Initially, the narrative for Hyliion (NYSE:HYLN) appears a relevant and convincing one. As one of the growing number of players competing in the alternative-energy transportation sector, Hyliion stock has benefitted from the hype machine that has pushed up many companies that made their market debut via a special purpose acquisition company.
For one thing, millennials and Generation Z are all about companies that promote solutions for environmental, social and governance concerns. Indeed, we have a whole new investing acronym, called ESG, because of this trend. More importantly, consumers are willing to pay for sustainability. ESG isn’t just about tree hugging but putting your money where your mouth is.
To that end, Hyliion has generated headlines thanks to its Hypertruck ERX. Powered by renewable natural gas and a fully electric drivetrain, the Hypertruck features two compelling advantages. First, the natural gas fuel source allows relatively quick refueling at CNG stations throughout the country. Second, on the road, the kinetic energy generated recharges the e-motors.
For Hyliion stock to be successful, the underlying company must provide practical solutions that fleets can readily accommodate. While intriguing as a concept, we will not see a 100% pivot toward alternative-energy trucks tomorrow. Here, Hyliion offers modular hybrid systems that “can be installed on most major Class 8 commercial vehicles,” according to the company’s website.
This provides the advantages seen in electric vehicles. These include regenerative braking along with an improvement in performance and overall fuel efficiency, while allowing fleets to maintain their traditional diesel-engine trucks.
On paper, Hyliion stock sounds like a no-brainer. But questions regarding this emerging technology should make prospective buyers think twice.
Concerns About Hyliion Stock Should Not Be Ignored
Of course, everyone should know that Hyliion stock is an incredibly speculative investment. In a backhanded way, organizations like HYLN allow gamblers to wager on what could be the next Tesla (NASDAQ:TSLA). But because Hyliion isn’t competing with Tesla directly, it lends some credibility for this otherwise risky venture.
Unfortunately, while many companies attempted to take alternative-energy vehicles to the next plateau, only Tesla has demonstrated viability. That TSLA has been all over the map in recent weeks should be a source of concern. If a credible organization has been volatile, you can bet your ride with Hyliion stock won’t be smooth.
Further, there is a possibility that the science underlining Hyliion may be exaggerated. Short-seller firm Bonitas Research says Hyliion’s claims about 30% increased fuel efficiency through its hybrid system is a lie. Bonitas also lists a history of failed pilot programs. As an emerging technology, you can expect hiccups along the developmental path.
Now, I don’t want to spend too much time assessing a short seller’s accusations. However, Bonitas did bring up an interesting question: who is responsible when a diesel truck retrofitted with Hyliion’s modular system goes awry?
Frankly, I’m not sure if fleet owners or truck manufacturers want to deal with modular systems from third-party emerging technologies. You’re just introducing multiple variables that may not be properly tested. And if I know anything about next-generation solutions, they never work cleanly out of the box.
If something goes wrong with Hyliion’s hybrid systems, that could be detrimental to public safety. Remember, these are vehicles carrying massive payloads. Given such legal concerns, I’m not surprised that HYLN has printed gobs of red ink since late September.
HYLN Is Not Appropriate for Most Investors
Even if the safety concerns were addressed and Hyliion’s claims of increased fuel efficiency were valid, the narrative for HYLN would still be troubled. Mainly, that’s because of the convenience factor. While there are thousands of CNG stations planned, the present reality is that such stations are concentrated in specific regions.
Therefore, in order for natural gas-powered vehicles to transport across the country, the logistics will be challenging. And that’s just not a challenge that traditional diesel trucks must deal with. Their underlying infrastructure is both robust and complete.
But with the question marks surrounding HYLN and its myriad claims, Hyliion stock just isn’t a great bet for most people. Let the volatility die down and let’s see if the company really has the right stuff.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.