HYLN - Hyliion Goes Public Racing With Telsa Nikola to Build Electric Trucks

Hyliion Holdings Corp. (HYLN), founded in 2015,  currently sells parts and components that help commercial trucks become more efficient while producing fewer emissions. However, its long-term vision is to build electric powertrain systems that it believes will revolutionize the commercial transportation industry.

Hyliion will be competing with Nikola (NKLA) and Tesla (TLSA) to be one of the first companies to bring electric trucks to market at scale, although HYLN is following a different path to this goal. Many investors believe that HYLN has the best technology given that its engines are designed to have more range and carry a heavier load than TSLA or NKLA’s prototypes.

However, the company will face significant challenges in scaling production, while the stock is already pricing in significant amounts of future growth. Buying HYLN is an implicit bet on the company’s ability to produce electric powertrains at scale. And, it must do so within the next couple of years given the number of competitors vying for this massive market opportunity.

Tortoise Acquisitions Corporation (SHLL)

HYLN became public through a merger with Tortoise Acquisition Corporation (SHLL), a SPAC that was started by Vincent Cubbage and Stephen Pang. Cabbage and Pang will be joining HYLN’s Board of Directors.

The advantage of going public through a SPAC, rather than an IPO, is that it’s cheaper and less time-consuming. Since there’s intense competition in the electric vehicle (EV) market to produce electric trucks, it’s understandable that HYLN didn’t want to spend time and other resources on an IPO. In exchange, HYLN gave a 14% ownership stake to SHLL which gives it a valuation of $4.5 billion based on the current price.

Through its merger with SHLL, HYLN was able to raise $560 million that it plans to use for the development and commercialization of its technology.

HYLN started trading on October 2 as an independent company, although the merger was initially announced in June. For the last few months, SHLL had been a proxy HYLN.

The market’s enthusiasm for EV stocks was clear as SHLL gained 180% upon the deal’s announcement. On October 2, HYLN began trading under its own ticke and since then, it’s down 25%.

This pattern of strong gains upon the merger’s announcement and profit-taking when the listing is approved by shareholders has happened with many recent SPACs.

Hyliion Profile

One of the most impressive parts of HYLN is that its founder and CEO, Thomas Healy is 28 years old. Due to the listing, his stake in HYLN is worth $1.4 billion which makes him one of the youngest self-made billionaires.

Healy had been around cars his whole life due to his amateur race car driving hobby. While getting his mechanical engineering degree at Carnegie Mellon, he became fascinated with electric engines and figuring out how to electrify trucks, since they are a major source of carbon emissions.

Currently, the company’s two main products are Hybrid Diesel and Hybrid CNG components. These can connect to any sort of truck and reduce emissions and make the vehicle more fuel-efficient. While these are products that provide marginal improvements, it's a more exciting product, in development, is the ERX powertrain system.

HYLN believes that its powertrain system has 2.6 times the range of a Tesla Semi can and 1.7 times what NKLA claims. It has a larger capacity of 53,000lbs which is 23.3% more than Tesla and 10.4% more than Nikola. Despite more range and hauling power, its engine weighs less than NKLA or TSLA.

HYLN’s powertrain achieves this with its RNG fuel generator which charges the battery onboard and powers the motor. There is also regenerative braking which keeps the battery recharging. This leads to less time spent on recharging.

(Source: Hyliion S-1)

Another future source of revenue for HYLN is its cloud-based, software system that it’s developing for trucks that collect data, provide analytics updates in real-time, and will lead to increased optimization for each vehicle. This will be a subscription package that will result in fewer issues with maintenance and lead to longer lifetime value in addition to improved battery efficiency and savings on fuel costs.

HYLN Financials

Like a lot of early-stage startups, HYLN’s valuation is more based on its potential rather than its current business. Its multi-billion-dollar valuation is due to the potential of its electric powertrain system becoming a major part of the electrification of commercial trucks. Trucking is a trillion-dollar industry.

So far, HYLN is only expected to generate $1 million in revenue, and it expects $8 million next year. Its electric powertrain won’t be widely available until 2022, although the company has been receiving preorders.

Based on its internal forecasts, it’s expecting revenue of $344 million in 2023 as it scales up production of its powertrains and $2.1 billion in 2024. If the company can achieve these targets, then buyers at today’s price will be richly rewarded. However, the experience of NKLA’s and TSLA’s experiences shows that it’s no easy task to achieve these targets. It’s still uncertain whether NKLA will successfully produce trucks at scale to justify its valuation. TSLA has been successful in terms of cars, but there were many bumps along the road, and moments when it seemed like it would fail.

Conclusion

Overall, HYLN is a very interesting company with ambitious goals. Its public debut has come at an opportune time given the health valuations in the EV space. Many companies in the space have seen massive gains in recent months, and investors are valuing them based on factors like the total addressable market (TAM), future revenue growth, and the strength of their technology.

These are positive for HYLN’s stock in the short-term, as many industry insiders are very bullish on its powertrain system and consider it superior to TSLA and NKLA. Additionally, the global, commercial truck market is expected to be an $800 billion market.

For a while, it didn’t seem possible that electric trucks would be realistic given their huge loads and the impracticality of charging batteries for a long period of time. However, advances in technology have rendered this issue moot. It’s looking like electric trucks will eventually be able to carry heavier loads at cheaper costs than traditional trucks in addition to the environmental benefits.

Currently, HYLN is in its infancy as a company and is a high risk/reward investment. However, investors should keep this stock on their radar to see if HYLN starts is making progress in scaling up and able to gain a legitimate foothold in the commercial transportation industry.

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HYLN shares were trading at $28.72 per share on Monday afternoon, down $1.01 (-3.40%). Year-to-date, HYLN has declined N/A%, versus a 11.07% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. As a reporter, he covered the bond market, earnings, and economic data, publishing multiple times a day to readers all over the world. Learn more about Jaimini’s background, along with links to his most recent articles.

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