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spk06: Welcome to the Two Simple Second Quarter 2021 Earnings Conference Call. My name is Sylvia and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then 1 on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to James Mann. Mr. Mann, you may begin.
spk12: Thank you, Sylvia. Good afternoon, everyone, and welcome to our second quarter 2021 earnings call. With us today are Two Simple's president and chief executive officer, Chang Liu, and chief financial officer, Pat Dilling. Chang and Pat will review the operating and financial highlights, and then we'll take questions. Before I turn the call over to Chang, let me cover a few housekeeping items. As a reminder, Two Simple's shareholder letter and a replay of this call will be available later today on the investor relations page of our website. This call is being recorded. If you object in any way, please disconnect now. Note that two simple shareholder letter, press release, and this call all contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors. We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Please refer to the Safe Harbor disclaimer and non-GAAP financial measures presented in our shareholder letter for more details, including our reconciliation of the non-GAAP measures to the comparable GAAP measures. I will now turn the call over to Chang to begin. Chang?
spk10: Thank you, Chang. Hello, everyone. Welcome to our second quarter earnings call. Our mission at TuSimple is to bring the safest, most reliable, and low-cost autonomous freight capacity to the market. To achieve this goal, we have a focused, four-pronged strategy, which includes, one, the development of the most advanced autonomous driving system for trucks, two, first to market with production of purpose-built autonomous trucks at scale with our OEM and Tier 1 partners, three, the expansion of our go-to-market strategy, the Thomas Freight Network, and lastly, investment in our people and operations. I will discuss our progress across these areas and then turn a call over to Pat to discuss our financial results. Overall, the second quarter represented an impressive acceleration across all areas of our business. The capital we raised and the recognition we received from the IPO further elevated TuSimple's position as a leader in autonomous trucking. It helped to de-risk our commercial execution and accelerated our ability to hire world-class talents. In terms of people, We continue to invest heavily in building our team of exceptional technical and operational experts to complement our existing team. We hired Robert Rossi to lead our proprietary HD maps ecosystem and further build out that team during the quarter. We've already seen early returns from Robert's leadership as unique map miles increased by 3,500 miles in the quarter for a total of 8,500 miles at the end of June. HD maps are the core infrastructure that enables autonomous freight operations. In July, we hired Adrian Thompson as our vice president of systems engineering. Adrian brings extensive experience from his prior roles in the aerospace and autonomous driving industries. His systems engineering team is responsible for developing our technical capabilities, tools, and processes to ensure the performance and reliability of autonomous driving systems. This is critical as we integrate our ADS with purpose-built production vehicles alongside our OEM partners. Adrian's team also played a key part in the development process as we continue to invest in the supply chain, including critical Tier 1 components such as braking, steering, and onboard compute units. The supply chain for Level 4 autonomous driving is still far from mature, and we believe our investments and partnerships further enable us to be first to market. Overall, our R&D team continues to represent approximately 80% of our workforce. This quarter, we added 188 new R&D personnel to bring the R&D team's headcount to just over 1,000 employees as of June 30th. We're pleased with the quality of talent that's choosing to join Too Simple, and we expect to continue to hire at a similar pace for the foreseeable future. Moving to the development of our autonomous driving system, We're confident we have the most advanced virtual driver in the industry. In the second quarter, our fleet of 70 autonomous retrofitted vehicles drove over 900,000 miles. Total road miles driven now stand at 4.6 million, which is a 26% quarter-over-quarter growth. Our road miles, conducted in fully autonomous mode and data collection mode via human drivers, provide valuable data to refine our autonomous driving system. In terms of our IP portfolio, we awarded 38 new patents in the second quarter, a 14% increase from last quarter, for a total of 318 patents granted at the quarter end. Our newly awarded patents include technology advancements in rear-facing perception systems and automatic weighing sensor systems that further distinguish TuSimple's ability to automate our trucks at scale. As an update on our driver out pilot program, we continue to make significant progress through the second quarter. We're on the third phase of our four-phase plan, which includes the offset and the autonomy reliability acceptance of our 10 new pilot test trucks, continued refining of our risk management systems, and the launch of TuSimple Connect, a proprietary transportation management and oversight system specifically designed to manage autonomous trucks. We have increased the frequency of our test runs on the pilot lane which is a hub-to-hub route from Tucson to Phoenix, covering close to 100 miles. We feel very confident in the performance of the Thomas Driving System. We aim to move to the fourth phase of our development plan in the coming months. The last phase is the verification of the safety case and final acceptance. Safety comes before all else at TuSimple, and this is particularly important for the Driver Out Pilot Program. The safety case verification process is multifaceted, to mitigate the risk inherent in the system. And this includes significant work in systems engineering, functional safety reviews, as well as internal audits of our process. It includes proper testing, verification, and validation of various software and hardware modules. Given the complexity of an autonomous driving system and this mission, we have to clearly understand what