Hyliion: The Product Is Not The Only Problem

Feb. 18, 2022 12:44 PM ETHyliion Holdings Corp. (HYLN)152 Comments
Stephen Tobin profile picture
Stephen Tobin
651 Followers

Summary

  • Hyliion continues to try to make products that other companies have taken to market and failed to sell.
  • Hyliion initially forecasted sales of 6,600 units in 2022; the actual figure is likely to be zero.
  • Hyliion will release earnings before the end of February; without significant orders or extensive cost-cutting, they might run out of cash within 12 months.

Two ceramic piggy banks with one broken into pieces on blue background

AlexSecret/E+ via Getty Images

This article is a follow-up article to Hyliion: The product is a problem I wrote last year. In that article, I forecast that the HyperTruck would not sell. Here I present further arguments that support this view and consider the impact of the lack of sales on Hyliion's (NYSE:HYLN) financial position. If you want a more in-depth discussion of the Hypertruck, please read the earlier article.

Problem 1: The hybrid electric system

Hyliion makes the "Hybrid eX"; it is an electric axel and supporting power train with batteries that bolts onto any diesel truck chassis and turns the diesel truck into a diesel/electric Hybrid. I do not believe it will sell.

Have you ever seen a hybrid Truck? It is hard to walk around any city in the US or the rest of the world without seeing a Toyota Prius. People buy hybrid technology, so why no hybrid trucks? Has nobody ever tried to build one? Or was Hyliion the first to think of it?

Hybrid trucks have been tried before

The first Hybrid class 8 truck arrived in Washington as a demonstration vehicle in 2009. Navistar, Meritor, and Cummins produced it. A trio of tier 1 producers invested in the project and developed a production-ready prototype for fleet owners to consider (this is where Hyliion is now, just 14 years late). The class 8 truck had a Cummins diesel engine and regenerative braking to help charge the batteries that would run the vehicle for 20 minutes.

The vehicle enabled savings of 3,200 gallons of diesel a year and was slated for production by 2012. The project was quietly abandoned when nobody bought it.

Adding technology to the powertrain, such as regenerative braking, adds cost to the total ownership of the Truck both through the initial purchase of the vehicle and the added complexity which must be maintained. Despite the growing cries for lower emissions and mandates for cleaner vehicles, money still talks, and Hybrid trucks make it more difficult for fleet operators to stay away from the red ink.

The Hyliion Hybrid offering is Agnostic; you can buy it for $26,000 and fit it into any truck you choose. That makes it even more expensive than the Navistar/Meritro/Cummins vehicle from 2009; considered too costly and too complex then, and I think it is the same now.

Three tier 1 suppliers failed to sell their Diesel Hybrid; why should Hyliion fare any better? They don't have the sales force, reputation, or expertise of the companies that have tried this before. I have searched through the Hyliion Twitter account and their website, looking for orders for this hybrid tech, and found nothing, no sales, and no bookings.

I think the product, like its predecessors, will fail and return very little if any revenue.

In their IPO document, Hyliion said they expected to sell 4,100 Hybrid eX units this year; they also said they would sell 300 in 2021 and 20 in 2020. Using the offer document, we can calculate a sales price of $26,667 for each unit.

That means that by the end of this year if Hyliion record no revenue, as I am suggesting, then Hyliion's revenue on this product alone will be (4,420X26,667) $118million less than expected.

Problem 2: The Hypertruck

The ERX Hypertruck it's not a hybrid, but I don't think it will sell.

The ERX is not technically a hybrid as the Natural Gas generator cannot drive the wheels directly. It charges the battery, which powers the electric motor. This does mean that the drive train is more straightforward than a hybrid; however, I will present evidence suggesting that it will fare no better than the hybrid.

Hyliion is doing an abysmal job of getting this product to market, it is taking a long time, and as a result, they have been beaten to the chase. They no longer have a first-mover advantage, and their product is no longer unique.

The Paccar (NASDAQ:PCAR) owned brand Kenworth has delivered two T680's. The T680 was developed with funding from the California Air Resource Board (CARB). It has batteries that provide 30 miles of range charged by a natural gas-fired generator.

