No doubt, 2020 was a banner year for SPACs. Yet that wasn’t enough to save Hyliion Holdings (NYSE:HYLN) stock. Shares in the company, previously known as Tortoise Acquisition, soared in the run-up to its merger with the hybrid truck maker.
But since September, shares have fallen from as high as $55.85 per share to around $16.50 per share. Much like its better-known rival, Nikola (NASDAQ:NKLA), Hyliion’s been a rare dud in this otherwise winning sector.
Despite the continuing “EV bubble,” investors aren’t too keen on Hyliion’s long-term prospects. I don’t blame them. It’s debatable whether its near-term business model (installing hybrid powertrain into existing semi trucks) will pay off. And long term, with its Hypertruck ERX vehicle? As battery technology catches up, there may not be room in the market for this hybrid offering, which uses “renewable natural gas” (R/CNG) to fill in the gaps.
Some may see this as a contrarian EV play. A rebound in 2021 is possible, but not very probable. With Hyliion looking more like Nikola than Tesla (NASDAQ:TSLA), it may be best to follow the crowd and avoid this stock.
Why Investors Have Written Off HYLN Stock
EV mania has cooled a bit since November. But while EV SPAC names like Lordstown (NASDAQ:RIDE) remain resilient, Hyliion has continued to be shunned by investors. Why is that the case?
As I discussed back on Dec. 3, part of the issue could be the company’s status as a maker of hybrid rather than fully electric trucks. Right now, green alternatives to diesel trucks are hampered by battery range. Hyliion bridges this gap by utilizing “renewable natural gas” to extend battery life.
This creates the impression its vehicles aren’t exactly green. But “renewable natural gas” is basically biofuel. Using this fuel source still makes Hyliion’s technology “zero net emissions.” However, this doesn’t guarantee success going forward. If battery technology catches up sooner than expected, Hyliion may not have a long shelf life.
A faster pivot towards all-electric will certainty put a dent in its growth. If the company has to revise its ambitious revenue forecasts, expect shares to fall further from today’s prices.
Admittedly, there’s another factor weighing down on HYLN stock. As this Seeking Alpha contributor recently discussed, comparisons to Nikola could also be a factor. After seeing Nikola crash and burn, investors may be less willing to give this speculative EV truck maker a chance.
This could open the door for those looking to go contrarian. But while low expectations are already priced in, a further look at the details indicates the company will continue to underwhelm.
Questionable Rebound Odds in 2021
Can Hyliion prove its critics wrong in the coming year? That’s the bet you’re making buying in at today’s prices. But while sometimes going against the grain can pay off, it’s not always a winning strategy. Granted, a lot of the time the “crowd” gets it wrong, underestimating future winners, and overestimating long-term losers.
In the case of HYLN stock, they may be on the mark. In 2020, Hyliion generated minimal sales. And, while its making progress, don’t expect sales to skyrocket in the coming year. Analysts project sales of just $7.7 million for 2021.
Sure, it’s not entirely fair to judge the company based on near-term results. Prior estimates signal things won’t start taking off until at least 2022. Yet, it may not be wise to put much stock in these projections.
Why? As InvestorPlace’s Vince Martin detailed Dec. 22, many questions about its prospects remain unanswered. Between scant spending on research and development, and competitive risk from incumbent truck makers, it’s hard to be confident Hyliion will deliver.
Putting it all together, it’s fair to say this EV startup is more Nikola than Tesla. Yes, Hyliion has avoided the public scandals that sent Nikola in the wrong direction. Yet, given this electric truck play offers up more sizzle than steak, the comparison’s fairly apt. And that’s not good for those hoping for a rebound.
Bottom Line: It’s Best to Follow The Crowd
The crowd may be too optimistic about EV stocks in general. But they could be right on the money when it comes to Hyliion. On paper, this company sounds like a long-term winner. The trucking industry wants to go green. But battery technology hasn’t caught up yet. Also, switching from the current diesel fleet to an all-electric one would be costly.
Hyliion’s technology can bridge the gap. Existing vehicles could be retrofitted with this company’s hybrid powertrain. As trucking emissions go down, its sales could skyrocket. The problem? So far, the company’s been more hype than substance. Until it proves itself, it’s wise to remain skeptical.
With so much indicating this is the “next Nikola,” rather than the “next Tesla,” investors are wisely avoiding it. And so should you.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single-stock analysis columns since 2016.
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January 04, 2021 at 08:30PM
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