systems are on the truck that the truck performs the way it's intended to perform at all times, and that our operational plan is designed to execute the pilot program safely. In addition, it includes validation that our risk management system will identify any issues and signs of degradation from both software and hardware, ensure that the system reacts appropriately, including pulling over or stopping the lane safely, what we call enter into a minimum risk condition, or MRC. And lastly, of course, The safety case includes the final on-road validation of the pilot with safety drivers on board. As you can see, we have a holistic safety case verification process to ensure that we have correctly identified and mitigated risk. Furthermore, this process is critical in advancing our autonomous driving truck production programs and us being first to market. Our target timing for start of the driver out missions is still end of the year. As we move into the fall, we'll continue to provide updates on our safety case verification progress and the overall pilot program status. We believe we are confident that our Driver Out pilot program will be the first of its kind in the industry. We believe our timeline is several years ahead of any competitors, and it is certainly an indication of the advancement and maturity of our technology. Further highlighting the importance of safety We recently kicked off a safety performance study with Geotab, a leader in vehicle tracking and fleet telematics. This study will analyze the comparative safety performance of our level four fully autonomous trucks versus manually driven trucks. The data will be sourced in various conditions to measure industry standard indicators for unsafe driving that can increase the risk of accidents. We expect the study to add to our growing list of data illustrating two simple autonomous driving technology benefits. Now, moving on to the next pillar of our strategy, which is being first to bring reliable, purpose-built autonomous trucks to market scale. Our production program with Navistar continues to advance. During the quarter, we made progress toward our supplier downslide process. Downslide is an important milestone as we move from research and development to setting the final specifications for components with Navistar required for series production. We'll be narrowed down the list of suppliers for key components over the next several months, especially those with long lead time items, such as braking and steering systems, as well as LIDAR and onboard compute units. To our knowledge, we're the only autonomous trucking company approaching this critical milestone. In addition to the work we're doing with Navistar, our partnership with Trayton continues to progress well. Pinnacle teams from TuSimple and Scania, one of Treyton's truck brands, are expanding the scope of our concept programs. We expect to continue to increase our development activities in Europe, and we'll be investing in expanding our team there as well. In China, our team continues to focus on testing on the Donghai Bridge and the Yangshan Deepwater Port near Shanghai. As we shared with you in the past, this is a 20-mile bridge that connects the mainland to the world's busiest deep water container port. We believe this project has the most near-term commercial viability in China. The last pillar of our strategy is our go-to-market for the development of our Thomas Freight network. The coverage and density and efficiency of the ASN, we believe, is Two-Symbol's long-term competitive advantage. The size and coverage of the ASN comes from high-definition map routes and strategic terminal locations. Terminals are the starting and ending point of Thomas operations. Our technology can leverage terminals from our customers, strategic partners, and ones that we lease ourselves, thus enabling more coverage, better access to Thomas freight capacity, while being very capital efficient. We announced our Alliance Texas terminal opening in June. to support our new freight lanes, providing us prime access to the Texas Triangle that runs between Dallas, Houston, San Antonio, and Austin. The new Texas facility is located near a premier intermodal hub and will serve as a central logistics terminal to Dallas-Fort Worth area. In July, we entered into an agreement with Rider Systems that will accelerate our ASM Rider will supplement our existing network with dedicated terminal space for autonomous trucks, service and maintenance, roadside systems, and integration with Rider's existing transportation solutions. There's also strong potential for Rider's leasing and asset management services to better support our customers' needs. The relationship will offer Rider new and expanding revenue opportunities including its ability to leverage its financial resources to underwrite vehicle leases for our customers in the years to come. We're excited by the potential of our collaboration with Rider, and we'll continue with our strategy to expand the ASN ecosystem with best-in-class partners. Lastly, before handing off to Pat, I want to provide a brief update on the CFIUS review status. In terms of timing, our shareholders Sina Corp and TuSimple submitted a voluntary joint filing to the committee, and that filing is currently in the 45-day review phase. It is not uncommon for these reviews to move into the second phase, particularly for companies engaged in new technology areas like artificial intelligence. An additional phase, if that were to occur, would not be a definite signal of the ultimate outcome of the process. We were recently informed by CFIUS that the transaction being reviewed is the 2017 acquisition of U.S. assets of TuSimple LLC by TuSimple Cayman Limited. Additional information on the CFIUS process as well as some factual information regarding the 2017 transaction and our ownership is included in the 8 . At this stage, we're fully participating in the process with CFIUS and sharing information, but we cannot predict the outcome of the review at this time. We pride ourselves in being transparent and the level of vetting we have gone through as part of our private capital raises and our traditional IPO speaks to that. We will continue to provide record updates, and we look forward to the resolution of this process. With that, I'll now hand over the call to Pat to discuss our financial results and guidance.
