Hyliion Is Attractive After a Correction, But Faces Competition

Editor’s Note: This article was updated on Jan. 19, 2021, to add information about Hyliion’s EV range.

Any idea related to clean energy has attracted investor attention in the last few quarters, with electric vehicle stocks in the forefront. Hyliion Holdings (NYSE:HYLN) stock is among the SPAC listings that skyrocketed last year. From an initial price of $10, HYLN stock surged to near $56. A sharp correction ensued, and the stock currently trades at $16.40.

Depth of field shot of an electric vehicle being charged.
Source: Shutterstock

Purely from a short-term trading perspective, I believe that HYLN stock is at attractive levels. I would not be surprised if the stock delivers a quick return of 15% to 20%. However, I would still not categorize the stock as an attractive long-term investment idea.

Hyliion intends to position itself as a provider of electrified solutions for the commercial vehicle industry. The company’s commercialization of its Hypertruck is due in the current year with volume production planned for 2022.

From an industry perspective, commercial electric vehicles are at a point of inflection. Over the next decade, the adoption of commercial EV will increase significantly, with a projected compound annual growth rate of 41%.

Hyliion believes that 8 million trucks are in operation and this implies a replacement market opportunity of approximately $800 billion. Therefore, there are reasons to be bullish and it’s not surprising that there are multiple new entrants in the commercial EV market.

The Intense Competition Headwind

In their financial projections, Hyliion expects sales (hybrid electric unit and Hypertruck) of 300 units for the current year. Unit sales is guided to increase to 34,500 units with revenue of $2.1 billion by 2024. I believe that these projections are very optimistic. A significant correction for HYLN stock indicates that the markets might also be expecting a slower progress. One reason for being cautiously optimistic is competition.

CIIG Merger (NASDAQ:CIIC) recently announced a business combination agreement with Arrival, which is also in the commercial EV business. Arrival has orders worth $1.2 billion from U.S. Postal Service with strategic partners that include Hyundai (OTCMKTS:HYMTF) and Kia Motors. The company has an exciting product pipeline that includes electric bus and electric van. In addition, Arrival is creating micro factories to enable low-cost production.

If I was compelled to choose between Hyliion and Arrival, I would be inclined to invest in the latter for the long term. The business model looks more promising on a relative basis.

And Arrival is not the only company. Tesla (NASDAQ:TSLA) is also targeting the commercial EV segment with its truck. Workhorse (NASDAQ:WKHS) claims to have technology validation from companies like FedEx (NYSE:FDX) and United Parcel Service (NYSE:UPS). Workhorse is also expecting an order worth $6.3 billion from the Postal Service.

It is worth pointing out that Hyliion’s vehicles have a much longer range. That could give it an edge.

Overall, I believe that it makes sense to treat most commercial EV stocks as near- to medium-term trading bets. Once orders start flowing, there will be a clear distinction between the leaders and the laggards. HYLN stock is a good trading bet at current levels.

Concluding Thoughts on HYLN Stock

Hyliion claims that the company’s truck has a seven-year total cost of ownership that’s lower than that of Tesla and Nikola (NASDAQ:NKLA). With the business combination, Hyliion is well capitalized to move towards the commercialization of Hybrid and Hypertruck ERX.

It remains to be seen if the company can secure big orders. In June 2020, logistics company Agility, pre-ordered 1,000 trucks. This is however discounted in the stock price.

HYLN stock has cooled off after an initial exuberance. This is an indication of market participants taking a cautious stance. I expect the stock to bounce back in the near term. So, it’s a good trading bet.

But it’s too early to consider HYLN stock for the core portfolio. I would hold the same view for NKLA stock and WKHS stock.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.


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