Hyliion and the Risks of Being a Venture Investor

Venture capitalists have a rule. If you buy into 10 ideas 5 will fail, 4 may break even and 1 will justify the rest. If you got into the special purpose acquisition company (SPAC) mania last year, you think you became a venture investor. You should expect some failures. Right now, Hyliiion Holdings (NASDAQ:HYLN) stock looks like one of those failures.

A photo of an electric car with the charger plugged in.

Source: Nick Starichenko/InvestorPlace.com

Hyliion stock opens May 12 at about $8.50 per share. That’s below the $10 price set by its SPAC sponsor, Tortoise Acquisition, back in 2019. When the merger became final last September, then 28-year old Hyliion founder Thomas Healy was said to have “won the lottery.”  His stake in the company was worth over $1 billion. 

It’s not any more.

HYLN Stock: What Went Wrong

Hyliion wants to give big trucks, the 18-wheel drive monsters that roam America’s Interstates, electric drive trains while letting them use conventional fuels. The idea is it’s too expensive for fleet owners to go all-electric, but if Hyliion can take them part-way there they can cut costs and help the environment.

Hyliion drive trains are available for diesel or compressed natural gas. The proprietary battery management system supports all fuel types, including pure electricity.

Back in September Hyliion traded for as much as $50/share. It has now lost over 80% of that, because its first quarter report showed it installing just 10 powertrains. These are demonstration vehicles.

Instead, the release focused on a “Hydrogen Innovation Council” of fleet owners who will reportedly “collaborate closely” with it. Together members of the council have over 100,000 trucks in their fleets. But there is no financial commitment from any of them.

Hyliion got about $560 million from Tortoise and started the year with $592 million in cash and equivalents. Its 2020 10-K, and the 10-Q for its first quarter, showing how much cash was left in March, are due on May 24. 

Can They Make It?

There are two questions for Hyliion right now. Does it have enough cash to go into production? Can it get orders in time to bring in cash from customers?

Our Alex Sirois estimated recently  that Hyliion will spend $140 million this year on research and business expenses. Recent statements from the company talk about shipments in 2022.

That’s cutting things close, which is why our Josh Enomoto says there are now viability concerns about the company. Some fleet owners, like Walmart (NYSE:WMT), want to jump to all-electric fleets. Others don’t want to abandon diesel and worry about being stuck with a “transition” technology if Hyliion fails. Perception can become reality when you’re talking about an investment that can exceed $200,000 per truck. 

For his part Healy says he’s not concerned. He is using Peterbilt for test chassis, and runs a modest Twitter account dedicated to company news. He says the company has redeemed its warrants and has 120 employees. He counsels patience, saying the daily share price “is not the right focus.”

HYLN Stock: The Bottom Line

If you bought Tortoise when it was launched, you were speculating. If you buy Hyliion today you’re still speculating. If you bought HYLN stock at its peak you’re out of luck.

This is the problem with public investors trying to get in on venture investments. You’re at the end of the line. You’re getting a tiny slice of equity for your money. SPAC sponsors, like Tortoise’ Vince Cubbage, are taking big chunks of equity for themselves on minimum cash investment. That’s true venture financing.

If you bought Hyliion at $50, what you did was play the greater fool. You may still lose out at $8.50, but at least here you’re in with a chance, and know what you’re getting into.

At the time of publication, Dana Blankenhorn directly owned no shares, directly or indirectly, in any company mentioned in this article.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.


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