TuSimple Holdings on Monday fired co-founder Xiaodi Hou as chairman, CEO and chief technology officer amid reported federal probes and an internal investigation of the company’s dealings with China.
An ongoing investigation led by the audit committee of the TuSimple board of directors determined a change at the top was necessary, TuSimple said in a statement. Hou also was removed as a member of the government security committee.
TuSimple lays out rationale in SEC filing
The timing of the board action followed a meeting Sunday afternoon. A Wall Street Journal post around the same time led to speculation that a leak to the newspaper set up the announcement of Hou’s firing Monday morning. Idependent company directors denied any connection.
An 8-K report filed with Securities and Exchange Commission dated Monday laid out the board’s issues with Hou. It mentioned TuSimple employees spending paid hours working for Hydron Inc., a hydrogen fuel cell trucking company founded by Mo Chen, who co-founded TuSimple with Hou in 2015.
The two remain the company’s largest shareholders with super-voting rights. Their shares are equal to 10 votes to one per common share. Chen stepped down as executive chairman in March when Hou became CEO and chairman.
Chen is a founder, director and CEO of the Hydron. He also has an equity interest exceeding 10% of the company, which has “significant operations in China,” TuSimple said in its filing.
Hou did not report any of this to the board’s audit committee, which TuSimple said was required by the company’s code of conduct.
Potential manufacturing partner
The SEC filing also said TuSimple believes that in considering Hydron as a potential manufacturing partner that confidential information was shared with Hydron and its partners without the audit or government security committees being informed. TuSimple later entered a non-disclosure agreement with Hydron that covered the information.
TuSimple said it does not know whether Hydron shared, or publicly disclosed, the information before entering into the NDA. It does not think the information shared is related to intangible assets or patents on TuSimple’s balance sheet. The company said it has been unable to determine the value, if any, of the information.
TuSimple is working with Navistar International on a purpose-built autonomous truck for 2025.
The Journal reported Sunday that the FBI, the Securities and Exchange Commission and the Committee on Foreign Investment in the U.S. (CFIUS) are investigating TuSimple over the exchange of its U.S. intellectual property between TuSimple and Hydron. TuSimple told the newspaper it is unaware of any federal probes, only its internal investigation.
CFIUS investigated TuSimple before the company went public in April 2021. It found no wrongdoing. But two board members backed by China technology conglomerate Sina Corp. left the TuSimple board after the probe concluded. TuSimple also agreed to limited federal oversight of its business as part of the settlement.
Sina divested part of its 20% stake at the time TuSimple went public.
TuSimple shares crater
The news led to a sharp sell-off of TuSimple stock (NASDAQ:TSP), which already was down 83% this year. Shares closed Monday at $3.43 down $2.88 or 45.64%. The company reported after the market closed that it had $1.07 billion on its balance sheet at the end of the third quarter, more than the enterprise value of the company after Monday’s dramatic selloff.
Q3 revenue, narrower loss tops estimates
TuSimple feported Q3 earnings Monday, beating revenue estimates. It posted total revenue of $2.7 million, up 49% year over year and 2% higher than Q2. The company made more use of its fleet of 100 trucks and charged more for its service though revenue per mile was down slightly compared to Q2.
The operating loss was $119.7 million, or 50 cents a share. Adjusted earnings before interest, taxes, depreciation and amortization was a negative $93.6 million. Analysts expected a Q3 loss of 58 cents a share. and revenues from supervised autonomous freight hauling of $2.32 million.
Yumer becomes interim CEO and president
Ersin Yumer, executive vice president of operations, will serve as interim CEO and president while Russell Reynolds Associates conducts an executive search. Lead independent director Brad Buss will be TuSimple’s chairman. The board is seeking to add new independent members following the departure of the two Sina-related board members.
“Transparency, good judgment and accountability are critical values to our Company,” Buss said. “We take these values extremely seriously.”
Coincidentally, Hou said almost the same thing in a Sept. 15 Q&A with Morgan Stanley analyst Ravi Shankar during the investment firm’s 10th annual Laguna Conference.
“We are very honest with ourselves and to the world,” Hou said. “That sets us apart as a unique company.”
In an email to employees, Buss wrote of the need :to continue to make the hard decisions necessary to keep TuSimple moving on its trajectory toward long-term success and long-term stability.”
Yumer, who joined TuSimple from rival Aurora Technology, rose quickly through the technology ranks since joining the company 15 months ago. Like Hou, he has a Ph.D. focused on engineering and product development.
Yumer’s rise coincided with the departure earlier this year of CEO Cheng Lu and CFO Pat Dillon, who led TuSimple to public trading via an initial public offering.
“It’s not uncommon for a CFO to leave shortly after their CEO,” Yumer told FreightWaves in a recent interview. “Our perspective is that it’s not uncommon with companies that come from being a startup and then transition into being a public company. That transition changes what the focus is for the folks that have actually brought the company there.”
Hou lashes out
In a linkedIn post Monday, Hou lashed out at the board, complaining that it fired him without cause.
“Unfortunately, the Board’s processes and conclusions have been questionable at best,” Hou wrote. “As the facts come to light, I am confident that my decisions as CEO and Chairman, and our vision for TuSimple, will be vindicated. I want to be clear that I fundamentally deny any suggestions of wrongdoing.
“I have been completely transparent in both my professional and personal life and I fully cooperated with the Board because I have nothing to hide.”
In a statement attributed to independent directors late Monday, TuSimple said:
“Fundamentally, we lost trust and confidence in Dr. Hou’s judgment, decision-making, and ability to lead the company as CEO. This decision, which was made in connection with an ongoing investigation that was initiated by our Board’s Audit Committee in July, was made independent of any media coverage.”
Editor’s note: Updates with material from TuSimple SEC 8-K filing and additional board statement.