Even if Hyliion’s Claims Are True, It Can’t Juke the Economy

Honestly, there’s a part of me that wants Hyliion Holdings (NYSE:HYLN) to be as good as advertised. Primarily, a push toward alternative sources of transportation would help us become truly energy independent in that we no longer have to deal with the Middle East and the foolish conflicts that go with it. Plus, HYLN stock is levered to a hybrid platform, which is probably the most feasible solution for freight transportation.

An image showing natural gas storage containers.
Source: Muratart/Shutterstock.com

Of course, with electric vehicle firms like Tesla (NASDAQ:TSLA) constantly making headlines this year, proposing fully electric platforms has been in vogue. But the problem for big freight – at least with current EV technology – is range and convenience. It’s just science. According to the Brookings Institution, fossil fuels are difficult for societies to quit because of their energy density. They pack quite a punch for a relatively small volume.

But the bullish case for HYLN stock is that the underlying company offers a best-of-both-worlds compromise. Until we have solid-state batteries that offer energy density and quick “refuel” capabilities similar to fossil fuels, a 100% electric motor system is probably not feasible for freight transportation.

A Potential Gamechanger

Instead, Hyliion’s solutions – either its turnkey truck or its modular system – take the efficiencies of an electric platform with the range and convenience of compressed/renewable natural gas.

If Hyliion’s products work as promised, it could be a gamechanger. This explains why many are eager to invest in HYLN stock.

For example, the company’s Hypertruck ERX features a fully electric drivetrain. This affords it amazing performance fully loaded. As well, truck drivers can benefit from regenerative braking. But because the generator is fueled by energy-dense renewable natural gas, the Hypertruck has a range of more than 1,300 miles.

According to the company’s website, that puts it on par with diesel trucks. Additionally, drivers can refuel far quicker than charging an equivalent vehicle. All signs point to HYLN stock moving higher. But why hasn’t it?

Concerns About HYLN Stock

Though memories of 2020 will forever be scarred by the novel coronavirus, if it’s known for anything else, it could be the disconnect between Wall Street and Main Street. For now, the bull market appears intact. However, we’ve seen high-profile disasters stemming from fraud allegations. Many investors are reasonably gun shy about speculative ventures like HYLN stock.

Not only that, InvestorPlace contributor Faizan Farooque listed several headlines specific to Hyliion that raise credibility concerns. First, a bearish report from short-seller Bonitas Research took the company’s fuel-efficiency claims to task. Then, PAM Transportation Services “allegedly showed that Hyllion’s product provides only ‘a small percentage’ improvement in fuel efficiency.”

If anything, I’d recommend reading Farooque’s article before you get too heavily involved with HYLN stock.

Poor Economy Poses a Threat

Presently, my biggest concern for HYLN stock has got to be the economy. Mainly, investors should read between the lines in terms of economic data. For instance, the national employment level based on the latest data (November 2020) is 149,732 million, down 5.7% from January of this year.

However, the employment level of transportation and material moving occupations is down 8.7% over the same period. If we’re truly in a recovery, as outgoing President Donald Trump has basically stated, this gap needs to be tighter. After all, transportation is truly where the economic rubber meets the road.

Employment level - national average vs. transportation industry
Click to Enlarge
Source: Chart by Josh Enomoto

Furthermore, I think it’s fair to say that if the labor market for transportation is hurting disproportionately due to Covid-19, then fleet operators won’t exactly be in the mood to add costs to their books. Nor would they want to experiment on a new technology.

As well, the personal saving rate, while it did fall in November, is still incredibly elevated at 12.9%. We’re talking about a rate of magnitude that is more in common with the Vietnam War era.

This translates to consumers saving more and buying less. And if they’re buying less, that’s not great for transportation, which in turn isn’t helpful for HYLN stock.

Other Clues to Consider

Perhaps if we were in a convincing bull market, I’d have a brighter take on HYLN stock. However, other fundamental factors suggest that caution is the smarter approach.

According to fleet management firm Fuel Express, clothing is one of the most popular products shipped via fleet trucks. Another is produce, typically fresh fruits and vegetables. For the former category, discretionary retail has been the hardest hit. Yes, there are some hot brands like Nike (NYSE:NKE) that outperformed during this crisis. However, apparel retailers in general were devastated.

As for the latter category, it’s true that consumers panicked and stocked up on food at the crisis’ onset. But with 85% of restaurants possibly about to close permanently, food demand will probably not support the trucking industry.

Put it all together and this sector is suffering from a death by a thousand cuts. Therefore, even if Hyliion’s technology is the real deal, it might not be enough for HYLN stock.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2020/12/hyln-stock-cant-juke-economy-even-if-claims-are-true/.

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