HYZN - Hyzon Motors: Delisting And Deglobalization Are Major Risks

2023-03-06 11:40:47 ET

Summary

• Hyzon Motors Inc. will try to appeal their delisting on March 16th, and this is a major point of volatility for a company whose results we haven't seen for a long time.
• With all the challenges of the current market, this is an unacceptable risk for any intelligent investor.
• At any rate, we are growing increasingly callous about hydrogen's chances in a deglobalizing world and would avoid investing anywhere along the chain of hydrogen energy.

Hyzon Motors Inc. ( HYZN ) is in principle an interesting company that produces its own hydrogen fuel cells focused on the truck markets with its proprietary hydrogen fuel cell technology. The problem is that, last we heard, Hyzon is burning cash. Moreover, it could delist from the NASDAQ, which would create some more forced selling. Finally, even longer term, we question whether hydrogen can be viable in a deglobalizing world.

Overall, Hyzon is not really an option for the intelligent investor. However, if there's ever going to be a moment for Hyzon, it'll have to be after the potential forced-selling event passes.

Delisting Situation

Hyzon Motors Inc. has not filed anything with the SEC since we last covered the stock. They are being notified of imminent delisting, but have managed to secure a hearing to appeal the incoming decision to delist them from the NASDAQ. This hearing happens on March 16th . The outcome is very much uncertain, and a delisting will create a lot more forced selling. Since they are owned by a couple of passive investment and exchange-traded fund ("ETF") companies, this will likely lead to HYZN falling outside the scope of some of those companies' mandates and result in it being sold. Forced selling will be very bad for the already shrunken HYZN stock price.

If the outcome of the hearing is good, it will mean that Hyzon Motors Inc. will be able to regain compliance along their presented plan and continue to be listed in the meantime.

More On Hydrogen

There are more concerns on hydrogen, which is how affordable it will end up being for vehicles. Specifically, we update our view with the worry about interactions with the state of global agriculture. In addition to our previous view that hydrogen infrastructure depends on PGM (platinum group metals) resources found primarily in Russia, the other concern is that the large amount of phosphate production in Russia, but also other countries like China who are needing to hoard it for food security reasons, may become more limited in the future for the benefit of the Western world. While relatively well-allied nations like Morocco can be trusted for their production for now, the increasing scarcity of fertilizer for the long term, especially where it is an exceptionally important geopolitical tool, is also a problem for hydrogen indirectly.

Firstly, hydrogen is used in the production of ammonia, which is a fertilizer that is an alternative to something that would come out of phosphorous-based production. Hydrogen prices could rise if they need to be directed more intensely to ammonia production. Conversely, some people have proposed that ammonia could be a useful source of hydrogen as well, since it's easier to transport and has more infrastructure available. This would be a solution to the issue mentioned earlier about PGMs that might have been needed in hydrogen infrastructure. The problem is ammonia will be similarly expensive if phosphate fertilizers, a substitute end-product to ammonium nitrate, become more scarce. Therefore, the derived hydrogen will be more expensive.

Since food security trumps the need to decarbonize transportation and fertilizer looks to be an increasingly sore point for the global economy, investors in hydrogen ideas need to be careful of this situation eventually affecting the view on how practically viable hydrogen is for the consumer.

Bottom Line

The intelligent investor should not be playing games over a potential delisting, especially when it becomes truly likely. There is more downside here, for sure, if its marketability collapses following a delisting.

Moreover, in our last coverage, we noted the rapid cash burn. At the run-rate from then, which was a year ago now, they had about 3 years before they need capital markets again. Inflation will not have helped this number, neither will have any attempt made by the company to expand.

Without a solid position in the capital markets following a delisting, Hyzon Motors Inc. will be more marooned by an already tough venture environment. Pass.

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