Shares of Tortoise Acquisition (NYSE:SHLL) are on quite a run. The stock ended Friday's session up 41.2% on the day -- and up 140% since the morning of June 19, when it announced plans to merge with a company called Hyliion.
The quick run-up has investors asking some big questions. Did I miss something? Is this a scam? Who the heck are these guys?
They're all excellent questions. Read on for some answers.
What is Tortoise Acquisition?
Tortoise is a special-purpose acquisition company, or SPAC, a type of company created specifically to acquire one or more other companies. Sometimes called a "shell company," SPACs generally have no ongoing businesses of their own.
In this case, Tortoise was created by a team of veteran energy-industry executives and investors with the goal of finding and investing in one or more good businesses related to their shared area of interest, renewable natural gas.
That's where Hyliion comes in.
What is Hyliion?
Hyliion, founded a few years ago by Thomas Healy, is creating electric and hybrid powertrains for heavy trucks. CEO Healy, a former auto racer and Carnegie-Mellon-trained engineer, saw an opportunity to apply hybrid-electric technology to existing Class 8 (tractor-trailer) trucks in a cost-effective way.
The company has two product lines. One, which is shipping right now, is a system that turns an existing diesel-powered heavy truck into a hybrid, increasing its range and efficiency. It can be retrofitted to existing Class 8 trucks from any of the major manufacturers.
Its second product, called Hypertruck ERX, is a complete electric drivetrain for Class 8 trucks, with a twist: It doesn't require a huge battery pack. Instead, the Hypertruck system is designed to be recharged while the truck is under way, via a natural-gas-powered generator or a hydrogen fuel cell.
Interestingly, Hyliion isn't planning to manufacture either product itself. It has contracted with auto-industry supplier Dana (NYSE:DAN) to manufacture the products and ship them directly to installers or truck manufacturers.
Wait, so this is like Nikola, right?
If you're familiar with electric-big-rig maker Nikola (NASDAQ:NKLA), you might recognize the outlines of this deal. Nikola, which plans to begin manufacturing battery-electric and hydrogen fuel cell-powered Class 8 trucks over the next few years, went public earlier this month via a reverse merger with another publicly traded SPAC, VectoIQ Acquisition Corp.
Given that VectoIQ's stock, which became Nikola's on June 5, is up over 500% since that deal was announced in March, it's easy to see why investors have rushed to buy Tortoise's shares in the last week.
Hyliion isn't exactly a direct competitor to Nikola, however. While both are hoping to disrupt the heavy truck market with greener products, Hyliion — unlike Nikola — isn't planning to build compete trucks. Instead, it's selling powertrain solutions to existing makers of big rigs — and Hyliion's powertrains are hybrids.
(We should note that selling powertrains to makers of Class 8 is nothing new. Diesel-engine maker Cummins (NYSE:CMI) has been doing the same thing for years. By working through Dana, an established supplier of axles and other components for heavy trucks, Hyliion has already inserted itself into an existing supply chain.)
For heavy trucks, Hyliion's products have a couple of advantages over both battery-electric and (for the moment, at least) hydrogen fuel cell powertrains:
- Unlike the much-talked-about Tesla (NASDAQ:TSLA) Semi, Hyliion's Hypertruck system doesn't need a large and heavy battery pack that would reduce the truck's overall hauling capacity.
- Unlike battery-electric trucks, trucks with the Hypertruck powertrain can "recharge" (via refueling) in a matter of minutes.
- Unlike hydrogen, there's already a natural-gas refueling structure in place in the United States.
From the perspective of an operator of a fleet of heavy trucks, Hyliion has two more big advantages. First, because it's not making the trucks, just the powertrain, fleet operators can order most parts from the truck manufacturers with whom they already have relationships.
Second, and related, Hyliion argues that a fleet of Hypertruck-equipped trucks will be significantly cheaper to operate (and, it argues, cleaner) than a fleet composed of either Nikola's or Tesla's Class 8 trucks.
What's the deal between Tortoise and Hyliion?
It's similar to the Nikola-VectoIQ deal in that it's a so-called "reverse merger": Tortoise will merge with Hyliion, the merged company will be named Hyliion, and the former Tortoise shares will trade under a new ticker, HYLN.
In another feature similar to the Nikola deal, independent investors will put in cash ($325 million, in this case) via a private investment -- called a "PIPE," for "private investment in public equity" -- as part of the deal.
In this case, however, there's no money coming out of the deal -- it's all going to fund Hyliion. All existing investors in Hyliion will "roll over" their investments into the new company. Tortoise is adding another $235 million to the $325 million provided by the PIPE, so the merged company will have a total of $560 million in cash after the deal closes.
Healy said that's enough to get to full production of the Hypertruck ERX, with no additional investments required.
So is Tortoise stock a buy?
I've just begun looking at Hyliion, so I'm reserving opinion on it until I get a fuller sense of the company and its potential.
That said, it's certainly intriguing. I've spent some time talking to Healy as well as Tortoise's CEO, Vince Cubbage, and my sense is that they have real products, a realistic view of what's possible, and a solid path to becoming a major player in this space. This isn't a crazy moonshot.
While I'm not ready to say whether the stock is a buy, I will say that if you're an auto investor intrigued by Nikola, by the Tesla Semi, and/or by the opportunity to transform the trucking business with green technology, then Hyliion is definitely worth a closer look.