The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the accompanying notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled "Risk Factors" of the Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview When used in this report, the terms “TuSimple”, “Company”, “we”, “us”, and “our” mean TuSimple Holdings Inc. and all subsidiaries. TuSimple is a global autonomous driving technology company headquartered in San Diego, California, with operations in the United States (“U.S.") and the Asia-Pacific region (“APAC”). Founded in 2015, we are working to revolutionize the estimated $4 trillion global truck freight market by developing proprietary technologies that enable the scaled development and deployment of autonomous freight transportation. We believe that our full-stack L4 autonomous driving technology and our Autonomous Freight Network (“AFN”) will make global trucking safer as well as more reliable, efficient, and environmentally friendly. Reportable Segments TuSimple’s two reportable geographic segments are the U.S. and APAC. These segments align with our bifurcated development strategy of our L4 autonomous driving technology and independent operations and commercial business models in each region. Each segment has stand-alone engineering teams, software code base, infrastructure, technological capabilities, and onboard software development to fit regional demands and differences in end-market use cases. AFN We are in the early stages of developing our AFN. Our AFN will provide autonomous freight capacity as a service through two service models based on users’ needs: •TuSimple Capacity. Our fleet of owned or leased retrofitted (near-term) and purpose-built L4 autonomous semi-trucks (longer-term) will serve customers that desire access to safe, reliable, low cost, and more environmentally friendly freight transportation without owning semi-truck assets. •Carrier-Owned Capacity. Customers that prefer to own their fleet will be able to purchase our purpose-built L4 autonomous semi-truck from an OEM with on-board autonomous driving software solutions. We believe the TuSimple Capacity model with retrofitted trucks will enable an accelerated path to commercialization. We have developed proprietary technologies and systems necessary for the development and deployment of our autonomous trucking operations within the AFN. Once fully scaled, the AFN aims to serve as a comprehensive autonomous freight solution that provides users with access to L4 autonomous semi-trucks operating on HD digital mapped routes connecting a network of terminals. Full-Stack L4 Autonomous Driving Technology, Hardware, and Offboard Capabilities TuSimple is developing L4 autonomous driving solutions with Automated Driving System (“ADS”) L4 capable onboard software, offboard capabilities, and hardware. The capabilities for the U.S. and APAC segments, including their software base code, have been independently developed by the technology teams in each region. 18 Our autonomous driving technology is specifically designed for semi-trucks in the geographies where we operate. Our current development priorities and testing activities are focused on further refining our L4 autonomous driving technology to prepare them for scaled deployment and commercialization. Our proprietary L4 autonomous driving solutions include our L4-capable ADS, such as 1,000 meter perception range, multi-modal perception, and offboard capabilities, such as high definition (“HD”) maps, machine-learning, autonomy visualization and simulation capabilities, and an integrated L4 autonomous semi-truck design consisting of a redundant sensor suite, on-board computing solutions, and other components. Long-range perception, advanced planning and decision-making, and highly accurate mapping are important capabilities for the autonomous freight operation of semi-trucks, which are heavy, articulated vehicles that need to be able to operate at highway speeds. Our Operations Today We currently operate approximately 70 L4 autonomous semi-trucks, 35 in the U.S. and 35 in APAC in Driver-In mode with a safety driver and safety engineer in the cabin. Operating with a safety driver and safety engineer allows us to continually improve our L4 technology. We have also conducted select testing operations in other locations in the U.S., China, Japan and Sweden as we make Operational Design Domain ("ODD") expansions and demonstrate our capabilities to customers and partners. Currently, we do not have operations in Sweden and we are focused on expanding our ODD in the APAC region. During prior years, we generated revenue from freight capacity services to customers via the TuSimple Capacity service model in the U.S. Gross loss margins for our revenue operations exceeded 100% of revenue given their developmental nature, including having a