One of the benefits of all the attention garnered by electric vehicle (EV) equities last year was that the hoopla helped investors identify clear leaders, obvious losers and companies in the middle. For now, Hyliion (NYSE:HYLN) appears to be that last group, but there’s still ample risk with HYLN stock as it’s off 73% from its 52-week high.
Hyliion is one of a slew of EV companies that came public last year via mergers with special purpose acquisition companies (SPACs) and many of those names, though still in their formative stages, are proving to be volatile with Hyliion being more rule than exception to that trend. Last year, HYLN stock more than tripled on news of its SPAC merger only to rapidly be cut in half only to more than triple again. Then came the aforementioned bloodletting that saw the name shed nearly three-quarters of its value from its early September highs.
Amid all that volatility, Texas-based Hyliion Holdings did notch some wins in 2020. A pact with FEV North America helps Hyliion shore up its powertrain evaluation process. Likewise, an agreement with American Natural Gas confirms there is some demand for the company’s Hypertruck.
HYLN Stock Still Risky
As noted above, Hyliion’s primary offering, at least for now, is the Hypertruck. Adventurous investors can latch onto that trait for a couple of reasons.
First, by focusing on industrial trucks – the EV equivalent of the classic big rigs – Hyliion steers clear, temporarily at least, of competing with established, credible EV car makers like Nio (NYSE:NIO) and Tesla (NASDAQ:TSLA).
Second, fuel is one of the biggest output costs faced by freight haulers, confirming why electric Class 8 trucks could ultimately be an $800 billion market. It’s nice to be environmentally friendly, but if companies have plausible solutions for accomplishing that objective while conserving cash, there’s big opportunity for firms like Hyliion.
Compelling as those factors are, they don’t eliminate risk with Hyliion equity. The company is far from being profitable and generated sales of just $1 million in the July through September period, the most recently reported quarter.
For now, some investors will gloss over the lack of profitability, arguing that’s a hallmark of many emerging growth companies and it is. What should not be ignored is that Hyliion isn’t immune to competition, plenty of which may arrive this year.
Four other companies, including Tesla, are aiming to take orders on electric Class 8 trucks this year and a fifth is currently testing a comparable product in select US markets. That puts some burden on Hyliion to make good on claims that its Hypertruck will have 1,000-mile range and that its cost efficiencies are superior to those of rival vehicles.
Another Issue to Consider
Something else for investors to ponder with Hyliion is that its Hypertruck isn’t a pure EV as is the case with, say, a Tesla or Nio car. The truck is a hybrid that runs on “renewable” natural gas with an electric component that kicks in when the truck enters cities. That’s useful to the extent many urban areas have stricter environmental protocols than the rural areas through which long haul trucks traverse.
However, at a time when environmental, social and governance (ESG) investing is all the rage, a theme that shows no signs of abating, many investors are shunning fossil fuels, of which natural gas is one.
There are some potential vulnerabilities here for Hyliion because many environmentally conscious investors are searching for what they consider purity. Plenty of EV companies offer that, but Hyliion does not. Yes, the Hypertruck is an environmentally friendly alternative to old guard diesel trucks, but natural gas has long been chastised by the ESG crowd.
Combine that with lack of profits and increasing competition and that’s a recipe for more risk and turbulence with HYLN stock.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.