TuSimple: Cathie Wood Favorite Plunges After CEO Fired (NASDAQ:TSP)

In recent years I’ve covered the rise and fall of Ark Invest. The ETF firm headed by Cathie Wood saw tremendous growth in assets under management after the pandemic, only to see these funds plummet since early 2021. While many of the firm’s holdings have gradually plunged in value over time, we saw another plunge occur on Monday after the company fired its leader amidst some troubling reports.

On Sunday, the Wall Street Journal reported that self-driving truck startup TuSimple Holdings (NASDAQ:TSP) was being investigated by the FBI, the U.S. Securities and Exchange Commission, and the Committee on Foreign Investment (“CFIUS”) about its relationship with Hydron, a Chinese startup. Sources said that TuSimple was being investigated as to whether it improperly financed and transferred technology to Hydron. This would supposedly be a violation of both securities laws and fiduciary duties, and investors could have been defrauded if intellectual property developed in the US was actually transferred to China. On Monday, TuSimple fired its CEO, and the company has already begun a search process for a new permanent leader.

The company made it onto my radar in the Spring of 2021, when Cathie Wood and her team added the name to the flagship ARK Innovation ETF (ARKK) and the ARK Autonomous Technology & Robotics ETF (ARKQ). Over time, the two positions had grown to more than 14.5 million shares in total, which represented more than 7.25% of the company’s outstanding shares and almost 10.7% of the reported float. Recently, that number has come down a little due to fund redemptions as well as some sales by ARKK.

While TuSimple wasn’t one of Ark’s largest positions by any means, Ark was still one of its largest institutional holders. At the end of last week, the two ETFs owned a combined $87 million or so, which isn’t exactly peanuts. Of course, these funds are massively underwater in their positions, as they started buying when shares were well above $30. On Monday, the stock lost more than 45%, hitting a new 52-week low of $3.21. Ark Invest did sell some shares as seen in the graphic below.

Sales of the stock continued on Tuesday, with the two ETFs selling another roughly 1.43 million shares. However, the sales from these two days haven’t even hit a third of last week’s ending position yet, and ARKQ has only sold a little more than 15% of its shares. Ark Invest still owns almost 5% of the company even after the drop, so if they do decide to fully exit, it could take several days or even weeks to do so.

While all of this craziness was going on, the company reported Q3 results on Monday afternoon. Total revenues were up almost 50% to $2.65 million, but the company did lose over $113 million in the period. The company is working towards autonomous driving solutions, but this process will take time. As the graphic below shows, analysts think that revenue growth will be tremendous in the coming years, which mirrors a lot of the names that Cathie Wood and the team have generally invested in.

Interestingly enough, the stock’s plunge on Monday put the company itself in an interesting spot. The market cap finished Tuesday at about $732 million, yet the company finished Q3 with over $1 billion in total cash on its balance sheet. Through the first nine months of this year, TuSimple has burned through about $265 million in cash, which is likely to continue for a while until we see revenues ramp up quite a bit and losses improve significantly.

As for the stock’s valuation, the average price target on the street was $17 per share going into this weekend. Of course, that average figure was in the low $60s a year ago, but the pullback in the market and the move away from high growth, cash burn names has put a dent in things. It will be interesting to see how the street reacts to the latest news, as the reporting of all these possible investigations could lead analysts to cut their ratings and targets on the stock.

In the end, TuSimple Holdings became the latest stock to plunge for Cathie Wood and her team on Monday. Amidst reports that the company is being investigated by numerous US government agencies for potentially funding a Chinese startup and transferring technology, the company fired its CEO. Shares lost almost half of their value on the day, and despite Ark Invest selling about 4.36 million shares so far this week, it still owns a majority of its position from last week. Should the ETF firm decide to sell out, it will be interesting to see how much more of a loss they will take given the outsized position is multiple times the amount of volume this stock trades normally.