photoschmidt/iStock via Getty Images
photoschmidt/iStock via Getty Images
Hyzon (NASDAQ:HYZN ) sells the fuel cells of its ultimate parent, Horizon; it is the third spin-off from Horizon. Hyzon was designed to be a new sales channel for Horizon and speed up the uptake of fuel cell engines in the Trucking industry. Like its parent, it has struggled to make sales, but the Hydrogen market appears to be growing, and Hyzon has announced several joint ventures and initiatives. The tech is still in the early adopter phase but has the potential to become a significant revenue generator worldwide. Investing in a company that will benefit from this seems a sensible strategy.
But is Hyzon investable? This article will answer this question for my trading plan, which has a two-year time frame based on competitive strategy. The plan looks to identify small companies that might make a significant return by concentrating on disruptive technology.
Fuel cell electric vehicles (FCEVs) offer a zero-emission trucking solution to satisfy government regulations and reduce the reliance on carbon-producing fossil fuels. They use the same drive train as battery electric vehicles (BEVs) but require additional components as they produce their electricity onboard through a chemical reaction involving hydrogen as fuel. They also require refueling infrastructure, which is not currently widely available. However, they give Class 8 trucks a range of up to 500 miles, a refueling time similar to diesel, and engine performance at least as good as diesel and often better.
Iceberg followed up with a short report shortly after but has since covered their position for a decent profit but tweeted:
Long term prospects remain negative: SEC investigation, pattern of lies, constant hype, relationship with parent, and handicaps of hydrogen vs battery.
The original Blue Orca report here.
In the report issued last year, Blue Orca made five key accusations: 1. Hyzon's Largest Customer is a Fake-Looking Chinese Shell Entity. 2. Next Largest Customer is not a customer and not a company. 3. Phantom Big-Name Customers Suggest Overstated Orders and Financial Projections. 4. Hyzon is Just a Repackaging of Its Chinese Parent Company. 5. Hyzon's Margin Projections are Fantasy.
Allegations 1, 2, and 3 all relate to overstated orders. The largest customer was supposed to take delivery of 100 trucks in 2021, and the second largest Hiringa was predicted to account for 24% of deliveries. In the end, they did not take any trucks. The report covers the nature of these two companies but it is not important as they didn't buy any trucks.
The so-called phantom big-name customers come from the pre IPO slide deck. Here is an image:-
Hyzon customers (Hyzon investor slide deck)
Hyzon customers (Hyzon investor slide deck)
On page 18 of the deck, Coca-Cola (KO), Heineken (OTCQX:HEINY), Air Products (APD), Total (TTE), and Ikea are all described as being in advanced discussions or finalizing a P.O.
The post IPO slide deck is almost identical, but the difference is important
Hyzon Customers (Post IPO slide deck)
Hyzon Customers (Post IPO slide deck)
Page 18 no longer describes them at all.
The big customers are missing, just as Blue Orca had suggested.
In hindsight, we can say these allegations are probably accurate.
Allegation 4: This is not really an allegation just a statement of fact. Horizon, the parent company, was clear when they started Hyzon that the goal was to sell their fuel cells in the trucking industry and develop the market.
Allegation 5: As well as suggesting that the sales projections are fantasy Blue Orca also suggests that the Margin % is a fantasy.
No, it doesn't matter for those considering investing in Hyzon now. Several class action lawsuits have indeed been filed against Hyzon due to the Blue Orca report (see note 11, page 13 of the 10-Q). The Lawsuits are in New York and Delaware. By my count, more than 20 SPAC deals were subject to class action suits in 2021, and around 10 of them followed a short seller report.
The money involved in settling will likely be immaterial and will not deter others from making similar claims. It takes three years for a class action lawsuit to conclude, so we are looking at 2025, and the average settlement is only $9 million, with 60% of claims settling for less than $10 million. In 2021 only three resulted in a payment greater than $100 million.
A $10 million settlement in 2025 should not adversely affect the share price.
One of the lawsuits filed in Delaware is of a different type from the others and looks at the honesty of the managers. This might have a different outcome as the Judge in Delaware has said (when discussing a separate suit). The unique nature of a SPAC incentivizes the managers to get the deal done and causes a conflict with shareholders. The judge has said that the Delaware court needs to look at the whole nature of SPAC deals to see if they lead to a fiduciary duty breach.
87 unit sales in 2021 was an on-target performance, and we have had several news releases already this year.
