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Why did TuSimple’s share price stall on its IPO?

Despite the autonomous vehicle investment trend continuing to pick up speed, TuSimple Holdings’ [TSP] share price failed to accelerate when it debuted recently on the Nasdaq Global Select Market, falling 1.2% from its opening price to $40 on 15 April.

The self-driving truck company had priced its initial public offering at $40 a share, which was above its previous range of $35 to $39, Bloomberg reported. With close to 34 million shares sold, the company reportedly raised $1.35bn from the listing.

$1.35 billion

Amount raised in TuSimple's IPO

While TuSimple’s share price reached an intraday high of $41.50 on 15 April, the stock has since failed to hit above that level. Shares in the California-based company have dipped in the intervening week, falling 4.9% from its close on 15 April to $38.05 on 22 April.

The downward trend saw more than $400m wiped from the stock’s market valuation in the past week. According to Reuters, TuSimple’s share price had an $8.5bn valuation after the day of its listing. However, its market capitalisation was closer to $8.06bn at 22 April’s close.

It’s not just the stock’s market value that has dropped off since its debut but the amount of volume being traded as well, falling 98% between 15 and 22 April, to just 469,203.

 

Fuelling future growth?

Like most unicorns, TuSimple’s business operated at a loss at the time of its listing. According to its prospectus, the company’s net losses had grown close to 300% over the past three years, from $45m in 2018 to $85m in 2019 and $178m in 2020.

Because of the high research and development costs associated with building and testing its technology and network, TuSimple said that it expects to continue making “losses for the foreseeable future”.

"[TuSimple expects to continue making] losses for the foreseeable future"

The company had grown its revenue from just $9,000 in 2018 to $1.8m last year, marking a significant climb. According to the Wall Street Journal, the primary revenue generator for the business had been as a traditional freight haulier.

Through a partnership with Navistar International [NAV], which it penned in July last year, TuSimple expects to start selling a fleet of purpose-built L4 autonomous semi-trucks to the US by 2024. With more than 5,700 reservations for its trucks, the company’s road map to becoming profitable looks to be taking shape.

Co-founded in 2015 by Cheng Lu, the company’s president and CEO, and Xiaodi Hou, the company’s chief technology officer, TuSimple has amassed a workforce of approximately 800 employees. 

“Trucking, as we all know, is the backbone of what moves goods in America… At the same time, trucking is faced with some challenges, including driver shortage, driver turnover and increasing costs of safety and environmental issues.” Lu told CNBC.

"Trucking, as we all know, is the backbone of what moves goods in America" - Cheng Lu, TuSimple co-founder, president and CEO

He explained that the company’s subscription service, the Autonomous Freight Network, would include elements such as high definition maps with updates, as well as pre- and post-trip planning and emergency rescue and teleoperations.

 

A crowded market?

TuSimple’s debut comes at a time when many startups, automakers and large technology companies are innovating in the autonomous vehicle market.

Alphabet’s [GOOGL] Waymo, Tesla [TSLA] and Nio [NIO] are some of the major players in the space. The Global X Autonomous & Electric Vehicles ETF [DRIV] had holdings in each of these stocks as of 22 April, at 3.79%, 2.48% and 1.19% weightings, respectively.

While TuSimple was not yet held in the fund at the time of writing, there was another ETF issuer that couldn’t wait to snap up its shares. Catherine Wood, the CEO and CIO of Ark Invest, reportedly purchased more than three million shares of TuSimple on its first day of trading.

The firm, which is focused on investing in disruptive innovation companies, bought around 2.4 million shares for its ARK Innovation ETF [ARKK] and 728,536 for the ARK Autonomous Technology & Robotics ETF [ARKQ], according to Business Insider.

Wood wasn’t the only investor bullish on the company’s potential. Michael McGrath, author of the book Autonomous Vehicles: Opportunities, Strategies, and Disruptions, sees the long-haul trucking market as ripe for early implementation of autonomous driving technology.

“TuSimple has an excellent platform strategy and strong business model to take advantage of this opportunity,” he wrote in Seeking Alpha.

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