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Only investors with risk capital should consider buying Hyliion stock
By Tezcan Gecgil, InvestorPlace Contributor Nov 3, 2020, 8:40 am EST
Hyliion (NYSE:HYLN) is the result of a recent reverse-merger announced in June. Hyliion stock has been subject to the same volatility man other SPACs have seen.
In fact, 2020 has witnessed increased activity in both the special purpose acquisition company (SPAC) space and the electric vehicle (EV) industry. As a result, newcomers like Hyliion get continuous investor interest.
Publicly-listed SPAC Tortoise Acquisition Corporation and privately-held Hyliion merged to participate in the growth of environmentally-friendly transport technologies.
The new company aims to bring hybrid-electric technology to Class 8 (i.e., tractor-trailer) trucks in a more cost-effective way. The initial excitement around the concept and future prospects has been high.
Today, we will discuss the pros and cons of owning Hyliion stock so that potential investors can make a better-informed decision. Unless you have risk capital that can be spared, you may want to pass HYLN shares for now.
Long-Term Tailwinds for EV Companies
Moving freight is a major contributor to greenhouse gas emissions all over the world.
Recent research led by Mohamed El Hannach of the Fuel Cell Research Laboratory, School of Mechatronic Systems Engineering, Simon Fraser University, Canada highlights the fact that diesel fuel dominates the heavy-duty truck market.
Put another way, the new decade will possibly see considerable growth in the nascent zero-emissions transport industry. The founders and management team behind Tortoise are veteran energy-industry executives and investors.
Hyliion’s founder and CEO, Thomas Healy, possibly wanted to combine his love for auto racing and background in technology in an environmentally-friendly way.
Therefore, it’d be timely for them to use their shared area of interest and expertise in the best interest of the company as well as shareholders.
Investors who put their faith in eco-friendly technologies will possibly see a number of big winners in the years to come. However, 2020 feels like the typical gold-rush scenario as far as EVs and SPACs go.
InvestorPlace.com contributor Thomas Yeung, CFA, has recently discussed a number of other newcomers to the EV industry. The long list is growing regularly and the space is becoming crowded. Thus, the question is which one of these young companies can become successful.
What Could Derail Hyliion Stock?
The company’s proposed environmentally-clean semi-trucks could possibly see significant growth. However, Hyliion relies on a range of commercial agreements and suppliers, including auto-industry supplier Dana (NYSE:DAN), which has equity interest in Hyliion.
Earlier in the summer, Hyliion announced a preorder of 1,000 trucks from logistics company Agility Logistics USA, whose global headquarters is in Kuwait.
Like Dana, Agility also has an equity stake Hyliion. Thus, the pre-order raises questions about corporate governance issues.
Hyliion also develops electrified drive powertrain systems for fitting in Class 8 trucks. This is an instant plug and drive solution that is regarded as a novelty with potential.
Yet, before investing in Hyliion stock, it would be important to study a recent SEC filingthat provides revenue projections, “which assume that the Hybrid system fleet production commences in 2020 and the Hypertruck ERX system fleet production commences in 2022.”
The expected revenues for the next several years are:
- 2020: $1 million,
- 2021: $8 million,
- 2022: $344 million,
- 2023 : $1.02 billion,
- 2024: $2.09 billion.
The road to profitability also seems long. In fact, the SEC filing lists plenty of risk factors that should make any potential investor think twice before hitting the “buy” button.
Muslim Farooque’s recent article also clearly identifies the risks with the business model. In other words, there is more vision and subjectivity in revenue expectations behind Hyliion stock than actual sales numbers that could translate into shareholder value.
The Bottom Line
On Sept. 2, Hyliion stock hit an all-time high of $58.66. Now, it is hovering around $18. The recent decline in HYLN shares follows the question marks behind Nikola(NASDAQ:NKLA) stock, which is under investigation for misleading investors, or even fraud.
For a newcomer to succeed in the EV space, it possibly needs both operational moat and technological backing, which seem to be missing in the case of Hyliion. Therefore, the stock is a risky proposition. We believe the market offers better alternatives.
Are you interested in investing in new companies or those with a potential for success in the EV industry? Then you may also want to research several exchange-traded funds (ETFs).