The 2021 sales had a mixed reaction; Hyzon reported revenue of $5 million against an expected $28 million. A big miss. Hyzon gave forward guidance of +300 trucks in 2022, down from the previous guidance of 470, heavily weighted towards the end of the year. It is hard to take the forward guidance too seriously considering the previous discussion. JPMorgan remained optimistic, but other analysts became more cautious. The 87 trucks delivered and $5 million of revenue do not help matters. The 87 trucks have a contract value of $19 million but $13.6 million will be collected over the next five years. That is still only $225,000 per truck. Blue Orca said there would be little margin on any sales!
Here is the concept from the Hyzon website:
Repower and Renew (Hyzon Website)
Repower and Renew (Hyzon Website)
These repower trucks are CARB-approved, which is quite a big deal if anyone is going to buy one.
Hyzon says that they have developed this service because of the long lead time to buy a new truck. The actual work is done by Fontaine Modification as Hyzon only manufactures the fuel cells. Hyzon cannot quote any performance figures for the refurbished trucks because they will all need bespoke hydrogen storage and delivery systems as well as a different electric drive train and axle. This idea of individually building hydrogen storage and electric drive trains is novel but likely to be very expensive.
I am not sure if this will be a big seller, it seems an expensive way to refurbish an old truck but it might be a low-cost way of getting a hydrogen fuel cell truck for testing. I just don't know if it will work but it is never going to be a volume seller, sales are due in 2022 so we will have news soon enough.
This is the crux of my argument. If hydrogen trucks are going to be big sellers, which I am fairly convinced of, then can Hyzon capture a sizeable market share?
Hyzon does not make trucks; they put the Horizon manufactured fuel cell into a truck and the necessary electric drive train manufactured by DANA.
In the US, Hyzon uses a Freightliner Cascadia chassis. In Europe, they use a DAF chassis. In a competitive sense, that puts Hyzon in direct competition with Toyota (TM) and Cummins (CMI) that also intend to provide fuel cell engines to go in other people's trucks. In Europe Hyzon quote a range of 249 miles (400km) and in the US a range of 375-500 miles. With US power stats of 320kw (429HP) of continuous and a peak of 450kw (603HP) again less in Europe only 160kw continuous and 250kw peak. The Hyzon trucks have lower range and power than the competition with Hyundai (OTCPK:HYMTF) and Nikola (NKLA) quoting 500 mile ranges and 560HP equivalent.
Cummins is the dominant force in diesel engines worldwide and entered the Fuel cell market when they bought Hydrogenics and Loop Energy in 2019. Cummins showed its first fuel cell engine in late 2019 and currently has 11 vehicles on lease in California and an estimated 11,000 engineers working on the decarbonization project (both BEV and FCEV). Cummins is well respected in the truck industry and they have an excellent reputation and good relationships with every truck manufacturer worldwide.
Toyota has manufactured more fuel cell vehicles than anyone, and currently, their fuel cells can be found in trucks supplied by Kenworth and Hino. Kenworth, the Paccar subsidiary, received a $41 million grant from CARB to pursue the tech and has so far delivered ten vehicles.
Toyota and Cummins represent serious competition. However, cellcentric might be the best of them all. This 50/50 joint venture between Volvo Trucks and Daimler Trucks expects to start commercial serial production of their fuel cell engines in 2025. It has several hundred engineers working on this project and has already chosen its manufacturing site; without needing press releases or orders, it is quietly but quickly moving forward. The following bar chart explains the power of the new cellcentric partnership and the problem Hyzon will face in this market. All of these companies buy engines from Cummins and the Kenworth FCEV is using a Toyota fuel cell.
US Class 8 Market Share 2021 (Statista.com)
US Class 8 Market Share 2021 (Statista.com)
For fleet owners going green has its challenges. BEVs are limited by their 250-mile range and long recharging times. FCEVs can go up to 500 miles, but the charging infrastructure is inadequate, and then there is the cost; a diesel truck might cost $150,000, whereas FCEV or BEV could be three times as much.
Nonetheless, government regulations are changing quickly, and 2035 appears to be the designated date by which trucks will need to be green in large swathes of the world. A solution must be found and many, if not all, truck manufacturers are exploring FCEVs as the potential solution.
Green class 8 trucks are going to provide significant revenue in the future and I want to invest in a company that is going to benefit. I do not think Hyzon is that company.
Hyzon does not appear to have any competitive advantage in its products and is competing against large well respected suppliers in an industry where reputation is everything.
Hyzon faces an SEC investigation and there is more than a suggestion that they were less than honest with the information they provided to investors prior to the SPAC launch.
This is not a situation I am prepared to invest in. I will continue searching and Nikola (NKLA) will be my next investigation.
This article was written by
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 have long positions in several BEV companies EVTV, GP, XOS, CENN (GP is significantly underwater, EVTV and XOS near breakeven, and CENN doing well).