Wednesday, June 7, 2023

A Shell Game of Projections

By Herb Greenberg (View Archive)

The late Maya Angelou famously said, 'When someone shows you who they are, believe them the first time'...

That goes for companies, too. That's why it comes as no surprise that the wheels seem to be coming off TuSimple ­(TSP), which during the "Everything Bubble" of recent had been the belle of the autonomous vehicle ball.

I've written about this multiple times in Empire Financial Daily, but things have only gotten worse. And to say the company is a mess would be an understatement...

  • It's on the verge of being delisted from the Nasdaq after failing to file its first-quarter 10-Q, last year's 10-K, and last year's third-quarter 10-Q with the SEC. 
  • As part of what appears to be a last-ditch restructuring, it recently lopped off 30% of its workers, the second round of an equal number of layoffs in December.
  • And two weeks ago, a full six months after KPMG resigned as its auditor, it hired a replacement... UHY LLC, a U.K.-based international "network" of independent accounting firms, which isn't known for its roster of public companies... at least not in the U.S.
  • As a result of all this – and despite more than doubling off its May lows – its stock has still lost 95% of its value from its 2021 IPO...

The reality is, predicting trouble at TuSimple wasn't too hard...

All you had to do was a few Google searches and follow the road signs, and there were plenty... all of them in bright neon.

I first started researching TuSimple in the summer of 2021 when I thought I'd try my hand at activist short selling.

A few months earlier, the company had raised $1 billion in a public offering to become the only pure play in autonomous trucking, and within a month its stock had nearly doubled.

It was given credibility by truck manufacturer Navistar, which had signed a joint development deal with TuSimple, while also taking a small stake in the fledgling company.

The thing that really helped hype up the stock, though, was TuSimple's claim from its earliest IPO filings that it would be in commercial production "at scale" with its fully autonomous trucks by 2024.

Yet, I felt something was off...

I found it odd, for example, that the company had started out in China, but with rising U.S.-China tensions, it miraculously and quickly turned itself into a U.S. company before going public. Its headquarters, in fact, aren't far from my house here in San Diego.

And there seemed to be an unusually large number of ex-employees on LinkedIn for a company as young as TuSimple. We got a hold of about a half dozen of them – independent of one another – and they all told the same story about a toxic work environment.

Many were from China, and some seemed to be using TuSimple as a steppingstone to come to the U.S., with the ultimate goal of get more lucrative and seemingly promising jobs 500 miles north in Silicon Valley.

We also spoke with multiple competitors and industry experts who explained how difficult autonomous trucking really is.

Nothing was more astounding, however, than a lawsuit I stumbled on...

Lawsuits come a dime-a-dozen, but given the source of this one – the head of safety – it was hard to ignore. In the suit, he claimed he had been fired for refusing to "simply 'sign off' on safety standards that were not simply met."

He wouldn't talk, but we got a hold of one of his former associates who confirmed aspects of his lawsuit. The case is still ongoing.

Unfortunately for us, as we were wrapping up our work another activist published a report on the company, so even though it missed a few key elements we had we decided we should pivot to other ideas. (It stills gnaws at me, but I digress...)

As it turns out, given the crazy market at the time, the stock actually rose on the report.

The ordeal helped hasten my decision to end my ill-fated stint at activist short selling, leading to my decision to join Empire Financial Research.

Based on the research I had already done, I couldn't let go of TuSimple...

Less than a month after joining Empire, I pushed an essay titled, "The Hype Surrounding Autonomous Trucks and Flying Taxis."

I had found that even before going public, management had a tendency to make overzealous financial projections and claims about when its self-driving trucks would be on the road.

Like a shell game, it was hard to keep track of everything they had been saying. As I wrote at the time...

The company has missed the mark multiple times on various forecasts.

For example, according to tech website The Information, fundraising documents in 2016 claimed that revenues would hit $1 billion (with a "b") by this year. Reality... the company is now guiding for a mere $5 million to $7 million (with an "m"). Consensus is $6.5 million.

TuSimple has been just as unrealistic forecasting when its trucks would be unmanned in commercial operations.

Consider one top executive's 2017 claim that "within the next year" there would be "real trucks in real fleets hauling real freight" using its autonomous technology. (Didn't happen.)

Or the same executive's early 2019 claim that the company would be able to "take the driver out of the cab on trucks" by the end of 2020 or early 2021. A month later, one co-founder said something similar, before repeating the same target a month later in the Chinese press. (Didn't happen.)

Now, the company is saying a driver-out "pilot" or "demonstration" should happen by the end of this year, with the caveat that "the supply chain" could trip it up.

I wrote that in October 2021, and while the company ultimately claimed it met the deadline for a test drive of a driverless truck on a public highway, it did so miraculously a mere nine days before the end of the year. It waited another seven days to announce it.

Then, toward the end of last year, all sorts of hell broke loose...

The company was rocked by internal and government investigations, as well as the firing of CEO/co-founder Xiaodi Hou, who then seized control of the company and rejoined the board. He then fired the board... only then to resign in the wake of more controversy. (You can't make this stuff up.)

In the middle of all this, seemingly wanting nothing to do with such dysfunction, Navistar backed out of its joint development deal.

Then, earlier this year, news reports surfaced saying the Department of Justice was pondering filing espionage charges against the company. TuSimple denied the reports. But since it hasn't filed any of its quarterly results with the SEC for nine months, there has been no formal disclosures or updates about this.

Meanwhile, remember the company's claim that it would be commercially producing trucks "at scale" by 2024? That's been pushed back to 2026.

Not that anybody should be surprised... After all, TuSimple has been showing investors who it really was and is every step of the way. The trick for investors was believing what they saw, not what the company wanted them to see.

Have you stumbled on any companies you're sure are frauds? If so, let me know by clicking here...

I'd love to write a follow-up essay with some of your best short ideas, so don't be shy!


Herb Greenberg
June 7, 2023