Outlook for TuSimple Stock After Lackluster Listing

Self-driving truck startup company TuSimple (TSP) has gone public through the traditional IPO route. The company priced the IPO at $40, which was above the initial range. While the stock closed flat on the first day of the trading, it was trading lower on April 16. Why is TuSimple stock dropping and what’s the forecast for 2021?

TuSimple stock fell to a low of $32.13 intraday on the listing day, which was almost 20 percent below the IPO price. While the stock made a high of $41.50, it eventually closed at $40. In contrast, Coinbase, which went public through a direct listing earlier this week, soared on the listing but eventually pared its gains.

TuSimple went public on a day when there was a bloodbath in EV stocks. Arrival and Nikola fell over 8 percent and 9.5 percent, respectively, on April 15. TuSimple isn't an EV company per se, but it makes self-driving trucks. 

Most EV companies, including Tesla and NIO, are also investing in autonomous driving. Tesla CEO Elon Musk projects that its FSD (full self-driving) option would cost $100,000 in the future and account for most of Tesla’s profitability.

Alphabet-backed Waymo and General Motors-backed Cruise are also self-driving plays. However, not everyone is bullish on the future of self-driving technology. Uber exited its self-driving business in a bid to focus on its ride-hailing and food delivery business.

TuSimple’s market capitalization was $7.5 billion based on the closing prices on April 15. Meanwhile, TSP has partnered with truck maker Navistar and intends to make fully autonomous highway trips by 2024.

The fall in TuSimple stock could be attributed to its lofty valuations and the sell-off in growth stocks. Also, investors have been increasingly skeptical of companies that have their earnings skewed to the future given their speculative business. There has been a notable shift to value stocks and investors have exited speculative growth names.

TuSimple is backed by Chinese investors. Previously, the Committee on Foreign Investment in the U.S. identified TuSimple as a company that needed to be reviewed due to its ties with China. However, the review didn't happen.

Since TuSimple just started trading, none of the Wall Street analysts seems to be covering the stock. We don’t have a price target and forecast for TSP. Soon, brokerages will add TSP to their coverage list given the excitement about autonomous driving stocks.

TSP stock opened sharply lower on April 16. The stock still looks overpriced and I would expect it to fall more before stabilizing. Looking at most of the IPOs over the last year, while they soared on the listing and continued to show strength in the short term, they eventually tumbled due to valuation concerns.

This also includes Snowflake where Berkshire Hathaway co-invested in the IPO with Salesforce despite Warren Buffett’s pessimistic view of IPOs. Also, Buffett has generally shied away from tech stocks even though Apple is Berkshire Hathaway’s largest holding.

Coming back to TSP stock, I would sell the stock here and wait for the valuations to get better before buying the autonomous truck driving startup.