spk02: Thank you, Chang. I'll start with our reservation program. We ended the quarter with $6,000, 775 reservations, an increase of 1,000 reservations quarter over quarter. We also started our Voice of the Customer program for our existing reservation holders. This program allows our reservation holders to engage in two-way communication with us and Navistar on critical vehicle specifications and other operating requirements. This is extremely valuable feedback as we make design decisions and set our bill of materials for our production vehicle. Also, we have now started more fulsome engagement regarding potential reservations with the next group of customers beyond our first wave. We are encouraged by the responses we have received to date, including a verbal agreement for a 100 truck reservation from a significant tier one logistics operator, both domestically and globally. We are also in discussions with this customer regarding hauling freight beginning in the fall. Now, shifting gears to our financial results for the second quarter. We reported 1.5 million of revenue in the quarter, which is a five times increase versus the same period last year, and a 57% increase quarter over quarter. While we have maintained a flat number of two simple-owned trucks in our fleet, we continue to increase asset utilization and add to our AFM partner fleet capacity. We do expect to expand our fleet once we receive new trucks from Navistar in the second half of the year. In the quarter, we spent $76 million on total R&D, including $25 million of stock-based compensation. This compares to $22 million of total R&D expenses in the same period last year. We spent $42 million on G&A during the period, including $27 million of stock-based compensation. This compares to $5 million of total G&A spending in the same period last year. Our stock-based compensation expense for the quarter was $53 million, which includes $43 million related to employee equity awards that had previously satisfied time-based vesting requirements but had an IPO liquidity condition for full vesting. Upon successful completion of our IPO in April, the instruments were vested, triggering the $43 million charge. This quarter, we also began disclosing adjusted EBITDA, which we believe is a helpful business performance metric that is complementary to our GAAP results. This quarter, our adjusted EBITDA was negative $66 million. This compares to the same period last year of negative $26 million. The increase reflects our accelerating investment in technology and commercial development. We invested $5 million in capital expenditures during the quarter, driven by equipment purchases and facility costs. We ended the quarter with a cash balance of $1.5 billion. Now to provide an update to our 2021 guidance for the full year. As we move towards our driver out pilot and full commercialization, we have identified key areas of incremental investment to accelerate and de-risk technology and commercial development. And we have updated our guidance accordingly. First, as Chang mentioned, we are making selected strategic investments to accelerate and enhance our high definition maps, as well as to build out our systems engineering efforts. The leaders of these two groups, Robert Rossi and Adrian Thompson, our world-class technical experts, and experienced managers of large teams. Secondly, we have also identified selected areas within our core algorithm, hardware, and software teams that will allow us to increase our vertical integration of the autonomous driving system. These core groups are led by some of our most senior executives, including our co-founder and CTO. And the incremental investment will enhance our flexibility to work with multiple OEMs, as we are doing today with Navistar and Scania. Based on these items, we are increasing our R&D expense guidance to $200 to $220 million, excluding stock-based compensation. We are also increasing our guidance for G&A expenses to $50 to $60 million, excluding stock-based compensation. The increase is driven by incremental investment in critical functions such as IT and HR, which scale with the broader business. Beginning this quarter, we are introducing guidance for stock-based compensation in the range of $130 to $150 million for the full year. We are also introducing guidance for adjusted EBITDA in the range of negative $260 to $280 million for the year. We are increasing our capital expenditure guidance to $14 to $18 million for the year. This increase is comprised in large part by two items. First, our decision to purchase 25 Navistar trucks rather than lease, and two, incremental investments in new terminal facility build-outs as we expand our AFN ahead of schedule. There is no change to our previously communicated revenue guidance of $5 to $7 million for the year. We expect to end 2021 with a cash position in excess of $1.25 billion for the year. I'll now hand it back to Chang for a few last remarks.
spk10: Thank you, Pat. To summarize, we have a clear and focused strategy to be the first to bring the most reliable autonomous freight capacity to the market. We continue to prove our leadership capabilities in technology, hardware partnerships, and go-to-market. Since 2018, we have demonstrated our capabilities to operate on surface streets, on ramps, and highways at Level 4 autonomy, and we continue to make significant advancements. We believe we're years ahead of our autonomous driving system development, and we intend to extend our leadership position. Our hardware partnerships with Navistar and Traycon are checking major milestones to deliver our scalable, purpose-built solutions. We're expanding our network of terminals and autonomous-enabled lanes to support our current and future operations. We know we still have a lot more to accomplish, and we work very hard at it every day. And we certainly can't do it without our amazing employees and business partners globally. So a big thank you to them. With that, we're ready to start our Q&A session.
spk06: Thank you. We will now begin the question and answer session. If you have a question, please press star, then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you have any speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touchtone phone. We also ask that you limit yourself to one question and one follow-up. Our first question comes from Robbie Shanker from Morgan Stanley.
spk09: Thank you. Hi, Cheng and Pat. Thanks for the detail on the dry route test. A couple of questions there. It sounds like you still have a few I's to dot and T's to cross on the technology side and the prep side to get that done. Are you confident and do you have a full line of sight that you will get that done before the end of the year? And second, are you simultaneously working on the operational things you need to do, which is the permission from the police or the state authorities to get that done so when you're finished with the technology side, you'll be ready to execute the test?
spk10: Hi, Ravi. That's right, yes. So we are still targeting end of year. We're very confident in our technology. As I mentioned in the prepared remarks, When you think about what we're doing now, it's akin to effectively launching a rocket, a satellite, or a new aerospace prototype. There are certainly a lot of steps we have to take in order to identify and mitigate the risk in the system, and so we're working towards that. And in terms of operational side of things, Yes, we are in constant dialogue with the Arizona DOT as well as the Department of Public Safety. And we do not believe that to be a roadblock.
