Amid the SPAC boom of 2020, Hyliion Holdings Corp. (NYSE:HYLN) was brought public. Since then, shares have been on what we’d call a bumpy ride. Indeed, at the time of writing, investors in HYLN stock have seen a month-over-month share price decline of 30%.
Furthermore, HYLN stock has dropped more than 80% from their peak late last year. That’s not good.
However, Hyliion isn’t the only EV company or former SPAC to see such moves of late. The market is starting to price these speculative venture capital plays as such. Accordingly, investors are increasingly demanding more in the way of tangible growth before putting their money to work in “story stocks.”
Indeed, the EV space is an intriguing one to navigate right now. Layering on the complexity of SPACs, and we’ve got a recipe for some serious volatility for stocks like HYLN on the horizon.
Here’s why I think the market re-pricing of stocks like HYLN is correct, and investors might not want to be on the wrong side of this trade.
HYLN Stock a Bet on Growth in Class 8 Electrification
But first, a bit about what the company does.
Hyliion is a company that pegs itself as “an industry leader in Class 8 electrification with a growing team of talented engineers and visionaries and a robust network of strategic industry partnerships.” The company truly believes in the electrification thesis. Indeed, large semi trucks and the broader Class 8 vehicle spectrum produce an incredible amount of carbon emissions every year. Tackling this big problem requires a heck of a lot of talent and vision.
The company’s attempting to be investors’ top choice when it comes to this space.
Indeed, the company’s betting big on its battery technology in a bid to eventually capture market share in this nascent growth EV sector. In February, the company announced its upgraded battery module.
Among the improvements Hyliion has made include ultra-fast charging (battery can recharge in as little as 8 minutes), improved safety (due to advanced cooling technology), and longer cycle life (up to 5-times as much cycle life as a conventional EV battery).
Investors Appear To Be Getting Impatient
Now, all these features and plans sound great. But when will we see these trucks?
Well, that’s been a big problem for many investors of late.
Indeed, in prior investor presentations, the company touted expectations of 30 sales in 2020 (totaling $1 million). Additionally, expectations were that 2021 would see 300 sales totaling $8 million. Little in the way of progress has been made on this front. Accordingly, investors appear to be more impatient than ever.
Now, the company is aiming for a 2021 commercial launch. No specific date for when deliveries will take place has been provided thus far. This provides the perfect breeding ground for speculators to place their bets. However, previous delays appear to be resulting in some bearish bets right now.
Are Pre-Orders All They’re Cracked Up to Be?
Hyliion has announced some pretty substantial pre-orders in the past. In one of its pre-IPO announcements, the company noted it had a 1,000 unit order from global logistics leader Agility.
That said, a whole boatload of cold water has been poured on the pre-order thesis in the EV space. High-profile short-selling firm Hindenburg Research has done some digging into pre-orders for other major EV SPACs. The findings? Not so good. Hindenburg claims other companies brought public via SPAC have falsified or listed large pre-orders that are essentially impossible to fill. Thus, there’s a heck of a lot of skepticism right now with respect to such stocks today.
Now, that’s not to say the same sort of thing is happening with Hyliion right now. I’m providing this purely as context for investors wondering why this stock is down so dramatically of late.
That said, until deliveries are made, I expect investors to be more impatient than ever.
Conclusion
Hyliion is a company that is losing money with a business model that still isn’t fully operational.
Like other SPACs, volatility that previously worked in the favor of speculators has turned to the downside of late. Investors appear to be getting impatient with companies setting delivery targets and missing. Investors considering such stocks today should be aware of the risks associated with investing in such companies today.
Personally, while I can be very patient with core holdings, I do understand the market’s reluctance to pour money into HYLN stock right now. There’s a lot of execution risk with these stocks today. Until more tangible progress is made, I think the market will continue to re-price these stocks downward.
That said, at some point every stock becomes too cheap to ignore. We’ll see if we have fundamentals to value this stock on a year down the road. Until then, I’m out.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