driver and test engineers in the trucks. Deploying our autonomous trucks in Driver-In mode in a real world commercial setting allowed us to develop our technology while generating revenue, as well as establish fleet management operations and related processes ahead of initiating commercialization. Currently, we believe the incremental benefits and learnings associated with these revenue operations do not outweigh their operating losses. Effective the fourth quarter of 2022, we de-emphasized revenue-generating freight services for our U.S. operations. As such, we do not plan to generate significant revenue in the U.S. for the foreseeable future. Components of Results of Operations Revenue To date, all of our revenue recognized has been from freight capacity services provided through the TuSimple Capacity service model in the U.S. Revenue is recognized over time as the goods are transported from one location to another based on the number of miles traveled. Shipments are completed within a short period of time, typically spanning one to two days. Cost of Revenue Our cost of revenue consists primarily of fuel costs, depreciation of property and equipment (including semi-trucks acquired under finance leases), labor costs, and other costs directly attributable to the provision of freight capacity services. Currently, we operate a large portion of our semi-trucks with two occupants, a safety engineer and a safety driver. Research and Development ("R&D") R&D costs consist primarily of personnel-related expenses, including stock-based compensation costs, associated with software developers and engineering personnel responsible for the design, development, and testing of our L4 autonomous driving technology, and allocated overhead costs. Selling, General and Administrative ("SG&A") SG&A costs consist primarily of personnel-related expenses, including stock-based compensation costs, associated with our sales, marketing, management, and administration activities, professional service fees, and other general corporate expenses. 19 Interest Income Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments. Provision for Income Taxes Provision for income taxes consists primarily of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. Since inception, we have incurred operating losses. We have a full valuation allowance for net deferred tax assets, including federal and state net operating loss carryforwards and research and development credit carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income. Results of Operations The following table sets forth our unaudited condensed consolidated results of operations data for the periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2023 2022 2023 Revenue $ 2,653 $ — $ 7,511 $ 307 Cost of revenue 5,436 — 15,292 754 Gross loss (2,783) — (7,781) (447) Operating expenses: Research and development(1) 84,931 44,322 248,608 164,430 Selling, general and administrative(1) 31,119 26,335 85,351 83,757 Total operating expenses 116,050 70,657 333,959 248,187 Loss from operations (118,833) (70,657) (341,740) (248,634) Interest income 5,545 9,298 7,912 28,922 Other income (expense), net 127 (77) 169 (975) Loss before provision for income taxes (113,161) (61,436) (333,659) (220,687) Provision for income taxes — — — — Net loss $ (113,161) $ (61,436) $ (333,659) $ (220,687) (1) Includes stock-based compensation expense as follows (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2023 2022 2023 Research and development $ 16,915 $ 6,564 $ 56,771 $ 24,962 Selling, general and administrative 6,117 4,187 18,939 13,553 Total stock-based compensation expense $ 23,032 $ 10,751 $ 75,710 $ 38,515 20 Comparison of the Three and Nine Months Ended September 30, 2022 and 2023 Revenue Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except percentages) 2022 2023 % Change 2022 2023 % Change Revenue $ 2,653 $ — (100) % $ 7,511 $ 307 (96) % Three Months Ended September 30, 2023 Compared with the Same Period in 2022 We had no revenue in the three months ended September 30, 2023, in-line with our previously disclosed revised strategy to pause freight revenue operations in our U.S. segment. Nine Months Ended September 30, 2023 Compared with the Same Period in 2022 Revenue decreased by $7.2 million, or 96%, in the nine months ended September 30, 2023 compared to the same period in the prior year, primarily due to reduced volume of orders and loads, in-line with our previously disclosed revised strategy to pause freight revenue operations in our U.S. segment. Cost of Revenue Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except percentages) 2022 2023 % Change 2022 2023 % Change Cost of revenue $ 5,436 $ — (100) % $ 15,292 $ 754 (95) % Three Months Ended September 30, 2023 Compared with the Same Period in 2022 Cost of revenue was zero in the