spk09: Great. Thanks for the call, Aaron. Maybe as a follow-up question, Pat, kind of on the higher R&D costs, it sounds like you're bringing stuff forward rather than seeing a higher level of cost relative to what you envisioned during the IPO. Is that accurate? And kind of maybe if you can give us like one or two catalysts for what exactly is driving that kind of what you are bringing forward and kind of does that mean you'll kind of get your destination quicker or kind of just how do we think about that, you know, over the next six to 12 months? Thanks.
spk02: Yeah. Yeah. Ravi, I think it's accurate to say that to some degree it's an acceleration of cost. Certainly some of the key teams where we're building out, like maps and systems engineering, are areas that we always intended to build out. I would categorize us as being opportunistic as we've had the opportunity to bring on top talent, particularly at the leadership level, and build out the teams beyond them. So to the broader question, we don't see this as an indicator of accelerating or expanded costs over the next two or three years as we approach full commercialization, but rather an opportunity to bring forward some of these team members. The net result being that I think both an acceleration of our technology, but also a de-risking as we have more time prior to launch to build out some of these critical functions. In some areas that are acceleration, you've obviously seen it in our ability to build out our unique map miles to expand to the East Coast, which some of our customers have been asking us to do as we're already seeing the fruits of some of these investments.
spk06: And the next question comes from Chris Weatherby from Citigroup.
spk03: Hey, guys. It's James. I'm for Chris. I just wanted to actually ask about the hires you're making and basically what is the geographic location of them? Are there any sort of cost advantages if they're not actually in the U.S.? And just sort of getting your thinking about, like, essentially where the headcount sits in the development sort of geographically.
spk10: Hi, Chris. Geographically, the vast majority of our hires are in the U.S. I would say close to probably 80%. And we also are having teams going out in Europe and then expansion of our technical teams in China as well, but primarily in the U.S. Now, with COVID and what we learned from the pandemic, I think we are, of course, more open to having remote work. So that has been helpful in terms of attracting talent. At the same time, our recruiting team actually size has expanded. So all these things also contribute to the fact that we're adding on quite a bit of talent this year.
spk03: Got it. And those numbers you gave, I think they were for the company broadly. Is it true for the increment as well, like the 200 you plan on bringing on roughly?
spk10: Oh, that's right. That's right.
spk03: Yes. Got it. All right. Thank you.
spk06: Our next question comes from Brian. I'm back from J.P. Morgan.
spk07: Hey, good evening, guys. Thanks for taking the question. I wanted to ask about the rider partnership. Can you give a little more color around that? It sounds like there's a bunch of opportunities for just kind of like the nuts and bolts with maintenance and fueling. Will you be able to launch cargo from these areas? And maybe you can just give a sense as to what the possibility is to maybe lower capex if you can scale with that sort of network. And on the finance side, is this going to function similar to what Penske could possibly do as well? Hi, Brian.
spk10: I hope you're well. Yes, I mentioned the prepared remarks. Our strategy is to expand the AFN ecosystem with best-in-class partners. And honestly, as it relates to maintenance, to leasing, to a network of real estate, to offering customized logistics solutions, RIDER is certainly among the best. And so to answer your question, really it covers all the nuts and bolts as we think about launching autonomous freight operations from point A to point B. It's a lot more than just the technology side of things. This certainly will be beneficial to our capital expenditures. Our goal, our strategy, we believe, given that our technology has the ability to drive both on surface streets and highways, is we can connect to more existing real estate locations. It doesn't make sense for us to spend money on all of them. Our goal is to provide customers in the long run the most reliable and easy access to autonomous freight capacity at low cost. And so certainly this is a partnership that has a lot of potential. We are working with Ryder, the collaboration, to identify places that we can use as terminals. And we're also having a collaboration to go through the maintenance and other parts of the business or the services.
spk07: Okay, great. Thanks for that, Chang. As a follow-up, can you just maybe talk more, a little bit more about the regulatory environment? I know in the back of your slide deck here you talk about getting a couple more states on board. for full commercial testing. Are there any restrictions with those in terms of size or timing? And then one more just for, I guess, normal testing or availability. So give us an update on the regulatory side with adding a few more states and what else you might see developing in that area for the rest of the year. Thank you.
spk10: Thanks. Yeah, I mean, as our shareholder letter pointed out, two more states have had a positive performance regulatory regulation to allow for level four autonomous operations of commercial vehicles. So that brings to a total of 26 states. And just a reminder, there are no states currently today that have any regulation that prohibits the testing of autonomous commercial vehicles. I think in general, we continue to work closely with the regulators, both on the federal and different states. We continue to be very transparent with them. I think the regulatory environment is positive today. And a lot of that is regarding, of course, the safety benefits that autonomy can bring, as well as, I think you're very familiar, I mean, the driver shortage or the tightness in the supply chain today is probably one of the all-times. based on kind of what we're hearing and seeing. So I think these drivers will continue, and hopefully that has continued positive impact to the regulation.
spk07: All right, Chang, thanks for the time. Appreciate it. Thank you.
