Analysis: Normally transparent, TuSimple spoils the change in direction, shaking investors

For a young public company known for its transparency, TuSimple Holdings’ sudden replacement of Cheng Lu as CEO by co-founder Xiaodi Hou showed that unexpected moves are rocking investors. And shaken investors are selling stocks.

Lots of stock.

TuSimple is trading near its all-time low. For the week it was down 32.65%, with most of the damage on Thursday, the day of the announcement..

The timing and immediate execution seemed like a public relations mistake with volatile markets already spooked by inflation fears and how Russia’s invasion of Ukraine could further impact global economies.

Although management succession has been discussed at board level and known to senior management, TuSimple (NASDAQ: TSP) had never mentioned it on quarterly earnings calls or during presentations at analyst conferences.

Perhaps a timed transition would have elicited a less extreme reaction from investors.

Consolidated power

Contractually, Lu will remain as an adviser to Hou for the next year. But he is unlikely to stay that long. This may prove unfortunate for TuSimple as Hou, the company’s largest shareholder, is more technically oriented and less practiced in external communications.


Watch Now: Dissecting TuSimple’s Sudden Redesign


A computer scientist who grew up in China and earned a Ph.D. in computation and neural systems from the California Institute of Technology in 2014, Hou founded TuSimple with his partner Mo Chen in 2015. Chen hands over the chairmanship of the board to Hou but remains a director.

With Lu’s departure, inside directors will occupy two seats instead of three, a nod to a trend in corporate governance toward more independent directors.

Hou and Chen own the vast majority — 62.5% — of Series B shares, which hold 10 times the voting power of Class A common stock.

Short-term noise?

Hou’s initial establishment of TuSimple in the Cayman Islands and significant investment by a subsidiary of Chinese tech giant Sina Corp. were the focus of an investigation by the Committee on Foreign Investment in the United States.

The intergovernmental agency recently concluded the investigation with TuSimple signing a national security agreement and two Sina-linked Chinese administrators agreeing to retire at the end of their current terms. The Sina subsidiary also agreed to suspend its 20% stake in TuSimple.

The CFIUS deal apparently had no bearing on changes at the top. Greater integration of TuSimple’s technology and marketing efforts is something Hou could favor. As a technology company, TuSimple with Hou as the public face can inspire confidence in partners and investors.

“We know Dr. Hou very well and continue to have great confidence in the TSP story, but recognize that this sudden transition comes with some short-term noise/execution risk,” said Ravi Shanker, equity analyst. at Morgan Stanley, in a research note. .

Shanker was bullish on TuSimple, predicting a title break due to the success of its driverless drivers. Overall, TuSimple earns a “Strong Buy” rating based on recommendations from 10 analysts. Nine have strong or moderate buy ratings.

A technology company first and foremost

Former Federal Motor Carrier Safety Administration Acting Administrator Jim Mullen, who spent 15 years at Werner Enterprises, will continue to manage fleet relations. Former Morgan Stanley banker Pat Dillon remains chief financial officer. Four more vice presidents of technology have been promoted in recent months.

Jim Mullen, chief administrative and legal officer of TuSimple, manages fleet relations at the self-driving trucking developer. He is the former Acting Administrator of the Federal Motor Carrier Safety Administration. (Photo: Alan Adler/FreightWaves)

Lu joined the company in 2018 as president and CEO, replacing Hou. He brought 13 years of experience in private equity and investment banking. His ability to raise funds and develop partnerships allowed the technology to mature without the pressure of a short financial run.

Lu’s undergraduate degree in computer science helped him master technology, but not on an intellectual level.

At 40, he has no immediate plans for the sequel, although he won’t be working for a self-driving trucking competitor. As TuSimple’s third-largest individual shareholder at more than 2%, the father of young twins doesn’t need to work, even with the reduced stock price value of $11.45 from more than $79 at his apogee.

Meeting milestones

The list of accomplishments under Lu’s leadership is impressive. TuSimple establishes a lead in the race to commercialize humanless trucking in the cab. Consider it:

  • Completed Dec. 22 the first “driver-driven” pilot test, an 80-mile run between a rail yard in Tucson, Arizona, and a freight depot in Phoenix. (As CTO, Hou, not Lu, decided the timing.) TuSimple has repeated the trip multiple times and plans to make the pilots permanent, expanding into Texas.
  • Was the first autonomous trucking company to go public, raising $1.1 billion in an initial public offering last April that valued the company at $8.1 billion. TuSimple ended the year with $1.3 billion on its balance sheet. It lost $411 million, mostly due to ongoing research and development expenses. Revenue from freight transportation was $6.3 million.
  • Develops a self-contained freight network that covers most of the lower third of the United States, from Tucson to Orlando, Florida, and north to Charlotte, North Carolina. So far he has created high definition maps for thousands of miles of roads. Competitors are primarily focused on testing in largely flat, dry Texas.
  • Attracted many large fleets, suppliers and two railroads as investors and advisers and has 7,325 non-binding reservations for a purpose-built Navistar LT Class 8 truck, it is partnering with Group subsidiary Traton to sell by 2024. TuSimple has retrofitted approximately 70 Peterbilt Model 579s and International LT Trucks used in human-supervised autonomous freight transportation.

“Over the past few years, we basically took an R&D startup and gave it the resources it needed, and we hit our major milestones in the first year as a public company,” Lu said. at FreightWaves. “We are a technology company. It was time for Xiaodi to come back to the fore.

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the FREIGHTWAVES TOP 500 The list of for-hire carriers includes Werner Enterprises (No. 10).

Robert D. Coleman