Hyliion – Another Electric Semi Truck IPO
One way new investment opportunities manifest themselves is through initial public offerings (IPOs). This is an event where a company decides to sell some of their shares to the general public and institutional investors who will commit to purchasing shares. During this process, the company selling shares will typically go on a “roadshow” where they present their offering to potential investors. As part of the IPO process, an S-1 filing is made with the regulatory authorities which describes the offering in detail.
Lately, we’ve been seeing some companies bring their shares to the public using a different method. It’s called a “blank check company”. You may also hear this referred to as a “SPecial Acquisition Company” or SPAC. The general idea of a blank check company or SPAC is for investors to literally sign over a blank check to someone who then decides what to invest the money in prior to the whole vetting process taking place. Essentially, investors are putting all their faith in the person running the shell. It’s kind of like the reverse mergers you see on the OTC market, except that the shell is traded on a major exchange with large investment banks participating.
In our limited experience with SPACs, we’ve noticed they tend to have a problem with irrational exuberance. For example, both Nikola Motors (NKLA) and Virgin Galactic (SPCE) have gone public using SPACs, and in both cases, their shares have been bid up to levels that were (or in Nikola’s case, still are) very difficult to justify. That’s because the type of “investor” who would buy worthless shares of a bankrupt car rental company would also be prone to try and chase “the next Microsoft” – or in this case, “the next Tesla.” An electric truck maker called Hyliion that seems to resemble the same value proposition that Nikola Motors has offered up is now planning to go public using a SPAC called Tortoise Acquisition Corp (SHLL).
Hyliion’s Electric Semi Truck IPO
Founded in 2015, Texan startup Hyliion has taken in just over $29 million in funding so far to develop their hybrid and fully electric semi truck offerings. In order to make their shares available to the public, they’re merging with a SPAC called Tortoise, and raising $525 million at a valuation of $1.5 billion.
Hyliion has a hybrid electric solution that can retrofit any brand-name semi truck (diesel or CNG) for performance improvements. They’ve sold some of these, but they don’t say how many. What’s really the focus here is their flagship electric semi, the Hypertruck ERX, which is in the advanced stages of development.
Our fully electric powertrain is in advanced development and we expect to deliver demonstration vehicles to our launch partner and other fleets in the second half of 2021 with full commercial production and delivery of those systems in 2022.
There’s a very nice investor deck that’s been put together which highlights the grand plan along with some comparisons of Hyliion to Tesla and Nikola Motors.
Aside from the usual risks inherent to manufacturing a complex vehicle at scale in less than two years’ time, there’s nothing necessarily wrong with this value proposition. But as retail investors, we think this stock presents far too much risk for reasons other than the business plan.
Why Hyliion Stock is a Risky Bet
When you work in a startup, you need to wear many hats. This means that sometimes things will get overlooked. One thing that was seriously overlooked by Hyliion is the news section of their website which contains some absolute garbage by any standards. Looks like they may have plugged in some news scraping algorithm incorrectly and pulled in every single mention of their company and posted it as a “press” mention. There are some real gems, like this sage advice from Armandus which made its way into one of these “articles:”
That was one of the more tame things on there right now. Based on what we’ve gathered so far, a whole bunch of morons out there are touting this as “the next Tesla” or “the next Nikola,” or whatever it is that appeals to the irrational Robinhood trader types. Speaking of which, from Hyliion’s website:
The point here isn’t to criticize Hyliion as they’re probably too busy executing to worry about what a pretty important part of their website contains. The point is that this sort of banter being thrown around does nothing but increase hype and volatility which is great for speculators but not great for investors. We’re not just coming to that conclusion after reading some of these remarks, but in looking at the SPAC shares as well, which are unsurprisingly already trading at a 70% premium to the IPO price and the deal hasn’t even gone through yet!
Readers might consider shorting SHLL, but that’s not something you should ever consider doing because you’re also speculating, not investing. Retail investors have far more irrationality than you have available margin. These types of stocks are best left to the momentum traders, institutional prop trading algorithms, and the amateur traders on Robinhood, half of which will likely end up holding the bag.
When trying to assess the merits of any given stock, don’t go read all the rosy pictures that are painted by the company investor relations team. Instead, start to look for red flags or anything that might disqualify the stock from being something you would consider investing in. In the case of Hyliion, they’re choosing to offer shares to the public using a method that has historically provoked some very irrational behavior from retail investors who are doing nothing but speculating. If you are considering a long position in Hyliion, you’ll probably want to wait until the dust settles.
If the merger goes through as planned, Hellion shares will trade under the ticker HYLN.
Here at Nanalyze, we hold the lion's share of our investing dollars in a portfolio of 30 dividend growth stocks. Find out which ones in the Quantigence Dividend Growth Investing report freely available to Nanalyze Premium subscribers.