In recent years, the trucking industry in North America has shown continuous growth. The compound annual growth rate of truck mileage from 1990 to 2018 remained at about 3%. With the rise of e-commerce and next-day delivery, freight transportation needs continue to shift towards trucks. However, the trucking industry also faces challenges like labor shortages, high insurance costs and safety issues. Autonomous driving technology is considered as a potential solution. TuSimple, a startup focused on level 4 autonomous trucking, has made progress in core technology and started testing commercial routes. But there are still technology and business model uncertainties. This article analyzes the market opportunities, leading players, profit model and risk factors of investing in semi trucks.
Strong market growth driven by transportation needs and driver shortage
The trucking market in North America has great growth potential. About 80% of freight transportation goes through only 10% of trade routes which connect major metropolitan areas. The total addressable market is estimated at $800 billion in the US and $1.7 trillion in China. An aging driver workforce and increasing safety requirements lead to a shortage of 60,000 semi truck drivers in 2018. As driver costs account for 43% of per mile expenses which is 80% higher than fuel costs, autonomous trucking provides a solution to reduce operation costs by 30-50%.
TuSimple aims to build an autonomous freight ecosystem
Founded in 2015, TuSimple focuses on level 4 self-driving truck technology. Its proprietary software and perception system allow trucks to operate without driver intervention. TuSimple is constructing an Autonomous Freight Network (AFN) consisting of self-driving semi trucks, digital mapped routes, freight terminals and two service models. Users either purchase TuSimple’s purpose-built L4 semis or use TuSimple’s fleet capacity operated under an asset-light model.
Profitability relies on technology maturity and commercialization
As a first mover, TuSimple has achieved many milestones like partnering with OEMs and testing driverless operations. But there are still technology uncertainties and business risks. The viability relies on optimizing algorithms, reducing hardware costs and demonstrating safety at scale. Industry competition is also fierce with players like Waymo and Embark. While autonomous trucking aims to disrupt freight transportation, traditional logistics firms still have the advantage in network effects.
In summary, the semi trucking industry has promising growth potential driven by transportation needs and driver shortage issues. Autonomous driving technology could reduce operation costs and improve road safety. But technology and business model viability remains unproven for startups like TuSimple which requires long-term capital commitment.