Battery Modules Highlight the Case For — and Against — Hyliion Stock

Last month, Hyliion (NYSE:HYLN) announced a significant innovation. HYLN stock gained 32% on the news.

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In the six weeks since then, shares have declined 40%. In fact, HYLN’s closing price on Tuesday was its lowest since the company announced it was merging with SPAC (special purpose acquisition company) Tortoise Acquisition back in June.

To some investors, that trading might seem like an opportunity — or, at the least, confusing. But in fact it highlights the biggest issue facing both HYLN stock and the broader electric vehicle sector.

So many pre-revenue EV manufacturers are promising exponential growth. In the fourth quarter of 2020, as EV stocks soared, investors believed those promises. Now, they don’t. Until they do, neither HYLN stock nor its sector are going anywhere any time soon.

The New Battery Modules

On Feb. 11, Hyliion introduced its next-generation battery module.

The module is built on cells from Toshiba (OTCMKTS:TOSYY), along with proprietary technology from Hyliion itself. It sounds like a game-changer.

Cycle life (the number of discharges before a battery loses performance) could increase as much as 5x. Cooling will improve. So will charging rates.

Charging speed gets significantly faster: full recharge in less than eight minutes. And a lower cell temperature creates a safer battery less prone to catching fire.

Again, HYLN stock soared on the news. It’s not hard to see why. Battery developer QuantumScape (NYSE:QS), even with QS stock itself down sharply from the highs, has a market capitalization of some $20 billion. Its solid-state batteries offer charging — of batteries for cars, not semi trucks — in 15 minutes.

When that company announced its battery specifications in December, QS stock tripled in less than three weeks. Even after pulling back from those highs, it’s up more than 30% since before that news dropped.

In contrast, HYLN stock has declined 21% from where it opened the day its new module was announced.

How Good Are The Modules?

The question is why. And the answer is simple: investors don’t believe Hyliion’s promises.

To be clear, that’s not to say that Hyliion is or even might be a fraud. Rather, the explanation probably is more benign: that these achievements remain for now in the laboratory. Certainly, Hyliion hasn’t proven its real-world capabilities yet.

And there are reasons for skepticism that it will.

Bear in mind that Hyliion acquired its battery management business from Gentherm (NASDAQ:THRM) for what appears to be just $670,000. (The deal was closed in 2018; that year Hyliion financial statements show a $670,000 outflow for a business acquisition. Gentherm did not disclose a sale price.) And in 2020, Hyliion spent just over $12 million on research and development — hardly a market-leading figure, or one that seemingly could create a revolutionary innovation.

Even Hyliion’s actions don’t suggest the company itself believes the move is all that material. The press release announcing the new modules was issued in the middle of a trading day. Usually (though admittedly not always), material information is announced before or after the close of regular-session trading.

Meanwhile, Hyliion chief executive officer Thomas Healy admitted on the fourth quarter conference call that the new battery didn’t really impact total cost of ownership for potential trucking customers. Rather, it should improve performance and potentially open new markets, with Healy specifically mentioning commercial yard tractors that could benefit from smaller and faster-charging packs.

But, again, a month after that call HYLN stock is at the lows.

It’s Not Just HYLN Stock

The lack of trust extends beyond the battery — and beyond Hyliion itself.

When Hyliion announced its merger with Tortoise in June, it issued projections for its business going forward. In 2024, Hyliion predicted over $2 billion in revenue in 2024, along with over $600 million in EBITDA (earnings before interest, taxes, depreciation and amortization).

As I’ve noted before, those figures could easily lead to a market cap above $20 billion. Yet Hyliion, backing out its cash, is now worth well less than $2 billion.

Other EV SPACS are getting the same treatment. As the Wall Street Journal noted last week, multiple EV startups have announced they will set the record for the fastest path to $10 billion in revenue, a record currently owned by Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL).

To be fair, Hyliion isn’t one of those companies. But it’s no doubt suffering from the same problem that’s pressured the sector here in 2021: there’s just no belief in any of these projections.

And, to some extent, there shouldn’t be. Yes, the EV market is going to grow. But it’s largely a zero-sum game.

It’s not likely that, for instance, both Hyliion and Nikola (NASDAQ:NKLA) become huge winners. In fact, given the nature of startups, it’s more likely that both fail. Yet the projections across the space show that every company believes it will win.

That doesn’t mean they’re lying. In such a challenging, competitive industry, these companies better believe they will win. Otherwise, there’s no point in even existing.

But some of these EV companies, and likely many, are going to be proven wrong. That’s the risk investors are pricing into EV names like HYLN at the moment. It’s a risk that wasn’t there when the sector saw bubbly trading in last year’s fourth quarter. And it’s a risk that Hyliion has to address before HYLN stock can see a sustainable bounce off the lows.

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

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