Once upon a time, electric trucking company Hyliion (NYSE:HYLN) was a Wall Street darling. Investors were wowed by the company’s breakthrough renewable natural gas (or RNG) technology, and its potential to address the shortcomings of electric and hydrogen technology in long-haul trucking. From June to September 2020, HYLN stock soared from $10 to $55.
Then the hype faded. Over the past five months, HYLN stock has crashed back to $15.
Why?
Mostly because there has been a notable lack of announcements from the company, at the same time that huge advancements have been made in both plug-in battery and hydrogen technology.
This combination has caused investors to second-think RNG’s place in the clean energy future, and whether Hyliion will be a big player in electrifying trucking fleets.
Hyliion just announced a next-generation battery module, however, which broadly implies that its RNG technology is making progress. Further, it implies Hyliion’s electric powertrains have significant advantages over legacy EV powertrains.
This big announcement could be exactly what Hyliion’s sleepy stock needs to “wake up” and rebound back to $50-plus highs.
Here’s a deeper look.
HYLN Stock: Traditional Renewables Not Up to Par in Trucking
First, let’s understand the core bull thesis on Hyliion’s stock. It all starts with talking about the shortcomings of plug-in battery and hydrogen technology in long-haul transportation.
Battery-electric trucks have range, cost and infrastructure problems. They can only travel a few hundred miles on one charge, they run at about $7 per diesel gallon equivalent (versus $3 per gallon for diesel trucks) and there are less than 10 Class 6-8 electric truck recharging stations across North America (PDF, page 10).
Hydrogen trucks do better on the range part. Because hydrogen is super light, hydrogen fuel cells can be super dense. And therefore, hydrogen trucks can drive much farther on a single “charge.” But hydrogen truck still have the cost and infrastructure problems. There are also less than 10 Class 6-8 hydrogen truck refueling stations across North America, and hydrogen costs about $12 per diesel gallon equivalent.
Thus, while the trucking industry needs to go green, traditional renewable energy sources are not ready to viably decarbonize the industry just yet.
Fortunately, there’s another, entirely overlooked and ostensibly counterintuitive renewable energy source which is ready to immediately and cost-effectively decarbonize the trucking industry — and it’s the one that differentiate Hyliion from other players in this space.
Is Renewable Natural Gas the Next Big Thing?
When it comes to Hyliion’s bull case, it’s all about RNG.
RNG is natural gas, just sourced from animal, industrial and food waste as opposed to fossil fuels. Sure, that means RNG still emits CO2 during the natural gas combustion process (not good for the environment). But it also means that RNG captures and uses methane in traditionally methane-rich waste, and therefore, prevents that methane for being emitted (really good for the environment).
Methane is considered much, much worse in terms of global climate change than CO2, mostly because the former is better at absorbing heat. Therefore, as a process that boosts CO2 emissions, yet simultaneously reduces methane emissions, RNG is considered net carbon-negative and ultimately a big “win” for the environment … much like plug-in batteries and hydrogen.
The cool thing about RNG is that it solves plug-in battery and hydrogen technology shortcomings in long-haul trucking.
Range? A typical RNG truck will give you the same mileage as a diesel truck.
Infrastructure? Unlike wind, hydro and solar, RNG can is a plug-and-play solution with existing natural gas infrastructure, and therefore, doesn’t require huge capital spending to work at scale. After all, there are 729 Class 6-8 natural gas refueling stations across North America. RNG can be pumped through all of those stations.
Costs? Current RNG prices hover around $1 per diesel gallon equivalent, while hydrogen and electricity prices — though steadily falling — still sit staunchly north of $5.
Thus, by being a clean energy source with best range, the lowest costs and an already established infrastructure, RNG is the only immediately usable technology to decarbonize trucking fleets. That’s why Deloitte projects that, by 2026, about 80% of all alternative drive systems in heavy duty trucks will be based on natural gas (PDF, pg. 4).
Hyliion Comes to Market With Best-in-Breed RNG Solution
Hyliion is positioned with a best-in-breed RNG truck powertrain platform — dubbed the Hypertruck ERX — that is due to start deliveries in 2021/2022.
