Commentary: $1B balance sheet could help limit TuSimple’s reputation damage

 “When winter comes, I’ll keep on moving. Tell me where my friends go.” — Oingo Boingo

The abandonment of TuSimple Holdings by investors, its manufacturing partner and a host of others suggests the one-time leader in autonomous trucking has hit bottom.

It probably has. But its billion-dollar balance sheet suggests it can recover from its wounds, several of which are self-inflicted.

For example, had co-founder Xiaodi Hou resisted the temptation to take over as CEO in March, many of the problems weighing on TuSimple might have been avoided. Instead, his abrupt ouster of Cheng Lu led to most of Lu’s management team leaving. Hou is a technologist — and a really smart one — but he proved unequal to the CEO task.

Hou clashed with the four independent directors, who fired him at the end of October, claiming he withheld information from the board’s audit committee about sharing technology with another startup led by his co-founder, Mo Chen.

Payback was swift. Ten days after they fired Hou, he and Chen combined their 10:1 super-voting power to fire them. 

For a few hours, Hou was TuSimple’s only board member. He brought back Cheng Lu as CEO and Mo Chen as executive chairman, a position Chen had vacated in June. Hou had declared himself chairman as well as CEO in March. 

CFIUS again looking at TuSimple

This intrigue, along with reports that the Committee on Foreign Investment in the U.S. (CFIUS) and the Securities and Exchange Commission were sniffing around, shaved 60% off the already plummeting value of TuSimple stock worth more than $40 a share a year ago. 

With manufacturing partner Navistar Inc. deciding to end a 2½-year partnership to create a purpose-built Class 8 truck featuring TuSimple’s autonomous technology, shares took another hit, closing Wednesday at $1.71, just above their 52-week low of $1.65 during the day Wednesday.

Two weeks ago, auditor KPMG also walked away from TuSimple, not because of its financials, but because of a growing reputational problem.

TuSimple’s experience eerily similar to Nikola

The Navistar walkout is eerily similar to what happened two years ago at Nikola, when General Motors scuttled a tentative deal to buy 11% of the startup electric truck maker. A short seller’s report two days after the announcement alleged a pattern of lies by founder Trevor MIlton. He will be sentenced in January after being found guilty in October of three federal counts of fraud. 

Nikola investigated internally, brought on new independent board members and has slowly rebuilt its reputation, though its future is hardly assured. Money is scarce to scale the expensive business of building electric trucks and creating a hydrogen infrastructure at the same time.

Financial salvation

TuSimple’s financials might provide its salvation. With $1.07 billion on its balance sheet as of the end of the third quarter, it has the money to keep developing its autonomous freight network, continue a move into the Texas Triangle where it has invested heavily, and retain its research and development and engineering talent.

Some employees have headed for the exits amid the tumult. Their stock-based compensation is badly damaged. But the layoff of 80,978 tech employees across the sector, according to consulting firm Challenger, Gray & Christmas Inc., leaves job hoppers fewer options. 

Lu has been back for just three weeks, and he is trying to restore morale with weekly emails on the state of the business.

Long list of must dos

TuSimple has a long list of must-do items. In no particular order:

  • Recruit new independent directors. The Nasdaq requires this for TuSimple to maintain its listing on the exchange. The company is out of compliance with Nasdaq rules on several fronts but faces no immediate delisting threat.
  • File its delinquent 10-Q from Q3. There is a lot of rewriting to do there.
  • Address the super-voting issue. Investors don’t like that 59% of the voting power rests with Chen. Hou agreed to let Chen vote his shares for up to two years. Lu wasn’t coming back if Hou refused to step back — way back — from leadership.
  • Satisfy CFIUS about the relationship between TuSimple and Chen’s Hydron Inc. startup to make fuel cell-powered autonomous trucks. CFIUS qualifiably cleared TuSimple earlier this year of any questionable conduct. 

TuSimple signed a national security agreement and agreed to some federal monitoring. Two directors with ties to Chinese technology giant Sina Corp., an early investor, also exited when their terms expired in June.

  • Find a new manufacturing partner. Resurrecting TuSimple’s deal with Navistar is possible. Its work with Scania, another Traton Group subsidiary, continues. 

Multiple partners are common in autonomous trucking. Rival Aurora Innovation works with both Paccar Inc. and Volvo Group. Independent subsidiary Torc Robotics and Waymo Via are both working with Daimler Truck’s safety redundant chassis.

TuSimple could pick a startup like Nikola, though it has shown no inclination to that, or an Asian truckmaker like Hyundai, which is considering moving into the North American market. Most see having an OEM partner as critical to delivering a truck that can drive itself. 

  • Divest its Chinese business. TuSimple continues looking for a buyer for its Chinese unit, which could add up to another billion to the balance sheet. But reticence by companies to expand in a softening economy is delaying a deal. CFIUS would likely be happy to see the potential for sharing U.S. technology with a Chinese subsidiary removed.

“The past several months have been a difficult period,” Lu told FreightWaves. “We have a lot to do to regain support of our stakeholders. I came back as CEO completely committed to doing that.”

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