TuSimple: Potential Delisting Risk as Executive Drama Continues (NASDAQ:TSP)

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Alex Wang

YourSimple (NASDAQ:TSP) Senior management shake-up continues, as former CEO Cheng Lu, who was ousted from his post in March, has been re-elected as CEO after the dismissal of Dr. Xiaodi Hou. Hou and co-founder Mo Chen, who was indirectly involved in the removal of Hou and the FBI and SEC investigations coming from his Chinese autonomous hydrogen truck company Hydron, removed TuSimple’s board of directors, leaving the company out of compliance with Nasdaq listing rules and at risk of delisting. This executive drama coupled with a challenging road ahead for trading after facing delays earlier in the year presents another headwind for stocks.

Boardroom drama and risk of exclusion

In the span of eight months, TuSimple has gone through two executive leadership teams, first letting go of new CEO Cheng Lu for his now-fired replacement, Dr. Xiaodi Hou.

TuSimple co-founder Mo Chen founded Hydron, the startup behind the aforementioned investigations for funding and potential technology transfers between the two; now he has returned as executive chairman of the board of directors and he and Hou voted to remove the other four directors.

Now, the TuSimple board is made up of Hou, Chen and Lu, who were appointed by Hou, the sole director of the board. It’s a confusing power shift that has occurred in the past two weeks after Hou’s firing.

Following the board sweep, TuSimple said it’s “no longer meets with Nasdaq Listing Rules 5605(b)(1), which requires the Board to be comprised of a majority of independent directors, 5605(c)(2)(A), which requires the Company’s Audit Committee is comprised of at least three independent directors, and 5605(d)(2), which requires that the Company’s Compensation Committee be comprised of at least two independent directors.”

The company intends to return to compliance with the rules “by or before the end of the applicable cure period”, but the intention to do so and the fact of doing so are two different things. With boardroom drama, senior management reshuffling and pending investigations, coupled with a likely loss of investor confidence in the company and the audiovisual industry in general, TuSimple could find it difficult to fill its board and recover compliance as it has been affected. for these recent events.

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At risk of more delays?

In addition to pending investigations into TuSimple’s alleged relationship with Hydron and boardroom drama, broader leadership changes occurring within the C-suite may threaten TuSimple’s already delayed time-to-market.

Lu said he returns as CEO “with a sense of urgency to get our company back on track,” adding that “it is critical that we stabilize operations” and “regain the trust of our shareholders.” This only raises questions about execution: TuSimple already delayed the production of autonomous trucks once , and in eight months (since Lu’s ouster), highlights the lack of significant progression on the commercialization track.The word choice again raises concerns that the company is struggling: “stabilize operations” and “urgency ” to “return to normal”.

In May, TuSimple announced that “it is delaying commercialization of its purpose-built autonomous trucks through 2025, while building on the modernization of existing Navistar equipment to expand driverless routes from Arizona to Texas.” delay revenue generation at scale, as full commercialization with its own trucks equipped it won’t happen until 2025 or later. FreightWaves said at the time that this “slowdown by the recognized leader in autonomous trucks suggests that the 2024 time-to-market may be too aggressive.”

Updated on Q3TuSimple’s latest agreed timeline with Navistar targets production-intensive prototypes to be ready in 2024, with an exact production start date for some times in 2025. TuSimple expects its first carrier-owned capacity revenue in 2026 , such as spin-offs from partners like Loadsmith, which has booked 350 trucks.

TuSimple Planned Commercialization Schedule

YourSimple

Other details culled from the third quarter report raise the potential for some stops in trading. Truck bookings showed no quarter-on-quarter growth and were flat at 7,485. Revenue miles driven in the quarter increased just 4% to 1.212 million, while revenue per mile decreased slightly. Revenue increased just 2% quarter-over-quarter to $2.7 million. Dealing with multiple investigations while having C-Suite brand instability could continue to depend on commercialization, increasing the risk that commercialization will be delayed yet again.

