Daily Stock Watch: TuSimple Faces China Investigation

By Duncan Ferris

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TuSimple Holdings (NASDAQ: TSP) is hitting the headlines over controversial links to a Chinese startup which have reportedly attracted the FBI's attention. But is TSP stock a good investment?

TuSimple Holdings (NASDAQ: TSP) has seen its share price tank after firing Chief Executive Xiaodi Hou due to his alleged links to a Chinese startup. Shares slumped by more than 40% on Monday, but have edged 5% higher in early trading on Tuesday.

An internal investigation found improper dealing and a possible transfer of technology between TuSimple and Chinese hydrogen truck maker Hydron, which is helmed by one of TuSimple’s cofounders. The company said it believes some of its staff spent paid hours doing work for Hydron.

According to The Wall Street Journal, the SEC and FBI are now investigating the issue.

As such, Hou has been replaced in the interim by Dr. Ersin Yumer, TuSimple's Executive Vice President of Operations, while Lead Independent Director, Brad Buss, will serve as Chairman.

Buss commented:

"I would like to thank Xiaodi for his many contributions to TuSimple. His knowledge and vision have been invaluable to the development of TuSimple's industry-leading technology and the growth of the company.

“As we look ahead, I am delighted that Ersin has agreed to help us shepherd the company through the next phases of its development. Transparency, good judgment and accountability are critical values to our company.  We take these values extremely seriously." 

For his part, Hou claimed on LinkedIn that his removal from TuSimple was “without cause”.

With the company’s share price shooting all over the place at this news, it’s worth asking whether TSP stock is a good investment.

What is TuSimple Holdings?

TuSimple Holdings is an autonomous technology company that develops autonomous technology specifically designed for semi-trucks in the United States and abroad.

The business intends to produce a line of purpose-built Level 4 (L4) autonomous semi-trucks for the North American market. The company operates its Autonomous Freight Network (AFN) L4 autonomous semi-trucks equipped with its autonomous driving technology.

Its AFN is an ecosystem that consists of L4 autonomous semi-trucks, high-definition digital mapped routes, terminals and TuSimple Connect, a cloud-based autonomous operations oversight system.

The company was founded in 2015 and is headquartered in San Diego, California.

TuSimple Crash

While the company is this week dealing with a leadership overhaul and questions about its relationship with other entities, the company has also faced issues with its technology this year.

April saw a truck equipped with the company’s technology crashing into a concrete barrier on the Arizona interstate. TuSimple blamed human error for the collision, stating that operators had “incorrectly reengaged the autonomous driving mode without completing all of the steps necessary to safely reengage”.

However, a Wall Street Journal report questioned this attribution of blame, citing researchers who claimed that TuSimple’s autonomous technology had turned the steering wheel and caused the crash.

Even so, Xiaodi Hou, the company’s now former CEO, emphasised that this was the only crash the business’ vehicles had suffered in seven years, and the business says it has since upgraded its technology to check for human error.

TSP Stock Financials

TuSimple released its third-quarter earnings on Halloween, showing 49% growth in revenue to $2.7m. The company attributed this growth to increased utilization of its existing assets and year-over-year price increases.

However, loss from operations came in at $119.7m as sales were majorly outweighed by R&D and general and administrative costs. The company said it had cash, cash equivalents and short-term investments of $1.07bn at the end of the quarter.

TSP shares sit at $3.62 at the time of writing, having fallen by approximately 90% across the year to date. The last 12 months have seen the stock hit a high of $43.79 and a low of $3.51.

The business does not distribute a dividend to its shareholders.

TSP Growth Potential

While TuSimple is, of course, mired by negative publicity today, the company does still have the potential for growth. 

The business already has partnerships with major players in the tech, haulage and logistics sectors, including the likes of NVIDIA (NASDAQ: NVDA), UPS (NYSE: UPS), DHL (OTCMKTS: DPSGY), Scania, Union Pacific (NYSE: UNP) and Navistar. Additionally, the business says it has 7,485 reservations from blue-chip customers.

What’s more, the company says increasing e-commerce demand for fast shipping and shortages of drivers means that autonomous technology is in high demand. Additionally, the company says its technology can offer businesses cheaper costs and fewer accidents. It estimates the global freight truck market as being worth $4trn, pricing the US market at $800bn.

Is TSP Stock a Good Investment?

While the company might be a leader in autonomous truck driving technology, the various controversies surrounding the business are difficult to ignore. 

On the one hand, dodgy dealings are never good for business, and a thorough investigation by regulators could unearth even more skeletons in TuSimple’s closet.

Secondly, there are clearly serious questions to be asked about the effectiveness and safety of the business’ technology. Any further incidents could lead to serious issues for an already troubled business.

TSP may well rise from the ashes and see its share price bounce back if stability is regained, and it can take advantage of the massive opportunity that is evident in the automated trucking space, but a company steeped in so much controversy has a lot going against it. As such, backing TSP stock looks like a very risky idea in the current climate.

The 14 analysts covering the stock listed by the Wall Street Journal have a consensus Hold rating for the stock, with an average price target of $9.43.

If you enjoyed this article, why not read our analysis of ESSA Pharma and DexCOM?

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Topics:
Road and Rail
Automation
Air Freight and Logistics
Industries:
Industrials
Companies:
Tusimple

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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