This platform will materially disrupt the trucking industry, and over the next decade, you could see a lot of UPS (NYSE:UPS), DHL, FedEx (NYSE:FDX), Coca-Cola (NYSE:KO) and Walmart (NYSE:WMT) trucks be built on the Hypertruck ERX powertrain.
Just look at the numbers here. Hyliion consistently outperforms rivals Nikola (NASDAQ:NKLA) and Tesla (NASDAQ:TSLA). The Hypertruck ERX sports the following:
- Driving range of 1,300 miles, ~70% more than Nikola’s hydrogen truck (750 miles) and about 160% more than Tesla’s semi-truck (500 miles).
- A payload capacity of 53,000 pounds, ~10% more than Nikola (48,000 pounds) and ~20% more than Tesla (43,000 pounds).
- A full recharge time of just 10 minutes, the same as Nikola’s hydrogen truck and one-third that of Tesla’s semi-truck.
- A 0-to-60 miles-per-hour pick-up time of 20 seconds, on par with Tesla’s semitruck and 10 seconds shorter than Nikola’s hydrogen truck.
In other words, Hyliion’s Hypertruck ERX is the best clean energy long-haul truck technology platform in the market … meaning it is ready to lead the clean-energy disruption of the Class 8 trucking market.
For a while, Wall Street forgot about Hyliion’s potential amid a noticeable absence in updates from the company. But HYLN is perking up once again because of a critical business update, which implies that the company has been busy at work fine-tuning this disruptive technology.
A Breakthrough Next-Gen Battery Module
This past week, Hyliion unveiled its next-generation battery module that has long battery life, higher recharging rates and improved safety.
Specifically, this improved battery module is capable of up to 5X as much cycle life as a conventional EV battery, can be recharged in under 8 minutes, and allows for more than a 40% improvement in cooling compared to previous systems (which allows for higher charge and longer sustained power output).
It’s a powerful solution that could be the key to waking up investor interest in Hyliion stock.
Before this announcement, Hyliion had been publicly quiet for months about any technological improvements or advancements. This silence dated back to the company’s third-quarter earnings report back in early October.
Not surprisingly, amid a lack of catalysts, Hyliion stock has been weak.
But this is a big catalyst, and it could be exactly why Hyliion’s stock needs to wake up from its slumber and get back on a winning trajectory.
Long-Term Upside Potential Is Compelling
Globally, about 1.7 million heavy-duty commercial vehicles (HCVs) are sold annually. Let’s say this market follows the passenger car electrification arc, and that by 2030, more than 30% of new HCVs sold are built on alternative drive systems. That implies 500,000-plus alternative-drive HCVs sold in 2030.
There will be a lot of competition fighting for those 500,000 deliveries. Tesla will win some market share with its branding power and leading electric battery technology. Nikola will win some share with its disruptive hydrogen fuel cell technology. And, yes, Hyliion will some share with its immediately usable and exceptionally cost-effective RNG powertrains.
Let’s say Hyliion wins about 20% market share, implying ~100,000 units sold in 2030.
The company’s internal financials imply average annual revenue per powertrain of over $60,000, while EBITDA margins at scale should rise toward 35%.
Under those assumptions, Hyliion should clear $2 billion in EBITDA in 2030.
High quality truck components suppliers can fetch a 15X EBITDA multiple. That implies a potential future enterprise value for Hyliion of $30-plus billion, versus a market cap of ~$3 billion today.
Bottom Line on HYLN Stock
Hyliion still projects as a long-term winner thanks to its unique RNG solution which is presently the best solution for decarbonizing the long-haul trucking industry.
Hylion’s stock just went to sleep for a few months, amid an unusually prolonged silence from the company with respect to technological and business progress.
That silence is now broken. And with it broken, HYLN looks ready to charge back into an uptrend.
P.S. Have you noticed the trend lately? The stock-picking trend has made a comeback in 2021… But with all these stocks going parabolic only to come crashing down, it’s impossible to tell up from down. It may seem like the smartest thing to do is sit on the sidelines… it’s not.
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Hope to see you there!
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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