The T680 has regenerative braking (like the Hypertruck), and apart from the 30-mile range (the new ERX spec has 75 miles), it is the same concept and a similar spec to the Hypertruck.

Hyliion has been beaten to the market, and the company that beat them has decided the product will not sell and has ended production.

In the last three years, [California has] switched from reducing to eliminating emissions; I don't see us pressing forward with this design at this point.

Brian Lindgren, Kenworth research and development director,

Kenworth and Paccar are developing Battery Electric trucks and Hydrogen Fuel Cell trucks instead of pressing ahead with the already developed Natural Gas/ electric.

Hypertruck orders

Hyliion does not have any confirmed orders; however, they have recently announced another reservation of 40 units by Mone Transport (Q3 earnings slides). That can be added to the Agility reservation and the Detmar reservation that I covered in my first article. A total of 1,340 units have been reserved but they are all subject to further negotiations and are not yet orders.

Their Twitter account did tease a potential order on the 12th of February:

After a positive experience with our Hybrid technology during last year's pilot program, @Return_It is incorporating three Hybrid eX trucks into their fleet.

Hyliion tweets lots of positive news about testing and how much people like the Truck; they just never seem to sell any.

The Q3 earnings slide show had this image suggesting no sales in 2022 and testing into 2023.

The timeline for ERX developement

Hyliion Forecasts (Hyliion Q3 Slide show)

The Hyliion IPO document expectations of sales from the Hypertruck was 2,500 this year and 8,500 next year. As they will only start Winter Testing this year they cannot be expected to sell any units this year and the jump to 8,500 seems too big.

Barclays downgraded Hyliion, commenting on the slow uptake of the vehicles and expressing concern that the order book was much softer than first thought. Barclays also mentioned increased competitive threats.

Hyliion competition grows

Hyliion's slow rollout has meant that competitive products are now a reality. You can now buy battery-electric and fuel-cell vehicles. I thought it would be years before these technologies were a reality, but it is not. They are here now. Nikola started commercial deliveries of its Battery truck in December, and CARB confirmed that its Truck would qualify for ZEVs and a discount of $120,000.

Hyliion is not yet CARB-approved. This was raised by a number of people after my previous article. Hyliion has made the position clear, they are not going to attempt to get CARB approved until 2023.

After 2022, we will still have a few important milestones remaining prior to the start of production. The first is that we will take any of the learnings from the testing and validation or on-road miles and incorporate them into one further design iteration of the product. Next, we will obtain final certification needed from CARB, the EPA, and NHTSA.

Source:Q3 earnings call

Nikola's order book is building, and many are due to be delivered in the first half of 2022:Total Transportation Services (30 Tre BEVs and 70 Tre FCEVs), Heniff Transportation (100 Tre BEVs), USA Truck (100), Saia LTL Freight (100), and Covenant Logistics Group (10 Tre BEVs and 40 Tre FCEVs).

In contrast, Hyliion's order book is empty. They will still be testing in 2023 and will have missed the opportunity to be first to market with a "green truck".

Nikola is not the only or necessarily the strongest of the competition Hyliion faces; there is no escaping the fact that the competitive landscape is far more challenging than it was 12 months ago.

Using the data from the offer document, assuming no sales in 2022, we can calculate that the lost revenue from the Hypertruck is ($220,000 x 2,500), $550 million. That is a big hole in any set of forecasts.

Problem 3: Hyliion cash burn

If we adjust Hyliion's IPO document for this forecast lack of sales, we hit a much bigger problem. Hyliion does not have enough cash. It might even run out this year.

This forecast uses the following assumptions

1. Hyliion keeps spending money at the present rate.

2. They keep selling products at the present rate.

Hyliion is not cutting back on its marketing spend.

With the addition of four new trucking industry veterans, our growing sales team continues to work with fleets to adopt our innovative technology to jumpstart their path to electrification.

