Tortoise Acquisition stock – a SPAC company – officially closed its last day on the New York Stock Exchange (NYSE) on October 1, 2020. Through a reverse merger with Hyliion, SHLL became HYLN on the stock exchange. So, is Hyliion stock a buy? Perhaps.
But first – what is a SPAC?
What Is A SPAC?
A SPAC, or special purposes acquisition company, has no commercial business operations. These companies are often referred to as “blank checks” – more on that in a moment.
SPACs are formed specifically to raise funding via an IPO with the sole purpose of merging with or acquiring an already existing company.
This type of company has been around for quite some time, but it’s only been recently that they’ve attracted mainstream interest.
How SPACs work
Investors with specific industry or sector experience form SPACs to pursue investment deals in that space. Normally, the SPAC’s founders have one or more acquisitions in mind. What their target(s) is/are isn’t identified until very close to the actual merger. This is an effort to avoid disclosures in the IPO process – which is why they’re referred to as “blank check”.
Those investing in the IPO ultimately have no knowledge of which company they’re investing in until after the acquisition and subsequent merger. SPACs initially raise funding from institutional investors prior to going public.
After going public, the money from the IPO is held in a trust that earns interest. The funds can’t be used for anything except the completion of an acquisition.
If no acquisition is completed within two years, the SPAC is liquidated and money is returned to initial investors. In some, but not all cases, earned interest can be used by the SPAC as working capital. Once the SPAC has completed an acquisition, it’s then normally listed on an exchange.
In the case of Tortoise and Hyliion, this was a reverse merger and, instead of listing as Tortoise (SHLL), the stock is now listed as Hyliion (HYLN).
What Does Tortoise Acquisition Do?
Tortoise Acquisition Corp. formed specifically to effect a merger with one or more companies.
This goal was completed with the reverse merger with Hyliion. Tortoise has since created Tortoise Acquisition Corp. II (SNPR.U) for the same purposes. It is unknown what company Tortoise II will seek.
What Does Hyliion Do?
Thomas Healy founded Hyliion in 2015. The company’s focus is powertrains. While some companies, like Nikola, are focused on creating actual trucks and other vehicles, Healy saw the breadth of that undertaking and decided instead to focus on what all vehicles require – a strong powertrain. Combine that need with electrical and hybrid-powered advances, Healy, a former racer, saw the abundance of opportunities in bringing this tech to Class 8 semi-trucks cost-effectively.
Hyliion currently has two products in development. The first is shipping out now. It’s a product that converts existing diesel trucks into hybrids. This application, as well as the company’s other product noted below, is a game changer for the commercial truck industry. And these powertrains have retrofit capability with any currently manufactured Class 8 semis.
The company’s other product, Hypertruck ERX, offers a totally electric powertrain for all Class 8 semis without the need for a large battery pack. Rather, the truck’s system will recharge as the truck is driven using a generator powered by natural gas or hydrogen-fueled cell.
Remarkably, Hyliion won’t be manufacturing either of these products. Instead, Dana, a supplier to the auto industry, will manufacture these parts, directly shipping them to installers or manufacturers.
Hyliion also produces battery management systems.
So, Is Hyliion Stock a Buy?
When the merger was first proposed, SHLL (Tortoise) stock traded at around $10/share. Fast forward a few months, Hyliion ramped up to $60/share – extending its market cap to almost $10 billion.
Since then, though, HYLN dropped towards $30/share, comparatively dropping its massive market cap to less than $5 billion. As of October 27, 2020, the stock was holding at around $21/share.
Even giving the large drops in share price, HYLN could still prove to be a massive portfolio addition. Does Hyliion deserve all the hype its received?
Hyliion’s breakthrough powertrain technology could enormously disrupt the global truck market. The trucking market is worth $800 billion globally and depends on oil – if Hyliion delivers on its promise, it could not only reduce or even end the trucking industry’s dependence on fossil fuels, but it could top a $30 billion market capitalization. For investors in it for the long haul, HYLN is still a buy.
Risks of Buying Hyliion Stock
There are a few. For instance:
- Other companies are soon to join Hyliion in the electric truck race
- The company might not have any further room to grow
- Hyliion has a trailing 12-mo revenue of $0.00 showing over a $17 million loss
Can Hyliion Competitors Win?
Hyliion isn’t the only company attempting to disrupt the electric trucking industry – but, just like Hyliion, not many are in the black, either.
For instance, Nikola (NKLA) isn’t faring too well.
In a press release dated October 26, 2020, there’s currently a class action lawsuit against Nikola tying to “massively misleading statements of fact” regarding the company’s overall profitability and its business prospects.
Other Hyliion competitors include Rimac Autobili and Delta Motorsport. Both companies are not yet publicly traded.
Is Hyliion Stock a Buy? The Bottom Line
As a new, publicly traded company, a full sense of their potential isn’t available just yet. But the prospect is certainly intriguing.
According to the CEO of Hyliion, Thomas Healy, and the CEO of Tortoise Acquisitions, Vince Cubbage, the company has real products with real potential. They’ve also been smart in their view of what’s realistically possible and cleared a solid path to become major players in the electric trucking space.
While Hyliion might not quite yet be a buy, if you enjoy investing in auto stocks or you’re simply intrigued by the space or opportunities, Hyliion could be a buy – but prepare to hold.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.