company must find a reputable accountant soon to avoid delisting – another challenge that looks difficult given all its current problems.

All that said, we’ll return to TuSimple’s two new milestones that it’s trumpeting to show it is still on the road to commercializing its technology. The latest of those saw the company announce earlier this week that its policies, processes and procedures for test driver selection, training and oversight met requirements by TÜV SÜD, an industry certifying organization.

Such certification is certainly positive, though it doesn’t really say anything about TuSimple’s actual autonomous truck driving technology. Instead, it simply testifies that the company is using industry-accepted standards to test its technology.

That announcement came about a month after TuSimple announced it passed another important milestone by logging more than 10 million driving miles for its autonomous truck fleet. While that looks impressive, it marks a slight slowdown from the rate of new test miles the company was previously accumulating, probably reflecting its recent move into cash-conservation mode.

Not surprisingly, investors weren’t too impressed by either of the latest milestones as they remained concerned about the bigger issues we’ve already discussed. TuSimple’s shares managed a mild 4.5% rally after the 10 million test mile announcement in mid-March, though they fell by a similar amount after the latest TÜV SÜD certification announcement this week.

Technology Shift

Any seemingly big stock movements at this point are really almost trivial, since TuSimple’s stock has lost about three-quarters of its value since all the big controversy involving the economic espionage issues broke out last October. The company was once at the head of its class due to the relatively advanced state of its technology. But following the sell-off, its stock now trades at a paltry price-to-book (P/B) ratio of just 0.25, a fraction of the still-unimpressive 0.93 for Aurora Innovations AUR and also trailing the 0.32 for Embark Technology EMBK.

All that said, we’ll take a closer look at some of the key issues now dogging the company, which it will need to overcome if it hopes to return to its previous glory.

In terms of its core technology, the company made a major change over the last six months by shifting its focus to L2 driverless technology from its previous focus on L4, according to a LinkedIn post by co-founder Hou Xiaodi, who listed that shift as one of his reasons for resigning from the company’s board in early March, severing his final executive link with the company.

Driverless technology is divided into six levels, the lowest being L0 that is basically conventional driving and the highest L5 that is fully autonomous with no human assistance required. L4 is generally considered fully autonomous, and was TuSimple’s previous goal. But following a lack of quick road to commercialization, the company has downgraded to L2 technology that still requires an “active and engaged” driver to function.

Such a downgrade looks relatively prudent, as it shows the company is more focused on commercialization rather than fantasizing about truly driverless technology that could still be years away. And if it can get some L2 technology on the road in mass use to earn some real money, it can then slowly upgrade to its later goal of L4 and maybe even someday L5.

Then there’s the economic espionage issue that’s trickier. Much of that is related to the company’s connection to another similar company in China that has ties to TuSimple’s co-founders. Hou Xiaodi is one of those co-founders and has pretty much left TuSimple following his resignation from the board in March. The other co-founder Chen Mo also has no operational role at the company now. Current CEO Lu Cheng is the only one of three people reportedly being investigated for economic espionage who is still at the company.

The absence of Hou Xiaodi and Chen Mo from the company looks like a positive factor toward reducing the risk from the economic espionage allegations. Lu Cheng’s continued presence could still pose some risk, though he seems like the least risky of the trio due his lack of apparent ties to Hydron, the Chinese company that was the source of the espionage accusations.

Probably the best thing for TuSimple right now would be a complete divorce from Hou Xiaodi and Chen Mo, who continue to be linked to the company through their 59% combined voting stake. Their departure could help remove a major risk factor, which could then help to attract a new accountant that would allow the company to resume issuing financial reports.