Breakingviews - TuSimple $8 billion IPO destination looks out of range

Line of trucks wait to get to Germany, following German restrictions to cross from the Czech Republic into its territory due to the coronavirus disease (COVID-19) pandemic, in the highway near Usti Nad Labem, Czech Republic, February 15. 2021. REUTERS/David Cerny - RC2ZSL90N9WQ

HONG KONG (Reuters Breakingviews) - TuSimple is driving too hard with its initial public offering. The autonomous truck company on Wednesday revealed it’s steering towards an $8 billion valuation. That’s 4,260 times last year’s sales, based on the midpoint price indicated of $37-a-share. The company has promise. But it’s operating in a part of the industry that won’t be on the road for years – and is hauling a trailer full of governance issues.

Founded in 2015, the San Diego-based company has more than 240 patents for its self-driving technology. Navistar and its rival and soon-to-be owner Traton, Volkswagen’s publicly traded truckmaker, are collaborators. UPS and other truck buyers are on board. And BlackRock, Fidelity Management and Capital World may become cornerstone investors. TuSimple is hoping all this will help it disrupt what it estimates is a $4-trillion-a-year market for global truck freight.

TuSimple, though, has virtually no revenue – just $1.8 million in 2020. And while the company is targeting 2024 for commercial production, actual use of fully driverless tech on open roads could be several more years away as authorities decide whether and how to allow it.

A few other hazard lights are flashing, too. Supervoting stock will give co-founders Mo Chen – who is also executive chairman – and Xiaodi Hou almost two-thirds of post-IPO voting power with an economic stake of just 24%. All told, insiders hold sway over roughly 80% of the ballot. In addition, three of the seven board members work for the company; a fourth, Sina Chief Executive Charles Chao, will own 13% of the company after the IPO; and a fifth, Brad Buss, used to be a director at Tesla, where the board has done very little to rein in the excesses of boss Elon Musk.

There’s not much hands-on automotive industry experience in the executive ranks. Chief Executive Cheng Lu and Finance Chief Patrick Dillon are financiers by profession. Chen, the executive chairman, ran, among other things, an online-gaming platform and an online used-car marketplace. Meanwhile Sun Dream, the investment vehicle for Chao’s stake, faces a U.S. probe by the Committee of Foreign Investment in the United States over its 2017 purchase of TuSimple stock.

Competition abounds, too, such as from Volvo’s partnership with self-driving company Aurora and Daimler Trucks’ work with Waymo. TuSimple offers promising technology, but its ultimate financial destination at present looks out of range.


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