Back in 2020, the investing world was hit with EV reverse merger mania. Those were the days, eh? Anyone with a tangentially green idea was given hundreds of millions of dollars and endless media praise. Many ephemeral billionaires were made. Now that the dust has settled, I’m checking back in to see if there are any diamonds left in the rough.
I plan to make this a series. First on the list: Hyliion. Hyliion describes themselves as a provider of electrified powertrain solutions for commercial vehicles. They went public through a reverse merger transaction back in 2020. The stock subsequently rocketed to $60 a share, achieving a market capitalization of $10B. The founder, Thomas Healy, was briefly one of the youngest billionaires in history. Since then the stock has fallen all the way down to $3.50 per share. With a few years of public operation under their belt, and a much cheaper price tag, I thought it worth revisiting.
The Hypertruck
Hyliion’s flagship project is…not exactly an electric vehicle. When they say “electrified” in their promotional material, they mean electrified in the same way a diesel locomotive is electrified. Their product is called the Hypertruck ERX, and its primary prime mover is a compressed natural gas (cng from hereafter) engine. The gas engine is hooked to a dynamo, which converts energy produced by the engine into electricity. That electricity then charges an onboard battery pack and the wheels are driven by electric motors. The full powertrain package is similar to what a diesel-electric locomotive would have.
There are certainly advantages to this setup. The onboard batteries can hold energy for up to 75 miles of range on electric power alone, according to Hyliion. Hence, short hauls could be done with grid electricity alone. The full benefits of electric motors are realized; maximum torque can be achieved at 0 rpm and no additional gearing is required for peak efficiency. Speaking of efficiency, the generator can be run in its most efficient state, independent of the wheel requirements thanks to the buffer provided by the batteries. CNG is cheaper than diesel, so it has a running cost advantage over traditional trucks. Hyliion claims that a fuel savings up to 35%.
There are also many drawbacks. CNG is stored at 3200 psi standard, and the tanks required to store the substance are both bulky and heavy. This is problematic for semi tractors, the US has a 40 ton limit for tractor-trailer combinations, and every pound saved on the tractor is an extra pound for cargo. Natural gas powered commercial trucks have a bonus weight allowance of up to 41t. CNG engines tend to have a low power output per liter, so whatever engine they’re using will need to be large as well. They also have a full electric powertrain with at least 150 kWh of batteries. A Rivian with just 120 kWh of batteries and no 12L+, 3000lb ICE engine weighs 9000 lbs. In short: The Hypertruck will be heavy. CNG engines generally have lower thermal efficiency than modern turbo diesels, and part of the fuel savings will be offset by greater fuel consumption per mile traveled. This truck will have virtually all the complexities of a combustion engine vehicle and an electric vehicle. There are also ongoing environmental concerns around natural gas engines. Raw natural gas can be 100x more potent a greenhouse gas than carbon dioxide, hence escaped CNG can very quickly offset any environmental benefits over diesel.
Overall, I would consider it a wash at best. The technology is heavy and clunky, and has never managed significant penetration in any US market. Hyliion claims that their trucks would be below 0 emission vehicles if run on renewable natural gas (rng), but rng infrastructure is currently more sparse than the already rare CNG pumping station. That said, Hyliion has managed to rack up 170 orders with deposits for the Hypertruck.
I still have many questions about Hyliion’s product. What is the thermal efficiency of their CNG generator? Is it their own design or is it just a Cummins engine? What is the gross weight of their tractors? What is the capacity of their battery packs? What is the horsepower output of their CNG generator and electric motors? What are the trucks priced at, is it competitive? What will they cost to build? I can find none of this information, though their trucks are, ostensibly, less than a year from production.
It's worth noting that CNG trucks with traditional mechanical transmissions are already available. As I earlier alluded to, Cummins's gas engines are available in Kenworth and Freightliner trucks, or direct from Cummins. They too can run on RNG. Hence, Hylion’s flagship truck is only novel as a gas-electric drive, not a ZEV capable RNG powered vehicle. Cummins has beat them to the punch here. Cummins isn’t exactly selling these powertrains like hotcakes. There are only 700 CNG stations in America, and the trucks are more expensive upfront. Most fleet operators will take diesels for their versatility and reduced upfront cost.
Here is a short article from 8 years ago about why natural gas trucks have yet to catch on. Hint: None of the reasons discussed are fixed by Hyliion’s more complex and expensive gas-electric drive. https://www.greencarreports.com/news/1094087_why-arent-natural-gas-powered-long-haul-semi-trucks-selling-better
Hyliion also offers hybrid systems for existing diesel trucks. This, again, is not new or novel. Adding diesel hybrids to fleets was an issue all the way back in 2008, when refined petroleum products were last squeezing the purses of American businesses and consumers.
