Once upon a time, electric trucking company Hyliion (NYSE:HYLN) was a Wall Street darling. Investors were wowed by the company’s breakthrough renewable natural gas (RNG) technology as well as its potential to address the shortcomings of electric and hydrogen technology in long-haul trucking. From June to September 2020, HYLN stock soared from $10 to $55. Then the hype faded. Over the 10 months, HYLN stock has crashed back to $10.
At these levels, and at this point in time, we see HYLN stock as a high-risk, high-reward play on RNG’s role in long haul trucking.
Basically, it’s possible for RNG to be a go-to clean fuel source for long haul trucking one day. And if that happens, you have a 5X to 10X winner with HYLN.
But there are also major risks to RNG’s emergence, and if those risks stunt the RNG revolution, then HYLN stock is worth nothing.
The Case for HYLN Stock
First, let’s understand the core bull thesis on Hyliion, which originates from the shortcomings of plug-in battery and hydrogen technology in long-haul transportation.
Battery-electric trucks have range, cost and infrastructure problems. They can only travel a few hundred miles on a single charge, they run at about $7 per diesel gallon equivalent (versus $3 per gallon for diesel trucks) and there are less than 10 Class 6-8 electric truck recharging stations across North America.
Hydrogen trucks, on the other hand, perform better when it comes to range. Because hydrogen is super light, hydrogen fuel cells can be super dense. As a result, hydrogen trucks can drive much farther on a single “charge.”
But hydrogen truck still have the cost and infrastructure problems. There’s similarly a lack of hydrogen refueling station across the country, and hydrogen costs about $12 per diesel gallon equivalent.
So, while the trucking industry needs to go green, traditional renewable energy sources are not ready to viably decarbonize the industry just yet.
Fortunately, there’s another, entirely overlooked and ostensibly counterintuitive renewable energy source which is ready to immediately and cost-effectively decarbonize the trucking industry. And it’s this fuel source which differentiates Hyliion from other players in this space.
When it comes to Hyliion’s bull case, it’s all about RNG. RNG is natural gas, just sourced from animal, industrial and food waste as opposed to fossil fuels.
Sure, that means RNG still emits CO2 during the natural gas combustion process, which is not good for the environment. But it also means that RNG captures and uses methane in traditionally methane-rich waste. So, it prevents that methane from being emitted, making RNG really good for the environment too.
But Methane is considered much, much worse in terms of global climate change than CO2, mostly because the former is better at absorbing heat.
Therefore, as a process that boosts CO2 emissions, yet simultaneously reduces methane emissions, RNG is considered net carbon-negative and ultimately a big “win” for the environment… Much like plug-in batteries and hydrogen.
RNG’s Superior Qualities
The cool thing about RNG is that it solves plug-in battery and hydrogen technology shortcomings in long-haul trucking.
Range? A typical RNG truck will give you the same mileage as a diesel truck.
Infrastructure? Unlike wind, hydro and solar, RNG is a plug-and-play solution with existing natural gas infrastructure. It doesn’t require huge capital spending to work at scale. After all, there are 729 Class 6-8 natural gas refueling stations across North America. RNG can be pumped through all of those stations.
Costs? Current RNG prices hover around $1 per diesel gallon equivalent, while hydrogen and electricity prices — though steadily falling — still sit staunchly north of $5.
Thus, by being a clean energy source with best range, the lowest costs and an already established infrastructure, RNG is the only immediately usable technology to decarbonize trucking fleets.
That’s why Deloitte projects that, by 2026, roughly 80% of all alternative drive systems in heavy duty trucks utilize natural gas.
And Hyliion is positioned with a best-in-breed RNG truck powertrain platform — dubbed the Hypertruck ERX — that is due to start deliveries in 2021 and 2022. This platform will materially disrupt the trucking industry, and over the next decade, you could see a lot of UPS (NYSE:UPS), DHL, FedEx (NYSE:FDX), Coca-Cola (NYSE:KO) and Walmart (NYSE:WMT) trucks be built on the Hypertruck ERX powertrain.
Hyliion’s Superior Qualities
The Hypertruck ERX sports a driving range of 1,300 miles, which is ~70% more than Nikola’s hydrogen truck (750 miles) and about 160% more than Tesla’s semi-truck (500 miles).
Its payload capacity is 53,000 pounds, which is ~10% more than Nikola (48,000 pounds) and ~20% more than Tesla (43,000 pounds).
Hyliion has a full recharge time of just 10 minutes, the same as Nikola’s hydrogen truck and one-third that of Tesla’s semi-truck.
And with a 0-to-60 miles-per-hour pick-up time of 20 seconds, Hyliion is on par with Tesla’s semitruck and 10 seconds shorter than Nikola’s hydrogen truck.
In other words, Hyliion’s Hypertruck ERX is the best clean energy long-haul truck technology platform in the market, meaning it could lead the clean-energy disruption of the Class 8 trucking market.
The Bottom Line on HYLN Stock
The big risks here are advancements in battery-electric and hydrogen technology.
That is, a whole lot of money is being dedicated to improving lithium-ion EV batteries and hydrogen fuel cells. Some of the smartest people in the world are working on this tech. Chances are good they make some major performance and cost breakthroughs in the coming hers that could render RNG’s current advantages null.
If that happens, HYLN stock is worthless.
So, with Hyliion, you have a high-risk, high-reward play on RNG with a balanced risk-reward profile, now that the stock price has collapsed below $10. If you believe in RNG, take a speculative long position. If you don’t, pass on the stock. But don’t put your lunch money to work here.
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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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