Key takeaways:

• TuSimple’s third-quarter loss widened as it forecast its expenses for 2021 will come in at upper end of previous guidance
• Severe driver shortage and high fuel costs play in company’s favor, but regulatory risk amid U.S.-China tensions remains a concern

By Mia Shanley

At first glance, self-driving trucking firm TuSimple Holdings Inc. (NASDAQ:TSP) appears to be sitting pretty. A global supply chain breakdown, a driver shortage and sky-high diesel costs that are plaguing the multibillion-dollar trucking industry should play to its advantage as it moves ahead with plans to become a major disruptor. 

But TuSimple’s shares have yet to shift into high gear, and are now trading just below their $40 IPO price from April when the company became the world’s first pure-play autonomous-driving technology company to go public. The stock’s lack of movement also seems to defy some rather impressive performance data included in TuSimple’s latest quarterly report released last week as the company aims to log its first completely driverless trips before year-end.

Already one of the most cutting-edge companies in its category using Level 4 technology – one step from Level 5 that represents truly autonomous driving – TuSimple’s ability to make trips without a back-up driver would represent a major milestone toward commercializing its technology.

The company is racing against the likes of Volvo Trucks and freight technology firm Einride, which are already testing Level 5 trucks in Sweden under controlled, short distance, and low-speed environments, according to the Summit Truck Group.

In announcing its latest quarterly results, the company said it has logged 160,000 autonomous miles of paid freight haulage over the last two-and-a-half years for UPS North American Air Freight (NAAF) services, a milestone likely to draw interest from retailers like Walmart and anyone in the business of moving large amounts of goods. It also posted a drastic decline in costs and improved efficiencies thanks to reduced “harsh” braking, accelerating and turning.

TuSimple said in its latest report it had booked a total of 6,875 truck reservations at the end of September. Not to be outdone, Embark Trucks said last month it had received 14,200 reservations for Embark-equipped autonomous trucks ahead of its own expected 2024 commercial launch.

With so much competition, TuSimple has been working hard to make itself stand out from the crowd.

It made headlines this month with research showing that its technology led to a 13% savings on fuel compared to human drivers when driven at 55 mph to 68 mph. It has also played up its role in helping to resolve a shortage of truck drivers in the U.S., saying it is not trying to take away jobs but fill vacant ones.

The American Trucking Associations has estimated that in 2021 the truck driver shortage will hit a historic high of just over 80,000 drivers and that the shortfall could surpass 160,000 in 2030.

Highly Valued

There is no shortage of investor interest in companies keen to bring the latest major new disruption to the lucrative automotive sector. This week, electric pickup truck maker Rivian (NASDAQ:RIVN) rose almost 30% in its Nasdaq trading debut, giving it a nearly $100 billion market cap and making it the world’s biggest IPO in years.

But autonomous technology investment is not for the faint-hearted, with valuations extremely high as people bet on who will be the big winners. TuSimple is among those, with a current price-to-sales ratio (P/S) of over 2,000.

While the company’s latest results show its revenue tripled year-on-year in the third quarter, the latest three-month figure remained relatively modest at $1.8 million. Meantime, its net loss widened to $116 million compared with $80 million a year ago.

It could be years still before clear winners emerge. TuSimple, which is testing its technology in both the U.S. and China, though the U.S. is more advanced, acknowledged that fact in its IPO prospectus first filed in March this year. “We are an early stage company with a history of losses, and expect to incur significant expenses and continuing losses for the foreseeable future,” it said.

Such companies must typically spend lavishly on research and development (R&D), and about 80% of the more than 1,300 people employed by TuSimple now work in R&D. Reflecting the big spending required, the company said it expects R&D, administrative and capital expenses for the full year to all reach the upper end of previous guidance ranges.

But cash shouldn’t be an issue for TuSimple anytime soon, after it raised about $1 billion in its April IPO. It ended the quarter with $1.5 billion in cash and cash equivalents, giving it a few years of breathing space based on its current loss rate.

The potential to disrupt the stodgy automotive industry is enormous. A joint study last week by Ryder System and Georgia Tech showed that autonomous trucking technology could create 29% to 40% in cost savings for the sector. Morgan Stanley has put annual savings in the U.S. alone at $168 billion thanks to reduced labor, lower fuel costs and fewer accidents.

Also, autonomous trucks may be closer to reality than self-driving cars since they move along fixed, predictable highway lanes instead of urban centers filled with far more unexpected obstacles.

But TuSimple is not without its own supply chain issues, something which was addressed on the earnings call following release of its latest results.

“We are having some challenges receiving new trucks, receiving new parts,” TuSimple CEO Lu Cheng said. “We have suppliers that have labor issues… And so, we’re continuing to work hard to overcome those near-term challenges.”

Another concern surrounds its largest shareholder, Sun Dream, which has 20% of TuSimple’s Class A shares and is controlled by Sina Corp., one of China’s earliest internet companies that is also parent of the country’s popular Twitter-like Weibo. With tensions between the U.S. and China rising over issues like data security, some believe that U.S. regulators could force Sun Dream to sell its stake.

(Disclosure: The reporter owns shares in Nvidia, one of TuSimple’s investors)