spk06: Our next question comes from Ken Folkster from Bank of America.
spk05: Hey, good afternoon. Ken, Plus, I guess just recently did an autonomous driver out test. It seems to be pressing ahead and noted plans to be operational maybe a year earlier in their commercial deployment. Is there a difference from your perspective in the tech or capabilities of what some others are pressing ahead? Just want to understand the competitive differences of what we see out in the market.
spk10: Hi, Ken. Yeah, I mean, we saw kind of what you saw this morning or recently. You know, it's a short video, and there's some media reports. RSN is actually some of the media reports already came out in China about a month or two ago for the same thing. RSN is also the media report confirmed that it was at a closed highway. The highway hasn't opened to public yet. So I think, I mean, it's clear I think this is a very different type of test, if you will, from our driver-out pilot program, which is on open highways, on commercial operations, on long stretches of roads, both on surface streets and highways in the U.S. So I think that's really not an apples-to-apples comparison, at least from what we can see. And I think in terms of commercialization, I'm not quite sure. My understanding of PLUS is that they're talking about basically a level-two solution, It's not a driver out solution. So, you know, it's a retrofitted kit that can make, basically, that can make the driver assistance. So as far as, again, from what we can tell, it's playing actually a different category. So I think, I don't know if that's helpful, but that's how we, I mean, essentially that's what you're saying.
spk05: No, perfect. Thanks. And then for my follow-up, you talked about the R&D. You talked about kind of where you're focused on some of the capital. You also mentioned, I think, somebody threw in there that, you know, there's a project that Zowdy is working on. Is there something specific that you're scaling on the R&D that we should look for?
spk10: I mean, it's all part of our overall development of our autonomous driving system. You know, it's on one hand, it's, of course, the system, the software itself, the virtual driver. As our production process with Navistar gets into more of the later gates, there's a lot more work that gets kicked off and more engineering work streams have to come together. So there's more resources that's required, significantly more resources. And we talked about continued investment in the supply chain. that is something that will continue to invest more capital. And that's something we talked about at IPL, too. With more capital, there are investments and partnerships we can do that can make sure that the Tier 1 components are on the same timeline as our production vehicle. And that includes steering, braking, the compute unit, autonomous domain controller, and, of course, some of the sensors. So, I mean, those are the uses that we have. But But I wouldn't point out to one specific project per se at this point.
spk05: Perfect. And just to clarify if I can, Pat, you said there were no more orders, right, in the quarter than the 1,000 were booked last quarter, but you said that there are more that are coming going forward, right? I just want to clarify what you had said.
spk02: Yeah, Ken. So our reservations, we added 1,000 in the quarter, which is what we had actually previously disclosed on the first quarter call. And then we have had a verbal indication for another 100 trucks, but the reservation agreement has not been signed for that yet. But we are optimistic with the customer that made the verbal indication, as well as several others. It's progressing nicely, so we're encouraged by the early outreach to this more expanded group of potential customers.
spk05: Great. Congrats on the progress. Appreciate the time.
spk10: On that part, I think, as Pat noted, I mean, we measure progress certainly on the number of reservations, but also on the depth of the collaboration. And I think that's maybe, you know, hopefully it came out in terms of conducting a three-way voice of customers. We have multiple sessions with the majority of the reservation customers. You know, and this is something that we have said all along, is to, it's really to get our large strategic customers involved involved in the development and in adoption of autonomy. And given that the reality is everyone's autonomous system will be a little bit different, assuming that people can also build this, we need people to understand how to use autonomy in the supply chain, how to use two simple autonomous driving systems. So there's a lot of work behind the scenes, and we're actually very happy about the level of collaboration that we're seeing across the existing customers we have.
spk06: Our next question from Brian Osdenbeck from J.P. Morgan.
spk07: Hey, thanks for taking the follow-up. Chang, you mentioned, I think, the last call about the supply chain issues, and clearly they're quite disruptive, as we all know right now. You mentioned getting some trucks in the back half of the year from Navistar. Can you just update us on how many of those would be and just what you're seeing from supply chain and sourcing some of your critical components and if that's affected development or assembly yet.
spk10: Yes. Just related to the Navistar trucks purchases, we have an order for 25 new trucks. I think the original timeline is for all to be delivered in the July timeframe. I think right now we're expecting to receive our first one, first two, I think sometime next week or in the coming weeks. And we're hoping to receive the rest before the year ends. So again, as you know, supply chain is really affecting all the OEMs and equipment makers. I mean, Navisar is giving us special, really great, great level of service with regard to this, but it's certainly behind schedule. In addition to sourcing of critical components, we're also seeing some lack of resources in terms of supplier being able to, I guess, assist with the debugging. And actually, to answer Bobby's question about it, one of the timing risks for our driver-out pilot program is on the supply chain. We do have, as an example, Right now we're dealing with one key component where a portion of the components, a section of the components are not giving the same level of performance reliability that we thought it should have. And we had to have some time to work this out with the supplier. We now have engineers there and engineers here, but that took a little bit of time. And so we hope to work through this problem. So those are things that we're seeing. But, you know, look, I know everyone's putting all the problems on supply chain, so we don't want to do that for sure, but it is a real problem that we're facing across the outfit, across even just basically equipment that we need to procure as a company.