Critical Security Research

A safety investigation by the FMCSA and NHTSA also increases the marketing risk. In April, a TuSimple truck hit a guardrail while traveling on I-10 outside of Tucson. YourSimple blamed”human errorfor the truck that swerved onto the center guardrail, saying in a file that “the ADS was not working at the time because the computer unit had not initialized, and should not have been attempted to activate.” internal report seen by the WSJ It said that “a person in the cockpit had not properly reset the autonomous driving system before activating it, causing it to execute an outdated command.” Philip Koopman, AV Security Expert said The incident “shows that the tests they are doing on public roads are highly insecure.”

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The incident occurred with two safety drivers in the cab, even as TuSimple moves forward with road test drives and plans to have active, continuous drive-thru operations by the end of 2023. Until the safety investigation findings are released, the The potential for a deeper security issue within TuSimple’s self-driving software and the risk of delays in driver exit operations remain.

Positive unit economy of scale

Aside from the cloud of headwinds circulating around TuSimple, the company has a relatively strong cash position with fair visibility into a burn rate, suggesting 6-8 quarters before capital is definitely needed.

TuSimple has roughly $1.07 billion in cash, burning around $100 million per quarter, as operating expenses have been relatively flat for the past few quarters. TuSimple does not have any debt and could turn to the debt market for a high coupon note in case it needs to raise cash in late 2023 or early 2024. However, interest expenses could add up to ~$100 million per year in the future, but could be absorbed by 2027 if the commercialization goes as expected.

With TuSimple’s go-to-market plan, which operates its own network while charging fleets a subscription to operate TuSimple trucks on their networks, TuSimple is presenting quite an attractive economic unit.

Potential TuSimple Revenue Goals Per Truck

YourSimple

Assuming TuSimple can achieve ~200,000 miles per year per truck, a fleet of 500 TuSimple-operated trucks could generate ~$225 million per year; a carrier-owned fleet of 500 trucks could generate ~$50 million. These would be early trading targets, given the company’s 7,485 bookings. Assuming TuSimple is able to fill ~70% of those bookings by 2027 (for approximately 5,250 trucks), those potential revenue figures could rise to ~$700 million, assuming 90% of the capacity is owned by the carrier.

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TuSimple’s shares have plunged following senior management shake-up and pending investigations, leading to shares trading at just over 0.6x cash and an enterprise value likely close to ($450 million). in mid-November at the current rate of cash consumption. Although no significant revenue is expected until at least 2025, the company has plenty of potential for dilution and/or bankruptcy, as the AV industry is still coming to terms with the abrupt closure of the future real-world robotaxi. Ford (F) and VW (OTCPK:VWAGY) Argo AI.

TuSimple’s potential here lies in its execution: can it get through a handful of serious investigations related to its safety and ties to Hydron, and successfully bring its trucks to market within a decade? Politics will also play a role in the TuSimple Autonomous Charging Network’s national scaling case: much of TuSimple’s revenue potential is on routes within Texas, from Dallas to Houston, for example, or connecting Texas with Arizona. Only 28 states allow driverless AV testing on highways, and connecting corridors from the Southeast to the Southwest will be aided by AV-friendly legislation in Mississippi and Missouri, or at the federal level, which is still up in the air. California could be a key big driver because of the Port of Los Angeles/Long Beach, but the state’s strict stance on self-driving vehicles could impede the rapid uptake of self-driving trucks, even as TuSimple has a test drive permit in the state .

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TuSimple’s executive shakeup and boardroom drama have put the company at risk of being delisted from Nasdaq, due to the loss of compliance with listing rules related to the composition of its board. Delays in commercialization and serious investigations into the company’s security, along with a separate investigation into links with Hydron, significantly increase the risk of execution. The broader developments within the AV industry, highlighted most recently by the closure of Argo AI, emphasize that there is still a long way to go before commercialization at scale. TuSimple has a large booking book, but has yet to show any growth, possibly due to concerns about security; the economics of the target unit are attractive at scale, but the company must get to commercialization and mass production without further major delays or risk running out of cash.

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