three months ended September 30, 2023, in-line with our previously disclosed revised strategy to pause freight revenue operations in our U.S. segment. Nine Months Ended September 30, 2023 Compared with the Same Period in 2022 Cost of revenue decreased by $14.5 million, or 95%, in the nine months ended September 30, 2023 compared to the same period in the prior year, in-line with our previously disclosed revised strategy to pause freight revenue operations in our U.S. segment. Restructuring During the fourth quarter of 2022 and first half of 2023, our board of directors authorized multiple restructuring plans to rebalance our cost structure in alignment with our strategic priorities, including a 25% and a 30% reduction of our total workforce in December 2022 and May 2023, respectively, and impairment or write-off of several capital assets. 21 Research and Development Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except percentages) 2022 2023 % Change 2022 2023 % Change U.S. $ 60,632 $ 20,228 (67) % $ 186,006 $ 100,951 (46) % APAC 24,299 24,094 (1) % 62,602 63,479 1 % Total R&D $ 84,931 $ 44,322 (48) % $ 248,608 $ 164,430 (34) % Three Months Ended September 30, 2023 Compared with the Same Period in 2022 U.S. R&D expenses decreased by $40.4 million, or 67%, in the three months ended September 30, 2023 compared to the same period in the prior year. The decrease was primarily attributable to our restructuring efforts during the fourth quarter of 2022 and first half of 2023 that significantly reduced headcount and resulted in decreased personnel-related costs, including stock-based compensation expense. APAC R&D expenses decreased by $0.2 million in the three months ended September 30, 2023 compared to the same period in the prior year. There was a decrease in joint development costs due to the timing of our joint development activities related to our TuSimple Domain Controller ("TDC"), which was offset by increased R&D expenses to expand operations in China and Japan as we further develop L4 capabilities in the region. Nine Months Ended September 30, 2023 Compared with the Same Period in 2022 U.S. R&D expenses decreased by $85.1 million, or 46%, in the nine months ended September 30, 2023 compared to the same period in the prior year. The decrease was primarily attributable to our restructuring efforts during the fourth quarter of 2022 and first half of 2023 that significantly reduced headcount and resulted in decreased personnel-related costs, including stock-based compensation expense, and decreased depreciation and allocated facility costs. APAC R&D expenses increased by $0.9 million in the nine months ended September 30, 2023 compared to the same period in the prior year. There was an increase in personnel-related costs and R&D expenses to expand operations in China and Japan as we further develop L4 capabilities in the region, which was offset by reduced joint development costs due to the timing of the joint development activities related to our TDC. Selling, General and Administrative Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except percentages) 2022 2023 % Change 2022 2023 % Change U.S. $ 25,828 $ 17,970 (30) % $ 67,527 $ 62,822 (7) % APAC 5,291 8,365 58 % 17,824 20,935 17 % Total SG&A $ 31,119 $ 26,335 (15) % $ 85,351 $ 83,757 (2) % Three Months Ended September 30, 2023 Compared with the Same Period in 2022 U.S. SG&A expenses decreased by $7.9 million, or 30%, in the three months ended September 30, 2023 compared to the same period in the prior year. The decrease was primarily attributable to our restructuring efforts during the fourth quarter of 2022 and first half of 2023 that significantly reduced headcount and resulted in decreased personnel-related costs, including stock-based compensation expense, decreased office and facility-related costs due to the associated change in our business strategy, and decreased professional services costs due to decreases in consulting services. These decreases were partially offset by increased allocated corporate legal costs in connection with ongoing litigation and investigations. 22 APAC SG&A expenses increased by $3.1 million, or 58%, in the three months ended September 30, 2023 compared to the same period in the prior year. The increase was primarily attributable to increased allocated corporate legal and professional services costs in connection with ongoing litigation matters. Nine Months Ended September 30, 2023 Compared with the Same Period in 2022 U.S. SG&A expenses decreased by $4.7 million, or 7%, in the nine months ended September 30, 2023 compared to the same period in the prior year. The decrease was primarily attributable to our restructuring efforts during the fourth quarter of 2022 and first half of 2023 that significantly reduced headcount and resulted in decreased personnel-related