spk07: Okay, thanks for that, Chang. And then just going back to what I think you said earlier about pulling forward some work to maybe work with OEMs, more OEMs in the future. Obviously, that's a selling point of one of your competitors, and it still is a fragmented truck market, and fleets have their preference. So I was assuming you're going that route anyway, but maybe you can just talk about what you're pulling forward and why, and if this was part of the roadmap to begin with.
spk10: Sure. I mean, I think what we're seeing is... more on helping the supply chain mature, as well as having a more general platform. I think the way we work with the OEM still has to be a very close-knit, collaborative process, just because, as you've seen the trucks, I mean, everybody has very different placement of sensors, compute requirements, power requirements, and of course these trucks have to be have to be integrated certified by the OEM because that's what the customers care about right who provides a warranty who provides the aftermarket support and these trucks have to drive a million miles you know those things don't change and and so what we're saying is there are additional investments partnerships we have on the supply chain that can can move forward the the industry and so I would say contrast is very differently with saying we have you know a aftermarket solution that can fit in all OEMs. I think that idea, maybe that idea, the reality is it's not practical because in an industry like this where the supply chain, the technology is still in the sort of developing stages, there isn't common protocols. Today, for instance, a customer can ask for a Cummins engine or they can ask for maybe a proprietary engine But both engines, whatever they choose, the OEM certifies that truck. That wouldn't be the case today if you put in aftermarket autonomous driving kit. And so until that industry becomes very mature, we don't see that being a viable solution anytime soon.
spk07: Okay, great. Very helpful. Thank you, Miraj.
spk06: Our next question comes from Colin Rush from Oppenheimer.
spk13: Hi, yeah, this is Brendan on for Colin. First one, can you guys just delineate in the quarter how many of the miles were conducted in Europe?
spk10: Sure. We actually don't count the miles that's in Europe. That is actually because the trucks there are actually owned by Scania. So we're not... disclosing the miles in Europe, given there's some, obviously, sensitive NDAs involved, but it's a decent amount. So that makes sense. So we only disclose the miles that are run by trucks owned by TuSimple.
spk13: Great. And then just as a follow-up, would you mind just giving us any updates in terms of qualifying sensors, sensor functionality, and then vehicle design ahead of the 2024 launch?
spk10: And perhaps we can get back to you on that one. Again, I have to make sure that we're at a position to publicly talk about this information. But we're making some design, definitely making a lot of design choices as we speak. But again, it would be good if we could come back to you afterwards to ensure that this is public information that we can disclose.
spk13: Great. Thanks so much.
spk10: Thank you.
spk06: Our next question comes from Dennis Payachanan from Needham and Company.
spk01: Hi, guys. Dennis on for Raji tonight. I want to ask you guys a question about your driver out program. So I think you had mentioned that you were kind of on the third phase out of four. Could you talk in a little bit more detail about kind of what you're ironing out right now and what needs to be done before you guys are comfortable going driver out for maybe that demo at the end of the year?
spk10: Sure. It will be a long answer, but I think to keep it concise. So there is, so we have a new, I mean, from a hardware standpoint, we have built or designed and updated these redundant trucks, well, basically trucks with redundant sensors and computer units, because that's important for being able to remove the driver, right, because we don't have that last line of defense that is the driver. And we need more than just one because we have to be able to validate these trucks with enough miles in order to ensure the safety or to mitigate the risks associated with it. And so phase three, a large part is that. And this is not only just simply to put the mechanical parts onto these trucks, but also to ensure the safety the acceptance of the autonomous performance of these trucks. And so these are retrofits, so there are some, you know, disabilities or things we have to tweak, iron out. You know, we also mentioned, for instance, we have components, because we're working with some Tier 1 prototype components as we speak today, and across 10 components, you know, five of them might work one way, and five of them might not have the same performance that we need. So these are all the... the nuts and bolts that we have to work out this phase. In the last phase, again, I mean, if you think about launching, let's say, aerospace prototype, this is not a PR. It's not a marketing event. We wanted this to be very successful. We want it to be very safe. We need to understand the risk associated with the thing, not simply by just running a bunch of miles, but having more of a deep dive on all the checklists around the safety case verification. And I kind of talked about in my prepared remarks, there's a few things to oversimplify. But one is you build this very complex system. We have to know what's in the system, right, from a functional safety, from a system engineering standpoint. Two is we have to be sure or be very sure or highly confident that the truck, and these functions performs the way it's meant to perform at all times. And the third thing is we have to design and validate the operational environment or the operations to safely conduct this test. And lastly, we have a validation process with actual driving, but still with a safety driver behind the wheel. So I'm not sure that provided you with enough color, It's a complex engineering problem. We are, as mentioned, very confident with the functionality of our Thomas driving system. I think for those that have been to Tucson, I think that's evident. But to make it safe and really mitigate the risk and add reliability, that's what you need to really take out the driver at scale.
spk01: Got it. And then... As a quick follow-up, I think you might have alluded to this. Is the chip shortage currently impacting kind of your ability to procure the trucks from Navistar? I mean, I think you might have mentioned some kind of debugging delays or something like that. Could you just speak a little bit about that, please?
