Hyliion (NYSE:HYLN) has lost a great deal of value in recent weeks, as the shares have started to reflect the fundamentals of the electrified powertrain provider.
However, Barclays recently initiated coverage of Hyliion stock with an “overweight” rating and a $20 price target. That may seem conservative, considering the stock’s 52-week high of $58.66 per share.
But with the kind of negative headlines about the company that have been circulating, the shares still have to fall more before they’re worth buying on weakness. Hyliion stock remains a pure speculative play since the firm has no sales, and its business model is heavily reliant on outsourcing.
Ultimately, there are two kinds of investors who will be interested in this stock. One type is long-term investors who put a small amount of money into the shares, hoping that they can surge 1,000% over a long period of time. Or investors can put a large amount of money into the shares and deal with the consequences of being in a highly volatile space and owing stock in a company with no institutional history.
A SPAC-tacular Debut That Was Divorced From Fundamentals
The demand for electric vehicle (EV) stocks and SPACs have disrupted the traditional IPO market. According to a note from Goldman Sachs, 219 SPACs have raised $73 billion in proceeds, representing a year-over-year jump of 462% in 2020, outpacing conventional IPOs by $6 billion.
With green vehicles taking center stage after the election of Joe Biden, investors are pouring billions into companies looking to lower global carbon emissions and provide cleaner energy. However, EV startups still have a lot to prove. All the companies in the sector have grand ambitions, seeking to enter a niche in the overcrowded space.
Some of these businesses have factories under construction, and some have a significant number of preorders, and some have both. Regardless, the situation has become a trader’s delight as they play Russian roulette in a red-hot EV market. However, the boom of the SPACs is driven by heavy speculation, and their returns will not meet the expectations of investors.
Well-known short-seller Jim Chanos recently said, “academic work has shown us that the return of special purpose acquisition companies is not only bad relative to the stock market, but it’s also even worse than initial public offerings. That hasn’t stopped people from getting excited and throwing money {at them.}”
Hyliion Has to Generate Meaningful Sales
Hyliion is an EV startup that produces an electric powertrain for Class 8 trucks that the company claims will improve their fuel efficiency anywhere from 10% to 30%. It’s essentially a hybrid plug-and-play solution that incorporates Hyliion’s proprietary battery systems and a software-management package.
Looking ahead, the company hopes to sell 300 electrified powertrains in 2021 and 6,600 in 2022. That kind of growth is very ambitious. After all, Hyliion is a nascent enterprise, and it relies heavily on technological partnerships, commercial agreements, and third parties.
Moreover, Hyliion has only issued one quarterly report, and it wasn’t good by any means. It reported a loss of 48 cents per share versus analysts’ estimate of a loss of 12 cents per share. The numbers fell short of analysts’ mean outlook by 300%.
Several more earnings reports are needed before an accurate assessment of the company can be made. What we can say for sure is that Hyliion is in the early stages of growth. It will continue to spend a large portion of the revenue it generates to increase its capacity and market its products. I don’t expect the company to become profitable within the next few years.
Negative Headlines Are Hurting Hyliion Stock
Bonitas Research, a Texas-based equity-research firm and short seller, released a research report in October that took issue with Hyllion’s claim that its technology improves trucks’ fuel efficiency by 10% to 30%.
An external test by PAM Transportation Services allegedly showed that Hyllion’s product provides only “a small percentage” improvement in fuel efficiency. Further, the company has claimed to own over 700 natural gas stations but reportedly owns 0 such stations.
Nikola (NASDAQ:NKLA) and its founder, Trevor Milton, received grand jury subpoenas from the Department of Justice in September connected with allegations of fraud raised by short-seller Hindenburg.
Much like Hyliion, Nikola went public via a reverse merger, and Hindenburg’s short-seller report ended Nikola’s momentum abruptly. Nikola’s woes highlight the dangers of investing in the new EV startups that are coming out of the woodwork to cash in on the momentum generated by Tesla (NASDAQ:TSLA).
Analysts and traders tracking the EV space must have felt a sense of déjà vu when Bonitas Research released its report on Hyliion. These negative headlines are not good for Hyliion stock.
Patience Is a Virtue
Investing in a young, growing company isn’t for the faint-hearted. The financial forecasts that companies issue about themselves tell just half of the story. Undoubtedly, they help investors get comfortable financing a company with little current revenue, but the EV sector is unique. There isn’t a lot of data available at this stage about it.
Developing and manufacturing new-energy vehicles is not an easy task. Henrik Fisker knows that. His first venture, Fisker Automotive, filed for bankruptcy in 2013. He is back now with another electric-vehicle company, Fisker Inc., and he has used a SPAC to list its shares.
The Bottom Line on Hyliion
I recommend that investors be cautious about Hyliion. Given its financial results and its supply chain that relies heavily on third parties, its ability to generate exponential growth is questionable.
And as is the case with most companies that debuted through the SPAC route, there isn’t a lot of positive data about Hyliion.
By contrast, Chinese EV startups NIO (NYSE:NIO), XPeng (NYSE:XPEV), WM Motor, and Li Auto (NASDAQ:LI) aren’t as expensive as Tesla and have collectively raised more than $8 billion this year. Plus, these startups appear to have institutional backing from Beijing.
On the other hand, those who want to invest in established names operating in the space should consider more highly reputable automakers like Ford (NYSE:F), General Motors (NYSE:GM), and Tesla.
Hyliion stock looks poised to drop further in the future.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.