costs, including stock-based compensation, decreases in office and facility-related costs and business development and marketing costs due to the associated change in our business strategy, decreased professional service fees due to reduced consulting services, and allocated corporate costs consisting of a non-recurring expense recorded during the nine months ended September 30, 2022 related to the modification of Cheng Lu's equity awards in connection with his separation as CEO in March 2022. These decreases were partially offset by increased allocated corporate legal and professional services costs in connection with ongoing litigation and investigations and restructuring expenses related to our restructuring plans during the first half of 2023. APAC SG&A expenses increased by $3.1 million, or 17%, in the nine months ended September 30, 2023 compared to the same period in the prior year. The increase was primarily attributable to increased allocated corporate legal and professional services costs in connection with ongoing litigation and investigations, partially offset by a decrease in personnel-related costs due to the decrease in stock-based compensation due to the decrease in our stock price, and allocated corporate costs consisting of a non-recurring expense recorded during the nine months ended September 30, 2022 related to the modification of Cheng Lu's equity awards in connection with his separation as CEO in March 2022. Interest Income Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except percentages) 2022 2023 % Change 2022 2023 % Change Interest income $ 5,545 $ 9,298 68 % $ 7,912 $ 28,922 266 % Three Months Ended September 30, 2023 Compared with the Same Period in 2022 Interest income increased by $3.8 million, or 68%, in the three months ended September 30, 2023 compared to the same period in the prior year, primarily due to an increase in our interest-bearing short-term investments. We started to invest in marketable securities in August 2022. Nine Months Ended September 30, 2023 Compared with the Same Period in 2022 Interest income increased by $21.0 million, or 266%, in the nine months ended September 30, 2023 compared to the same period in the prior year, primarily due to an increase in our interest-bearing short-term investments. We started to invest in marketable securities in August 2022. Segment Adjusted EBITDA We have two reportable segments: U.S. and APAC. Our Chief Operating Decision Maker ("CODM") utilizes the segment Adjusted EBITDA metric to evaluate operating performance and allocate resources. 23 The following table provides information about our segment Adjusted EBITDA (in thousands): Three Months Ended September 30, % Change Nine Months Ended September 30, % Change 2022 2023 2022 2023 U.S. $ (68,249) $ (29,231) (57) % $ (192,132) $ (119,853) (38) % APAC (24,531) (28,175) 15 % (63,559) (71,937) 13 % Total Adjusted EBITDA $ (92,780) $ (57,406) (38) % $ (255,691) $ (191,790) (25) % The changes in our segment Adjusted EBITDA for both U.S. and APAC segments are primarily attributable to the changes in operating expenses. Refer to the comparisons above for discussion on the changes in respective research and development expense and selling, general and administrative expense for the two segments. Key Metric and Non-GAAP Financial Measure Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except percentages) 2022 2023 % Change 2022 2023 % Change Loss from operations $ (118,833) $ (70,657) (41) % $ (341,740) $ (248,634) (27) % Adjusted EBITDA(1) $ (92,780) $ (57,406) (38) % $ (255,691) $ (191,790) (25) % (1) Adjusted EBITDA is a non-GAAP financial measure. For more information regarding our use of this financial measure and a reconciliation of this financial measure to the most comparable GAAP measure, see “Reconciliation of Non-GAAP Financial Measure.” Adjusted EBITDA Adjusted EBITDA is a performance measure that our management uses to assess our operating performance in our business. Since Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. We calculate Adjusted EBITDA as loss from operations, adjusted to exclude: •depreciation and amortization; •stock-based compensation expense; •restructuring expenses; and •finance lease interest expense included within cost of revenue. For more information regarding the limitations of Adjusted EBITDA and a reconciliation of loss from operations to Adjusted EBITDA, see the section titled "Reconciliation of Non-GAAP Financial Measure." Reconciliation of Non-GAAP Financial Measure We use Adjusted EBITDA in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance. Because non-GAAP financial measures are not standardized, it may not be possible to compare this measure with other companies’ non-GAAP measures having the same or similar names. In addition, other companies may not publish