spk10: Yes. Yeah, there are two different things, but the chip shortage is impacting our ability to procure more trucks from Navistar. Got it. All right, thank you.
spk06: And the next question comes from Ben Callow from Baird.
spk08: Hey, thanks for taking my question, Chang, and Pat. First of all, can you just talk about the Geotab relationship a bit? And is it basically allowing you to compare your technology and show the benefits of it? Is that how you do it and go deeper into that? Is that for regulators or who's that, or customers or both? Maybe just some more detail there.
spk10: Yeah, great question. It's for both. I mean, it's for everyone that's involved in the ecosystem. So with the telematics device on the truck that's, you know, just manual truck driving. Of course, they have a lot of data there. We're testing for basically harsh driving events. And I think the industry definition of harsh driving events are harsh acceleration, harsh braking, and harsh cornering. So basically kind of where the G-force kind of hits the truck. It's given the height of the truck, the center of gravity, it's easy for a truck to roll. So those kind of three things are considered harsh driving events. And it's pretty common that these events do impact the frequency of accidents. And so that would be where we look at the data in conjunction with JOTAP. So the early, the preliminary data that we've seen is very promising. And this goes in line with Our independent study, year-long study with UCSD on the fuel savings of the two-symbol autonomous driving system. In Pergo data, we have our partners. We've done a tire study. So the biggest thing about autonomy, of course, is the safety, the efficiency gains. But we want to have empirical data to highlight and quantify the benefits that our autonomous driving system can provide, and this is a part of that.
spk08: Got it. And then just on CFIUS, I know you can't comment too much, but the 45 days, when does that end? If you could give some information on that. And then, Pat, it looks like it's about $100 million of cash burned in the second half. Is that the right number? Thank you, Gus. Sure.
spk10: On CFIUS, while we submitted the CFIUS, the review, the filing in June. So, you know, we can't, we're not going to get the exact date, but that's kind of the timing. You know, I think this kind of relating to CFIUS, obviously, I think it's a sensitive word, but we continue to be very transparent. I think we try to lay out the facts in the AK. And, you know, I think we'll look forward to resolution in due time.
spk13: Hey, Ben, it's Pat.
spk02: On the cash burn question, I think it's somewhere between $150 to $200 million of cash burn on the year, just looking at some of our cost of goods sold, our R&D, our G&A, and our capex, just if you interpolate between what we've achieved for the first half and our guidance for the year. And that puts us comfortably above the target that we have, which is $1.25 billion. So we're not providing anything more specific than that, but I think we can go through in more detail in a smaller session if that's helpful.
spk06: And our next question comes from Alex Potter from Piper Sandler.
spk04: Great. Thanks, guys. First question, can appreciate maybe you can't talk to specifically around sensors and suppliers, brakes, things of this nature, but when do you think you would be, I guess, maybe estimating that the bill of materials for the production truck will be more or less set in stone?
spk10: We are targeting by early next year. And there's, of course, different stages, but That's the target that we have alongside Navistar as part of the production program.
spk04: Okay, perfect. And then regarding the order book, I also can appreciate that you're being very selective, looking for deep relationships in order to sign up a fleet, and that demand outstrips your capacity to serve that demand. To what extent do you think you have capacity to entertain incremental orders? So you basically, you know, my historical impression was that the order book wasn't necessarily closed, but it was more or less closed because you're trying to focus on those really, really high quality customers. But do you anticipate adding many more customers and many more trucks to the order book between now and 2024? Thanks.
spk02: No, I think it's a good question. I do think it'll be a little bit of a stair step approach. In the initial period for the rest of this year, we are really focused on the highest quality of the reservation book. So it is around those folks that have the seriousness of intent to be able to dedicate resources because it really is a mutual dedication of resources to be able to put and L4 technology into our carrier-owned capacity customers' networks. So from that perspective, we do expect to add additional customers, but we will be selective. And it's important to note that our standards remain the same. There is a financial commitment involved with each one of the reservation partners. As we've indicated before, it's either a a reservation that goes into escrow and cash or for those that have made a pre-IPO investment in the company. So I would say, without being too specific, that we do expect to expand it, but we're certainly being selective about how we do it. As we move closer to the start of production in 2024, then I would expect to see that this book of folks that are placing reservations and eventually firm orders will start to expand. And that's only natural. We do see this as an extraordinary vote of confidence from our customers that we don't take lightly for them to make a financial commitment and to engage with us this far ahead of the actual delivery of the trucks. So we try and take that very seriously and be very selective to make sure that we can provide the level of service and engagement that's required to have a great relationship with them.
spk04: Perfect. Okay. Thanks very much, guys.
spk06: Our next question comes from Joseph Speck from RBC Capital Markets.
spk14: Thanks. Good afternoon, everyone. Just a first question. As you expand the map, and I don't even mean, you know, what you're doing now. I just mean sort of over time it expands to a lot of different landscapes and geographies and environments. Does the ODD differ by region, or is there some minimum standard that has to be met so that these trucks can operate fairly seamlessly as they travel across the country?
