Most analysts these days don’t just stop at declaring that consumer-level electric vehicles are the future. Indeed, the future of transportation as a whole could become zero-emissions electric. Nevertheless, this green energy segment has many challenges ahead, which initially drove the case for Hyliion (NYSE:HYLN) stock.
With the underlying company augmenting existing alternative fuel infrastructures, HYLN stock seemed like the most reasonable green transportation wager.
True, other companies made bold claims about revolutionizing the industry. On a lower scale, we saw investors bid up names like Workhorse (NASDAQ:WKHS) on the simple notion that government agencies and other major institutions will gravitate toward clean transportation vehicles. Clearly, as Workhorse’s failed bid to secure the U.S. Postal Service contract for building next-generation mail carriers demonstrated, alternative-fueled vehicles have much work to do.
From a practical perspective, this is what gave HYLN stock a credibility boost. At one point, shares were trading hands above $50. Most likely, this enthusiasm stemmed from Hyliion’s cooperative approach.
Yes, the company is building its standalone Hypertruck ERX, which uses renewable natural gas as a fuel source and delivers power through an all-electric drivetrain. But Hyliion also offers a modular system to convert existing fleets into much cleaner hybrid platforms.
Therefore, HYLN stock didn’t represent a competitive investment as much as it did a complementary one. Yes, it’s always nice to swing for the fences and even nicer when you connect. But hitting home runs is a low-probability affair, even for the best of them. Therefore, Hyliion represented “smart ball” with its hybrid modular system approach, delivering hits at critical moments.
Unfortunately, the only thing that got hit was the HYLN stock price. Shares slipped below the double-digit threshold. This is particularly devastating for Hyliion as it began its journey as a publicly traded entity as a reverse-merger target.
As you know, special purpose acquisition company stocks usually have an initial price of $10.
Transitions Also Pose Problems for HYLN Stock
I mentioned above that the ability for Hyliion to augment existing alternative-fuel infrastructures was a plus for HYLN stock. By helping fleet owners transition their existing transport vehicles to cleaner alternatives, it facilitates the broader push to go green.
At the same time, transitional businesses have a perception risk of being middlemen destined for irrelevance. As trucking industry journal TTnews.com reported, trucking companies have begun pivoting toward electric transportation. Further, influential partners in the transportation supply chain have pledged their support for zero emissions.
One of the biggest names is Walmart (NYSE:WMT), which intends to “electrify all of its vehicles, including long-haul trucks, by 2040 on its journey toward its stated goal of achieving zero emissions within its global operations.”
To be fair, the long-haul industry is also exploring other alternative fuels besides battery-electric, which could benefit HYLN stock. However, battery-electric has captured mainstream attention and it’s hard to argue against the thesis on paper. Why bother with a hybrid approach when you can go electric all the way?
What’s worse, even the battery-electric route doesn’t have a guaranteed path to success. According to a Kelley Blue Book report, one in five Californian EV drivers intend to return to gasoline. Much of the reasoning is due to the convenience factor with EVs, or lack thereof. Interestingly, KBB noted:
Respondents report many reasons for their plan to go back to gas, but a few patterns emerge. Owners planning to go back to gas-powered cars are younger than those planning to stick with electricity. They are more likely to rent than own homes. And they are more likely to live in apartments than in free-standing houses.
Put another way, going electric is the easy part. Making it practically and economically viable is the real challenge. Given many of the pressures still present in our recovery from the pandemic, fleet operators can take a cue from their consumer-level counterparts and just stick with fossil fuels.
Is Green Really the Future?
I’m not going to debate the point about the electrification of transportation. By most indicators, this pathway represents the future.
Still, Workhorse missing out on the USPS contract was a huge blow to sentiment. Basically, it communicated that alternative fuels are not yet ready for prime time. If so, there doesn’t seem to be much of a point in going transitional via HYLN stock.
Either way, the market has clearly spoken. Unless you truly have a strong conviction of Hyliion making an improbably comeback, I’d stay away.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
