Shares of sustainable trucking outfit Hyliion Holdings (NYSE:HYLN) have been on a bearish run of late. HYLN stock is down 43% in the past three months.
EV stocks have struggled in the past few months, with several big names selling off at a rampant pace. The intense competition in the sector and reports of misrepresentation by few companies have complicated things for pre-revenue start-ups such as Hyliion.
Hyliion got listed back in October last year via a reverse merger with shell company Tortoise Acquisition. It is commercializing its flagship Hypertruck ERX and developing electrification systems for its Class 8 semi-trucks. It feels its net-carbon negative products open up a market opportunity worth over $800 billion.
Volume shipments of its ERX truck are expected in 2022, and despite the company’s asset-light model, there are several hurdles it needs to overcome. Investors appear to be more frugal about pre-revenue EV companies riding high based purely on hype. Additionally, the growing competition in the sphere and its overreliance on third parties make HYLN stock a risky EV bet.
Hyliion recently reported its full-year results for the past year. With no revenues, the center of attention was its wider-than-expected net loss of $39.2 million. Its net loss grew handsomely from $14.1 million in 2019 to $39.2 million. Naturally, the majority of it is attributable to the increase in its operational expenses.
The company’s selling, general and administrative expenses rose by over 250% in the year. Perhaps what is most surprising is that its research and development expenses increased by just 36%. These cost centers might not rise in unison, and it’s strange how other operational expenses dwarf the growth in Hyliion’s R&D expenses. Additionally, interest expenses have also risen by a massive 67%.
The most impressive element of the company is its substantial cash reserves. Over the past year, the company had taken its cash balance to approximately $600 million from just $6.3 million last year. It appears to have enough money to continue as a going concern for the foreseeable future.
Another troubling element of its financials is the amount of capital invested in its property, plant and equipment. The amount invested is actually down roughly 5.7%, surprising for a company with an initial preorder of 1,000 units for its Agility Logistics.
Competition and Other Challenges
One of the main challenges for Hyliion is the rising competition in the EV sphere. Hyliion operates in the heavy-trucking niche in the EV sector, where it could have had the first-movers advantage. However, the industry is moving swiftly towards zero-emissions technology, which means Hyliion’s hybrid solution might be overlooked.
We have EV giant Tesla’s (NASDAQ:TSLA) Semi truck in the pipeline. Additionally, Navistar (NYSE:NAV) recently announced it would be developing fuel-cell electric heavy trucks by next year, with General Motors’ (NYSE:GM) help. Moreover, automotive giants such as Daimler (OTCMKTS:DDAIF) will also be trying their luck in the niche.
One of the main problems with Hyliion at this time is that its supply chain is overly reliant on third parties and technological partnerships. Therefore, the barriers to entry in the industry are unsubstantial and are likely to attract more players in the future.
Bottom Line on HYLN Stock
HYLN stock has taken a hammering along with other EV stocks. Regardless of the sell-off in the EV market, the risks in investing in HYLN stock are apparent. Its over-reliance on third parties, the questionable allocation of resources, and the rising competition in the sector are weighing it down. Moreover, with the lower barriers to entry in its niche, more players are likely to enter the fray.
It’s best to avoid HYLN stock for now.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.