It’s been a little over a month since Hyliion (NYSE:HYLN) became a public company through its merger with Tortoise Acquisition Corp. Since then, it’s been on a major downturn, with Hyliion stock losing half its value through Nov. 5.
Like many of the electric vehicle opportunities that have come public in 2020 through special purpose acquisition companies, they’re selling a dream and not much more.
Hyliion expects to sell 20 units of its hybrid electric powertrain in 2020, generating approximately $1 million in revenue. In 2021, it expects to sell 300 hybrid electric units generating $8 million in sales. In 2022, it projects 4,100 hybrid electric units sold and 2,500 of its Hypertruck ERX electric trucks for $344 million in annual revenue.
If all goes as planned — it rarely does — Hyliion expects its 2024 sales to top $2 billion with $602 million in earnings before interest, taxes, depreciation and amortization.
While impressive, I have to wonder if Hyliion stock is a realistic option for anyone but the most risk-tolerant investors.
The Need to Convert Heavy-Duty Trucks Is Real
Right there on page 67 of Hyliion’s S-1 registration statement is the market opportunity:
“We estimate that the global market opportunity for our products is $800 billion, based on ACT Research’s estimate of eight million Class 8 commercial vehicles currently in operation. In addition, ACT Research estimates that the active Class 8 commercial vehicle population will grow by approximately 4.5% annually from 2020 to 2024.”
Hyliion wants you to believe that it only has to capture a quarter of 1% of the global market for Class 8 commercial vehicles to reach its $2 billion projection by 2024. What’s so hard about that?
Estimates suggest that 29% of the U.S. greenhouse gas emissions are produced by the transportation industry, with medium- and heavy-duty trucks accounting for a quarter of the sector’s emissions.
America’s greatest carbon emitters are working on getting to carbon-neutral within the next 30 years. Electric-powered vehicles are one way to get there.
“Getting to carbon neutral might take a variety of forms, including purchasing offsets to plant trees. Yet the most impactful move companies can make now is to convert their fossil-fuel fleets to clean electricity sooner rather than later,” Ideanomics stated in a May sponsored content article that appeared in CleanTechnica.
“If saving the environment is a priority, companies such as Amazon don’t have to wait until 2022 or 2030 for commercial EVs to be economical — the math works out now.”
If you’re wondering why I’m laying out a case for electric commercial vehicles — precisely what Hyliion is offering trucking firms — I think you’ll see where I’m headed with this shortly.
Hyliion Stock and the Competition
Hyliion points out in its investor presentation that its Hypertruck ERX electric truck will have a range of 1,300 miles, 2.6 times the range of Tesla’s (NASDAQ:TSLA) heavy-duty truck and almost double Nikola’s (NASDAQ:NKLA).
The problem that I see with this example is that it assumes Tesla will not make any progress on its truck while Hyliion’s sails smoothly to the finish line. And that’s not the case.
“Walmart Canada is now reserving a total of 130 Tesla Semi-trucks, making it one of the largest reservations of electrified trucks in the country,” Walmart Canada stated on Sept. 29.
“The move comes on the heels of Walmart Canada announcing a major $3.5 billion investment over the next five years aimed to generate significant growth in the business and is aligned with Walmarts global goal to target zero emissions by 2040 announced at Climate Week earlier this month.”
By the time all of the 130 trucks are delivered, Tesla is looking at $20 million in revenue.
On Nov. 5, Pride Group Enterprises chief executive officer Sam Johal announced it made a reservation for 150 Tesla Semis with an option to add 350 more in the future.
“[W]e are very excited to bring this innovative product to our strong customer base helping forge a new path in clean transportation,” Johal stated. “We believe that electrification is the way of the future as we work together across multiple industries to reduce our carbon footprint.”
Another multi-million dollar order for Elon Musk and company.
That doesn’t even take into account the possibility that General Motors (NYSE:GM) will carry through on its $2 billion partnership with Nikola (NASDAQ:NKLA). The talks are ongoing, with GM CEO setting a Dec. 3 deadline for reaching a revised agreement.
So, right there, between GM and Tesla, you’ve got two much safer options to bet on the electrification of Class 8 heavy-duty trucks.
The Bottom Line
My InvestorPlace colleague, Thomas Yeung, recently described how the SPAC phenomenon has allowed several electric plays to prematurely hit the public markets.
“Hyliion represents a new class of investments that were once only available to venture capitalists (VCs): zero-profit, high-potential moonshots,” Yeung wrote on Oct. 30.
“Many of these moonshots will succeed, rewarding their investors with 1,000% type returns. Others will fail, wiping out investors’ hard-earned money and filling countless investors with lifelong regret.”
Which will Hyliion be? I couldn’t tell you.
What I do know is that the smarter play for most investors is to buy Tesla or GM rather than risking your hard-earned capital on Hyliion or some of the other money losers.
And if you’re a speculative investor, knock yourself out.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.