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Reported Federal Probes Reignite Concerns Over TuSimple’s China Dealings
By Alan Adler of FreightWaves
A report of multiple federal probes of autonomous trucking developer TuSimple Holdings is reawakening concerns of coziness with China that led the U.S. government to take limited oversight of the company in February.
The FBI, the Securities and Exchange Commission and the Committee on Foreign Investment in the United States (CFIUS) are looking into TuSimple’s dealings with Hydron, a China-based company founded by TuSimple co-founder and former CEO and Executive Chairman Mo Chen, The Wall Street Journal reported Sunday.
Hydron plans to make hydrogen-powered autonomous trucks that TuSimple is looking into buying, the Journal reported. The government wants to know whether and how much of San Diego-based TuSimple’s intellectual property was shared with Hydron.
The revelations come as TuSimple seeks a possible sale or spinoff of its Chinese business. A split would help mollify CFIUS concerns about technology transfer between the U.S. and China businesses. TuSimple is expected to update those plans when it reports third-quarter earnings after markets close on Tuesday.
Surprise succession
A surprise succession in March elevated co-founder Xiaodi Hou to CEO and chairman. That followed the conclusion of an earlier CFIUS probe. Two Chinese directors with ties to China’s technology giant Sina Corp. left the TuSimple board when their terms expired. Chen stepped down as TuSimple executive chairman at the time and launched Hydron in June.
Meanwhile, TuSimple is focusing on its commercialization plans for autonomous trucking. Autonomous veteran and engineer Ersin Yumer is one of founder Xiodai Hou’s top leaders as executive vice president of operations.
“One might [ask], ‘What is this tech guy doing in operations?’” Yumer asked FreightWaves rhetorically in a recent interview.
“After you run your tech to a place where you know you can work the redundancy, the next stage is commercialization. Nobody in the industry is addressing the big elephant in the room.”
Yumer came to TuSimple from rival Aurora Innovation, which is pursuing both ride-hailing autonomous cars and commercial trucking. He was an engineering director at Uber’s Autonomous Technology Group, which Aurora acquired in an all-stock transaction in December 2020.
Before that, Yumer led perception machine learning at Argo AI, which announced last week it is shutting down. He has a doctorate from Carnegie Mellon University, a hotbed of autonomy.
Rising through changes
At TuSimple, Yumer initially ran the machine learning and later the algorithms teams before becoming executive vice president of operations. As many of the public faces of TuSimple — CEO Cheng Lu, CFO Pat Dillon and Chief Legal and Administrative Officer Jim Mullen among them — left the stage following Hou taking over as chairman and CEO, Yumer gained influence.
“When you look at it from the outside and just look at the shallow tip of the iceberg you say, ‘Oh my God, all of these folks are leaving. What’s happening?’” Yumer said. “But it’s not uncommon for a CFO to leave shortly after their CEO.”
The departures and his rise exemplify a transition from a startup going public to one defining its reason for existence. Even being first to remove the driver from a Class 8 truck is just a demonstration of what’s possible. TuSimple has done it 10 times.
Highway mishap spawns legal actions
Instead of routinely issuing news releases about operational milestones as some of its competitors do, TuSimple keeps its head down. Or tries to.
In December 2021, TuSimple celebrated its first successful driverless pilot. The test covered an 80-mile nighttime journey west on Interstate 10 from Tucson, Arizona, to Phoenix.
Less than five months later, a Navistar International LT upfit with TuSimple’s Class 4 autonomous system responded to an old computer command when a safety driver activated the autonomous system. The truck jerked to the left across a lane of I-10 traffic near Tucson, striking a concrete median as a safety driver tried to wrest control of the truck.
TuSimple temporarily grounded its fleet of nearly 100 trucks and conducted an internal investigation. The National Highway Traffic Safety Administration and the Federal Motor Carrier Safety Administration came calling. Both have open investigations, but neither has asked TuSimple for any changes, Yumer said.
Critics of autonomous technology gained oxygen from extensive media coverage about the April 6 incident. A lawsuit accusing TuSimple of misrepresenting its technology readiness awaits action in the U.S. District Court for the Southern District of California.
Separately, a raft of plaintiffs attorneys face a Monday deadline to find a lead plaintiff to front investors who lost more than $100,000 in TuSimple Holdings,. The company went public in April 2021 at an $8.5 billion valuation.
TuSimple’s financial runway
Such legal distractions, common to many young companies that have seen their stock values plummet over the last year. TuSimple shares are down 83% this year.
Analysts expect a Q3 loss of 58 cents a share. Revenues from supervised autonomous freight hauling are projected at $2.32 million, up 29.6% from a year ago.
Yumer is proud TuSimple took the more arduous route to public listing through a traditional initial public offering instead of taking the shortcut offered by merging with a special purpose acquisition company.
“The analysts we interact with believe in the steps we are taking in terms of where we are pushing the industry,” Yumer said.
Five of eight firms that cover TuSimple recommend a buy and three a hold on the stock, according to TipRanks. The average share price target is $14.42, a 128% upside to Friday’s closing price of $6.31.
$1 billion on the books
With about $1 billion on its books at the end of the second quarter and a burn rate of $300 million to $400 million a year, TuSimple has at least three years of runway without raising new capital. TuSimple is in line for a cash infusion in the China operations are spun off, .
“In the ultra-fast growth period, we were basically pushed by the capital to grow faster than we needed to,” Hou told Morgan Stanley’s 10th annual Laguna Conference Sept.15. “Now is the time to assess the team and find the true believers in autonomy.”
TuSimple is growing its headcount strategically. But Hou indicated he is weeding out a “small faction of people who joined the company because they felt this is an upswinging company. ‘We just do nothing and enjoy all of the glory coming down from it.’ That time is gone.”
Autonomous cash crunch
Several autonomous SPACs are financially struggling.
Embark Trucks had to conduct a 1:20 reverse stock split to get its shares above the $1 price required to keep its seat on the Nasdaq.
Aurora, which wiped $1 billion in non-cash goodwill from its books because of a decline in its market capitalization below the value of its assets, considered selling itself to a larger technology company like Apple or Microsoft, according to a leaked memo written by CEO Chris Urmson.
Plus abandoned plans for a SPAC when its sponsor, Hennessy Capital, bailed. It is pushing a governed version of its Level 4 autonomy that operates like an advanced driver assistance system, also known as Level 2 autonomy.
Privately held Kodiak Robotics recently borrowed $30 million to shore up its finances.
Operational vs. maintenance cost
For autonomous trucking to have a chance as a viable business, the supply industry must keep up with the computer technology that drives autonomy, Hou said.
“Redundancy is the backbone. The operational cost is now zero. But when you’re operating a redundant system, there’s always something you have to maintain,” he said. “And if you can’t maintain your maintenance costs to a low-enough number, you are never going to commercialize that system.”
Preferred mapping technology
TuSimple remains committed to creating high-definition maps for its Autonomous Freight Network, trucks to follow, though it is slowing down now that it has mapped more than 11,200 miles. Kodiak uses a “light mapping” on the premise that little changes from mile to mile on an interstate.
“HD mapping is one of the backbones of safety,” Yumer said. “If you have the map and if you know it [like] the back of your hand, you are going to be safer.”
What happens when something changes, such as a pop-up construction zone or an emergency lane event with law enforcement and pedestrians present?
“We have collaborative mapping ensuring that any of our trucks at any given time, traveling on a piece of the map that has been mapped before, is actively collecting data from that area while it’s in its operational mode. And that’s correlating that with the HD map and pushing that data in real time to the cloud,” Yumer said.
Tyler Durden
Mon, 10/31/2022 – 17:05