Source Hyliion Twitter account Feb 12th

They have also announced four additional board members in the last 12 months, some impressive people with industry and political experience.

When I wrote my first article, I was complimentary about Hyliion's balance sheet and its spending. Much has changed, and the lack of sales makes the cash situation an issue.

The cash flow forecast below is quite simple (often the best and easiest to understand).

It makes the following assumptions:

1. Hyliion slows the growth of its sales and marketing spend from the historical average of 60% to 20% a quarter.

2. Hyliion slows the growth of R&D spending from (average) 66% a quarter to 26% a quarter over the next 12 months.

3. Hyliion does not book any sales in the current year.

All figures below are in millions of dollars. Dec-21 onwards are my own forecast driven by the Forecast increase Quarterly costs.

Forecast spreadsheet Hyliion

Hyliion Forecast Financials (Stephen Tobin)

Source: Historical Data SeekingAlpha, forecast by Author.

If this forecast is near reality, Hyliion will run out of cash this year.

These are my figures generated from my beliefs and should be viewed as the worst-case scenario; there are other views.

The other story

I have presented a very bearish view of Hyliion; obviously, it is my opinion and others disagree. Here I present a different forecast to give some balance.

I begin with the Hyliion forecasts:

In the Hyliion offer document, they forecast EBITDA of -$135 million in 2021 when they were expecting and +$8 million in 2022 when they sell 6,600 units.

There is the possibility that things are just delayed and they will meet these sales volumes one year later than forecast. If that is the case then Hyliion is in reasonable shape, they would end 2022 with around $300 million of cash.

This next forecast is less bearish than mine but more bearish than that of Hyliion, it shows a significant cash burn but would not be as difficult to deal with:

In 2022, HYLN is forecast to generate -$164,647,756 in earnings, with the lowest earnings forecast at -$168,114,024 and the highest earnings forecast at -$159,448,353.

source WallstreetZen

The WallstreetZen forecast would leave Hyliion with $266million in short-term assets at the end of 2022. If Hyliion could follow this path it would negate my bearish view. However, under the revenue section, WallstreetZen predict this

In 2022, HYLN is forecast to generate $129,985,070 in revenue, with the lowest revenue forecast at $129,985,070 and the highest revenue forecast at $129,985,070

If that revenue drops to zero as I am predicting then the earnings would be significantly impacted.

My bearish hypothesis has two major risks:

1. Sales: I could be just wrong, the Hyliion products could sell. My view is based on what happened to other similar products, but they are other products from other manufacturers. The time may now be right for Hyliion's offerings or they may be better at marketing than the companies that have gone before them. In 2023 they may start to deliver on their forecasted volumes.

2. Cost Cutting: Hyliion might begin a cost-cutting drive that enables them to get their product to market and make a profit on a smaller sales volume than originally forecast. If this is the case they would not run out of cash and could continue on a smaller scale than originally planned.

Conclusion

Hyliion has executed poorly; they have missed product launch deadlines and are at least two years behind the revenue predictions they made.

The two Hyliion products are very similar to other products that have failed to sell in the past.

Competitive technologies, battery electric and fuel-cell electric trucks, are racing to market offering clean energy trucks available today with confirmed CARB ZEV credits.

The absence of sales has an inevitable hit on their finances, and in my opinion they may not have enough money to get to market.

This article was written by

Stephen Tobin profile picture
651 Followers
Having started my career working for BoA in the early 1990s (and completed my MBA), I have been actively researching and trading in the markets ever since. I spent most of my career working in the education field; I have been a senior manager in Educational establishments, both online and brick and mortar schools, for more than 20 years. I like to trade in small companies with disruptive technology using leverage; I focus on the areas I have particular knowledge of, Education and Renewable Energy. Typically I use a two-year time frame in my analysis. I am looking for companies that will make a significant return in that period, and do not consider myself a long term investor

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I do not advise taking a short position in Hyliion, its share price is already low.
I do not have any positions in Electric vehicles at the moment but I am long ARBE, INVZ, AEVA who are potential suppliers to electric vehicle manufacturers.

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