similar metrics. Furthermore, this measure has certain limitations in that it does not include the impact of certain expenses that are reflected in our consolidated statements of operations that are necessary to run our business. Our Adjusted EBITDA should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP. 24 The following table provides a reconciliation of reported net loss from operations determined in accordance with GAAP to non-GAAP adjusted EBITDA (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2023 2022 2023 Loss from Operations $ (118,833) $ (70,657) $ (341,740) $ (248,634) Stock-based compensation expense(1) 23,032 10,751 75,710 41,071 Depreciation and amortization(1) 2,874 1,707 8,335 4,500 Restructuring expenses — 793 1,568 11,220 Finance lease interest expense included within cost of revenue 147 — 436 53 Adjusted EBITDA $ (92,780) $ (57,406) $ (255,691) $ (191,790) (1) Excludes amounts related to restructuring events. Liquidity and Capital Resources We have financed our operations primarily through the sale of capital stock, which has historically been sufficient to meet our working capital and capital expenditure requirements. As of September 30, 2023, our principal sources of liquidity were $249.2 million of cash and cash equivalents, exclusive of restricted cash of $1.7 million, and $526.0 million of short-term investments. Cash and cash equivalents consist primarily of cash on deposit with banks, certificates of deposit, and money market funds. Short-term investments consist primarily of available-for-sale debt securities including: commercial paper, U.S. treasury securities, U.S. government agency securities, and corporate debt securities. We consider our short-term investments as available for use in current operations. Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including, but not limited to, the rate of our growth, our ability to attract and retain users and their willingness to pay for our services, and the timing and extent of spending to support our efforts to develop our L4 autonomous driving technology and AFN. Further, we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies. As such, we may be required to seek additional equity and/or debt financing. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations may be materially and adversely affected. Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Nine Months Ended September 30, 2022 2023 Net cash (used in) provided by: Operating activities $ (255,991) $ (217,931) Investing activities $ (210,140) $ (147,698) Financing activities $ 1,941 $ (1,526) Operating Activities Net cash used in operating activities was $256.0 million and $217.9 million for the nine months ended September 30, 2022 and 2023, respectively. The decrease was primarily due to a decrease in net losses as a result of our restructuring activities during the fourth quarter of 2022 and first half of 2023 to rebalance our cost structure in alignment with our strategic priorities. 25 Investing Activities Net cash used in investing activities was $210.1 million and $147.7 million for the nine months ended September 30, 2022 and 2023, respectively. The decrease was primarily due to movements in the balance of our investments in marketable securities caused by purchases of investments and proceeds from the maturity of investments during the nine months ended September 30, 2023. Financing Activities Net cash provided by financing activities was $1.9 million for the nine months ended September 30, 2022 and related to proceeds received from the issuance of shares related to the exercise of stock options by employees and purchases under our Employee Stock Purchase Plan, that were partially offset by the principal payments on our finance leases and truck purchase loans. Net cash used in financing activities was $1.5 million for the nine months ended September 30, 2023 and primarily related to the principal payments on our finance leases and truck purchase loans. Material Cash Requirements At September 30, 2023, there were future minimum lease payments of $52.7 million for operating leases. Critical Accounting Estimates We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of these condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. There have been no material changes to our critical accounting estimates as compared to the critical accounting estimates discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, except as described in Note 1. Description of Business and Summary of Significant Accounting Policies to our condensed consolidated financial statements. Recent Accounting Pronouncements For information on recently issued accounting pronouncements, refer to Note 1. Description of Business and Summary of Significant Accounting Policies in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.