Self-driving truck software developer Plus signed a definitive agreement Monday to merge with special purpose acquisition company (SPAC) Hennessey Capital V in a deal expected to bring $500 million in cash and a $3.3 billion valuation to Plus in Q3.
Hennessey is a veteran creator of shell companies funded by “blank check” investors seeking to profit from merging with a startup or early-stage company. Hennessey sponsored the public debuts of flatbed logistics company Daseke Inc. (NASDAQ: DSKE) in 2017 and more recently backed startup electric vehicle maker Canoo Inc. (NASDAQ: GOEV) among four previous SPAC sponsorships.
“While we evaluated a number of potential partners, Plus stood out for its unique AI-powered autonomous trucking technology, its partnerships with OEMs and world-class customers, and its strategic road map to start the broad commercialization of its intelligent transportation solutions today,” Daniel J. Hennessy, chairman and CEO of HCIC V (NASDAQ: HCIC), said in a press release.
Cooling SPAC market
HCIC V raised $345 million during an initial public offering in January. An additional $150 million was raised from funds participating in a private investment in public equity (PIPE). It is a smaller PIPE than many raised in other SPAC deals as the number of reverse mergers is cooling after a 15-month period in which more than 560 SPACs were started.
BlackRock and The D. E. Shaw Group are among institutional investors in the PIPE.
The Securities and Exchange Commission (SEC) in April issued new guidance on SPACs that included reclassifying stock warrants issued to early investors as liabilities instead of equities. And it raised questions about whether forward projections of revenue and profits should be protected from liability should the projections fail to be realized.
Plus co-founder and CEO David Liu told FreightWaves in March his company was interested in raising more money to expand its driver-monitored Level 4 high autonomy software in the U.S. and Europe. Plus has a joint venture with China-owned First Auto Works (FAW).
If the SPAC merger closes as expected, Plus will have about $800 million on its books at the end of the third quarter, according to Wen Han, Plus chief financial officer.
Plus raised $420 million from current and new investors in February and March in a two-part Series B fundraising round. Much of the investment came from China. All current investors are rolling their stakes into the combined company and will hold about 80% of the equity, Han said.
How the U.S. government will regard that ownership will be something to watch. The Committee on Foreign Investment in the United States (CIFUS) raised questions about Chinese ownership in Plus rival TuSimple (NYSE: TSP) that began public trading following a traditional IPO in April.
A subsidiary of China media conglomerate Sina sold 6 million shares of TuSimple on the day TuSimple went public.
Driverless by end of 2024
For the first time Monday, Plus said it expects to remove the driver from its autonomous trucks by the end of 2024, the same year rival TuSimple plans to begin selling a driverless version of a Navistar International (NYSE: NAV) Class 8 truck.
Liu told FreightWaves in March he thinks it will take 10 billion miles of supervised driving to have sufficient data to put driverless trucks on the road. On Monday, chief operating officer Shawn Kerrigan said he thinks 8 billion miles will create sufficient data to remove the driver.
The Cupertino, California-based company plans mass production of its PlusDrive system this year, starting with integrated systems on FAW J7L3 trucks. Plus is running supervised autonomous trucks on two long-haul routes in China: 900 miles round trip from Wuhan to Wuxi and 1,000 miles round trip from Changshu to Wuhan.
“It’s Level 2 until you take the driver out,” Don Burnette, CEO of rival Kodiak Robotics, told FreightWaves.
Plus has a deal with Europe’s IVECO to jointly develop autonomous trucks. Unlike rivals TuSimple, Aurora Innovation or Waymo Via, Plus does not have a development partnership with a major truck manufacturer in the U.S.
Advantages of driverless trucking
In an investor deck with Monday’s merger announcement, Plus detailed numerous advantages of robot trucks:
38% reduction in operating costs.
1.1 million tons less of carbon emissions between 2021 and 2024.
100% increase in revenue per truck.
10% to 20% fuel savings.
Hennessey said Daseke’s 100% driver turnover and pressured profit margins convinced him that safe, sustainable and scalable autonomous trucking is the solution. He said Hennessey reviewed hundreds of companies before settling on Plus.
TuSimple coverage initiations
Separately, two Wall Street analysts initiated coverage of TuSimple on Monday. Morgan Stanley said it sees significant potential growth once it removes the driver from the truck.
“If TSP clears this hurdle, we think the path to commercial launch in 2024 is relatively straightforward, and the product’s value proposition looks clear,” analyst Ravi Shankjer wrote in an investor note.
“A successful test would likely push the stock toward our bull case value of $139 per share (or a $28 billion valuation), while failure could send it to our bear case cash plus takeout value of $10 per share (or $2 billion),” he said. “We view TSP as an early leader in commercial truck autonomy.”
Cowen analyst Jeffrey Osborne initiated coverage on TuSimple with a $38 stock target, about 40 cents below its intraday share price Monday.
“This solution offers up a compelling value proposition to fleet operators like shippers, carriers and rail/intermodal,” Osborne wrote. “Labor costs are a large component of a freight operator’s cost, amounting to around 40% of total operating costs. Driver turnover can be as high as 100% in strong economic periods.”