It seems like every day you read about new upstart electric-truck makers coming public that are exciting investors. Names like Nikola, Lordstown Motors, and Hyliion don't have any meaningful production yet, but there is a lot of speculation about their futures. 

XL Fleet is a lesser-known company in the sector that is merging with a special purpose acquisition company (SPAC) to enter the public markets before the end of 2020. And investors should be paying attention to its upcoming combination with Pivotal Investment Corporation II (PIC) if recent news out of the company is a harbinger of things to come.

GM box truck with XL Fleet plug hybrid electric drive logo

GM truck configured with XL plug-in hybrid configuration. Image source: XL Fleet.

What it does

XL isn't an electric-vehicle (EV) original equipment manufacturer. Rather, it configures commercial and municipal fleets with electrification solutions. The company provides hybrid and plug-in hybrid electric drive systems for commercial fleet vehicles built by automakers Ford, General Motors, and Isuzu. 

The company says electrifying the vehicles can improve fuel economy by between 25% to 50% and reduce carbon dioxide emissions by up to 33%. It's a solution more truck fleet manufacturers may seek as companies work to meet sustainability goals. XL also has fully electric offerings in development. 

How it's doing

XL reported record quarterly revenue last week for its fiscal third quarter. