Nikola and Hyliion are two new sustainable mobility companies that have recently been one of the stock market’s hottest topics after listing on the exchanges earlier this year. Both these companies have seen their stock prices rocket as tech-hungry amateur investors turn to the stock market during the pandemic. While Nikola (NKLA) has been mired in controversy, Hyliion (HYLN) stock has been in the news over its business model and high valuation at this early stage.
But which stock is a better buy?
Nikola was founded in 2015, by CEO and Founder Trevor Milton, with the aim of revolutionizing commercial transport and catalyzing a shift to sustainable energy. The company launched a hydrogen fuel cell-powered freighter in 2016. Earlier this year, the company raised over $700 million dollars from a reverse-merger. Following the listing, the stock went up nearly 8x despite no major changes at the company.
This meteoric rise only led to an even more dramatic fall after the company and founder became the subject of various fraud allegations. The stock is down 76% from its all-time high and has destroyed over $20 billion of investor wealth.
Hyliion is Texas headquartered company which too was founded in 2015 by CEO Thomas Healy. The company’s flagship product is a natural gas-electric powertrain that can be fitted to new and existing trucks for emission-free use.
Like Nikola, the company too was listed on the exchange through a reverse merger and raised $560 million to bring its product to market. Like Nikola, the stock went up 6x and has since given up most of that ground. However, the company has not been the subject of any fraud allegations.
Nikola aims to be the market leader in hydrogen-fuel vehicles and infrastructure. The company’s Badger is powered by a hydrogen fuel cell, that is used to power an electric motor. The company claims that hydrogen while being emission-free, can be made as cheap as gasoline at scale and does not suffer from range anxiety and long charge-times of EV’s. The company has raised cash not just to bring its trucks to market, but to build America’s first Hydrogen fuelling infrastructure and be the market leader at that. They believe that this investment will pay off handsomely in the future. The company will be using part of the raised funds to build a manufacturing facility in Arizona. However, the company’s recent image has been tarnished after fraud allegations from all sides and any claims made by it should be taken with a pinch of salt.
Hyliion is taking a much different approach to Nikola. The company is not interested in developing its own vehicles. Instead, it wants to be a vendor to all major truck suppliers of the most crucial and expensive part of a truck, the drivetrain. The company has a natural gas-driven system that powers an electric motor and accompanying batteries.
The company claims that this will be a far more efficient business model as the costs will be far less than developing a whole new vehicle and it can avoid dealership and marketing costs, leading to higher margins.
Secondly, its system takes advantage of an existing natural supply chain and network.
Thirdly, their system can be fitted to existing trucks, opening up a huge and much bigger market than new vehicles. Fourthly, they claim their system can deliver fuel savings and operating cost savings of 65%, which is perhaps the most important factor in heavy vehicles as they are pure of commercial use. The company has teamed up with Dana, a major car parts manufacturer, for the production of its drivetrain.
Nikola is still years away from producing any vehicles and generating any revenues. The Nikola GM deal is also underground and has a high chance of not going through given all the bad press the company has been getting lately. The company claims that it has $10 billion in pre-order leases, but this should not be taken too seriously. The stock took a massive hit last week as investors jumped ship as the market dipped. The company might also face significant production delays and technical challenges, as is common with EV’s, especially since the company’s skeptics claim that a lot of its “proprietary technology” doesn’t exist or is far from ready.
Hyliion on the other side, with its much simpler business model and experienced manufacturing partner, expects revenues of $8 million next year followed by $346 million in 2022 when things are expected to be in full swing. The stock is currently down 60% from its all-time high after massive profit-booking, a general market-wide slump, and a bit of investor rationality sank-in. However, investors should not forget deliveries are two years away and such products are prone to delays.
While both companies are very risky bets, given that their products are still years away from deliveries and prone to big production and scale challenges, Hyliion is definitely the better stock given its cheaper valuation and simpler business model. It also helps that it still has a clean reputation, unlike Nikola.