spk10: Hi, Joe. Good question. I mean, certainly we'll start with a minimal viable product, ODD. For us, that's hub-to-hub operations. There will be some geofence around that. We don't think we'll be able to have snow in the first MVPs because the winter testing that's required will add more time, another year, year and a half to the development process, and it's better to put it into the next generation. Of course, these things can be updated OTA. So I think If you kind of go down one level deeper, I mean, there are even more specific things in the ODD that maybe some areas have and some do not. Generally speaking, though, I think our experiences on the highway, the driving in the United States is quite similar, very different than, say, urban city areas. You know, to compare L.A. and New York, it's very different sort of behaviors between the drivers. So that's kind of what we see. I'm not sure if that was sort of what you're asking.
spk14: Yeah, no, that's perfect. I appreciate that. The second question is just, again, somewhat of a sensitive topic, but I think one that comes up with investors a lot, which is clearly a lot more just consternation in U.S.-China government relations. You obviously are dealing with AI. You have plans to operate in both the U.S. and China. There's R&D centers in both regions. There's been back and forth over export controls. So how do investors get comfortable that one of the opportunities might not be hampered just by geopolitics?
spk10: No, good question. Let me look at it. So any... multinational technology company to have operations in these areas. It's certainly a dynamic time. We're very sensitive to all the new regulations that come out from both sides, and we've done a lot of things ahead of time to account for that. The majority, as we talked about, the core IP innovation happens in the U.S. for us. China is our So R&D center that's focused primarily on the China market as well as helping with the European market. So I think there's actually quite a bit of bifurcation as we speak today. So I think we do have sort of internal processes in place. We see sort of a worsening of export controls or geopolitics. But I do think that how do we get investors... comfortable I mean in the day the both markets are masses you know I think our ability to honestly to serve either one is it's a very big big win so I think you know this is more I think I'll say optionality I mean maybe that's not a right word say it but but certainly I think we're playing the two biggest markets and And so far, we have been able to navigate, but of course, we're very sensitive to just the changing environments.
spk14: Thanks. That's helpful.
spk06: Our next question comes from Dan Levy from Credit Suisse.
spk11: Hi. Good evening. Thank you for taking the question. First one, you know, the color on the headcount expansion is helpful. Obviously, you know, we keep on hearing there's an arms race for talent. You know, maybe you could just give us a sense of how, you know, your talent acquisition has fared versus others, you know, how much more aggressive you can get. And I guess maybe more importantly, how much of a constraint is talent in achieving success the task of moving the driver and scaling on operations. I mean, maybe said differently, does accelerating headcount help you to accelerate your path to commercialization?
spk10: Again, I mean, it's, yes, in the sense that there is, I think there's a minimum number of headcounts. I mean, as we talked about, if you look at Too Simple, where To get to commercial operations to scale, I mean, we're effectively an artificial intelligence company, we're a software company, we're an automotive company, and we're a logistics company. So to accomplish this, whether it's us or anybody else, I mean, there's a minimum headcount number that you can't do with, let's say, 100 people, right? I mean, this will be in the several thousands, just given the complexity of this. And again, because of that, the barriers to entry into this market will get higher and higher, certainly over the next few years. I don't think the acceleration is not a linear. You know, certainly the way we prioritize our time. I think with that, I think, you know, one of the things that we're most proud of, and I think why we're being able to attract a lot of good talent, especially post-IPO, is that our employees understand that we have a very focused strategy. You know, it's not only technology leadership, but we have a very clear commercial rollout. And even engineers, you know, even folks that are deep, deep in tech appreciate this point. And so, yeah, you know, there's no sort of right answer to your question, but I think you have to have certainly scale in terms of talent and focus. Got it.
spk11: And then the second question, I want to talk to your ecosystem of partnerships. And I know that None of these partnerships really have exclusivity per se, but is there any stickiness factor in your relationships of all the commercial partners that you've listed out that puts you in the front seat for deeper commercial agreements with them as you scale up or that makes it more difficult for them to switch to another tax provider?
spk10: I think there is sort of natural switching barriers because, so for instance, our network, you know, how we designed the network for kind of the right on top of where our current customers are, that provides some switching barrier, right? Because for them to switch technology, they'll assume that the coverage of their maps and everything fits with their supply chain, right, with our customer supply chain. There's things like small things. I mean, right now, the voice of customer, kind of how the handoff works, how do you plug into the TMS system, you know, what kind of equipment that's on the truck. I mean, all these things do play into, and different fleets have different ways of operating, and they don't like to change, you know, if they can help it. And then, of course, kind of starting today, being able to plug into carriers and shippers, TMS, Transmission Management System, and the way they dispatch trucks. Most of the systems on the market today are quite customized. These are probably old systems that have been very customized carrier-to-carrier over time, and so it's actually a long integration process. Those are the things that I think do have natural switching barriers. But look, at the end of the day, we have to deliver. We have to deliver the most efficient most accessible autonomous freight capacity and enable customers to use it. So I think the customers are with us today because they see our leadership in technology and where we're going.
spk11: Great. Thank you.
spk06: We have no further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
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