Granted, lithium battery technology was not as cheap or developed as it is today, and packs were smaller capacity, heavier solutions, but hybrids, obviously, never took off in the world of heavy trucks. Most fleets just want full BEV or nothing. It just doesn’t make economic sense to implement hybrids. Modern diesels are very complex and hard to maintain, diesel hybrids are even more complex and harder to maintain. Trucks drain 2+ kWh per mile traveled while loaded. Even a 2-3 ton 150 kWh battery could only last an hour on the highway, then the truck is back to diesel. There is a catch-22 about hybrids from an economic analysis perspective (which is how every fleet will approach the decision). Hybrids are best in situations where energy recovery opportunities are frequent like city driving, hence efficiency benefits are highest here. But, actual fuel consumption per hour/day/year is lowest in city driving, hence the economic benefit is lessened. This is why so few fleets, especially for heavy duty vehicles, use hybrids. Slap an 10% IRR requirement (or higher) on the upfront cost of hybrid powertrains, and the purchase almost never makes sense. This is very much true for class 8 trucks. Consider the upfront cost and added maintenance/complexity, and the purchase rarely would be worthwhile. If it did make sense, Cummins/Allison would sell a hybrid powertrain. These hybrid powertrain offerings from the likes of Hyliion and XL Fleet make significantly more sense to the common retail investor than actual fleet operators.
Strategic Roadmap:
Hyliion plans to make what is called a “fuel agnostic generator” as their next step in their strategic roadmap. It will be able to run on both CNG and hydrogen, and as a stopgap in the transition between CNG and hydrogen for heavy vehicles, it has the potential to be an important and unique piece of… wait a minute… oh NO NO NO NO NO: https://www.cummins.com/news/releases/2022/02/14/cummins-unveils-industry-first-fuel-agnostic-internal-combustion
Hyliion has already lost the race to a fuel agnostic powertrain solution. Good luck convincing customers to choose your unproven $150,000 powertrain over Cummins. No one gets fired for buying the Cummins! But seriously, this is not a great look for Hyliion.
As an aside here: I really can’t tell if Hyliion's fuel agnostic generator will be an ICE solution or a fuel cell. Mr. Healy seems to go out of his way both in slides and on call to not call it a fuel cell. Obviously the Cummins solution is internal combustion with renewable fuels. If Hyliion’s were to be a fuel cell solution, it would, as far as I know, need a way of separating hydrogen out of the CNG, which would drag on efficiency severely and add significant bulk and cost. Maybe they mentioned more details in a presentation I’m just too lazy to find, but I find the language in their slides and on their most recent call cagey. They really don’t want to say what exactly it is.
The final stage of their roadmap is full hydrogen powered vehicles. This, again, is not novel. Cummins is pursuing this powertrain technology. As is Daimler. GM already has developed IP around hydrogen, they just can’t find anyone willing to buy or use it. Nikola is also, ostensibly, still trying to bring hydrogen trucks to market. I would say Hyliion has absolutely no moat here, in fact, they seem to be quite late to the powertrain development party.
Nitpicks
Their website is full of investor-focused jargon. Things like: “We aim to improve on-road safety with our AI-based Driver Health Monitoring System.” Sounds like a truckload of red tape for a third party to monitor driver health, if drivers would want this feature at all. I thought they just made powertrains?
And “Machine learning continuously optimizes power output”. The state and efficiency of engines is very easily definable with all the sensors hooked up to them today. It’s not a black box that needs machine learning to work out, especially with an electric drive. Unless their speaking of output to the wheels, which is an even sillier thought.
Are these things terribly important? No. But, I think they’re worth noting. There website seems more oriented towards investors than customers.
Financials
Hyliion currently trades at a market capitalization of $630M. They have a total of $530M in cash equivalents and long term investments. That gives them an EV of $100M. They project a full year operating loss of $135-145M, which would be an additional $110-120M this year of cash burn. Next year, in the lead up to launch, I assume operating expenses will go to ~$180-200M, conservatively. They also have a total $10M of equipment and operating leases, so significant capex will likely also be required before the Hypertruck can be put in production. Given their roadmap, their financial situations as not as great as it looks upon first glance.
Conclusions
In my research, I can’t find anything Hyliion is doing that could set them apart from their competitors. Electric drives have been around for a century and have never made much sense for semi tractors. Cummins already offers RNG and ZEV capable prime movers for truck bodies. Hybrid Tractors have been tried and failed due to added cost, weight, and complexity with limited benefit. Finally, many heavy truck manufacturers have been developing Hydrogen fuel cells for decades before Hyliion arrived. Hyliion is no more innovative than its legacy competitors. It is still riding the coattails of their blockbuster debut with nothing to add.
1.2x book might seem like an attractive price, but other former blockbusters with more interesting prospects like Rivian trade at only 1.5x book. XL Fleet, probably the closest analog that had a much less bubbly debut, trades at only .5x book value today. I think Hyliion is, at the very least, a stock to avoid. They recycled many dead ideas from the heavy trucking industry and snuck into the EV club on a technicality at just the right time to get the bag from reverse merger mania.
P.S. I think this will be my conclusion about most of these companies; cheap, but not very valuable. Feel free to suggest what I should look at next.
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