Investors looking for further alternative fuel vehicle plays might consider Hyliion (NYSE:HYLN) and Hyliion stock. Hyliion has already gone public through a special purpose acquisition company (SPAC). Now it is working towards production. The company is quite different from industry peers Tesla (NASDAQ:TSLA) and Nikola (NASDAQ:NKLA) in its approach and offerings. Yet, it does bear some similarities to Nikola, specifically the manner in which it has come to market.
Where Tesla and Nikola will produce class 8 trucks, Hyliion is producing drive train solutions. Like Nikola, Hyliion has come to market via the SPAC route. And like Nikola, its stock has fallen post-merger. Furthermore, the company may also soon be embroiled in controversy. First, the good.
The Good Behind Hyliion Stock
Hyliion builds retrofit technology to hybridize class 8 trucks. This means it produces technology that can be added to existing class 8 trucks thus making them hybrid. The company already has solutions for class 8 diesel and compressed natural gas (CNG) trucks. The newest iteration is its ERX Hypertruck solution. This differs from its CNG solution in that the generator operates on renewable natural gas, simply a renewable form of CNG. Therefore, there doesn’t look to be much of a difference.
These units themselves are OEM agnostic, but Hyliion lists preferred manufacturers on its site. Further, built out infrastructure already exists for Renewable Natural gas (RNG) Heavy-Duty Commercial Vehicles (HCVs). It is much more limited for hydrogen, which will fuel Nikola’s trucks when and if they come to market. And Tesla’s battery trucks also have hurdles to overcome vis-à-vis traditional class 8 trucks.
Yet, the overall thrust here is that Hyliion’s products solve an intermittent problem: the switch from fossil fuel class 8 trucks to EV class 8 electric trucks. It doesn’t seem likely that fleet operators will continue to buy fossil fuel HCVs and then look for solutions from Hyliion into the future.
Some Bad
According to renaissancecapital.com, Q3 saw a record 83 SPACs raise $30.6 billion of capital. Yet, despite the continued interest in the investment vehicle itself, the returns have been mixed over the preceding 5 years.
As the findings relate to Hyliion stock (directly taken from Renaissance Capital’s breakdown):
- 2015-2020 SPAC IPOs have underperformed post-merger
- SPAC mergers in 2019-2020 have outperformed those in 2016-2018
- Only 29 of the SPACS in this group (31.1%) had positive returns as of Wednesday’s close
SPACs tend to perform better pre-merger than they do post-merger. Hyliion is already in the post-merger stage after having gone public through Tortoise Acquisition Corp. Indeed, HYLN stock is down 44.03% since going public Oct. 2. Yet, that alone isn’t reason enough to indict Hyliion. There are always outliers that disprove the general trend. And Hyliion could certainly reverse its poor start.
Bullet point two indicates that Hyliion stock is in good company, or at least running with a better crowd. So perhaps there is some room for optimism. But the third point that SPACs have shown to be a laggard does not portend well for the company. Yes, there has been a lot of optimism and investment in SPACs. Yet, at the end of the day these companies need to prove that they can drive revenue through their doors, and not simply equity investment. Hyliion has proven the former point in raising $560 million through the merger, yet future revenue is what any investors looking to buy now must consider.
Revenues
Hyliion’s task by which it will fail or thrive is turning that $560 million into a product, or specifically its Hypertruck ERX, which creates revenue and profit. The company also has a modular hybrid diesel power solution which can be retrofitted to class 8 diesel trucks. Penske (NYSE:PAG) and Ryder (NYSE:R) are current customers for that solution. Yet, it seems clear that the Hypertruck ERX will really drive future revenue.
Hyliion states that it should have some vehicles on the road by 2021 and expects large shipments to occur in 2022. It forecasts total annual revenues of $344 million in 2022, and $1.02 billion and $2.09 billion in 2023 and 2024, respectively.
The Ugly
Short-seller firms hold an interesting position in the investment ecosystem. Their goal is to invest in equities they believe will decline in value and purchase options designed to capitalize on that decline. Their function is to identify bad and often fraudulent investments. Short seller firm Muddy Waters was the first to identify Luckin Coffee’s (OTCMKTS:LKNCY) accounting fraud. This triggered a massive scandal. Yet, short sellers also have a vested interest in a given stock’s decline, so their research should be taken with a grain of salt.
Bonitas Research released a report claiming Hyliion has made false claims regarding its technology and the abilities thereof. It is worth a read. One of the more material claims was that Hyliion’s systems can’t simply be mated to a vehicle’s power train without voiding the warranty. This certainly makes sense. There are also claims regarding the scientific basis of claims made by Hyliion regarding its vehicles rooted in laws of physics.
Again, none of this is definitive one way or the other. However, it certainly can’t help the case for investing into Hyliion at this point. And if authoritative figures validate those claims, Hyliion is going to have a real battle on its hands.
The Bottom Line on Hyliion
Based on all of this, I’d stay away from Hyliion stock at this time. Firstly, the data suggests that pre-merger is the time to be invested into SPAC stocks. On that note, it could very much be a worthwhile bet to take a short position in Spartan Energy Acquisition Corp. (NYSE:SPAQ) at this point. The company is pre-merger, and will soon announce plans for a definitive merger date. The data suggests it could likely rise up to the merger. But post-merger declines are normal, and SPAC stocks have shown to be value destroying on the whole.
Further, it seems that Hyliion is betting that class 8 fleet operators will buy into this product which will have significant costs. Investors will need data that substantiates Hyliion’s claims in real world settings. I don’t see those anywhere. Lastly, if the short seller research is substantiated, Hyliion is in real trouble.
In any case, its post-merger performance has seen 44% of value go down the drain. The only chance at redemption at this point is that Hyliion manages to convince fleet operators that its products can truly lower their costs. That will take time. That’s why the only time I’d invest in this would be in the future. And that would be after Hyliion has proven something. Broad claims about Hyliion being worthwhile because it is an EV play mean little. So investing now on the vague notion that this company will skyrocket soon seems foolish to me.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
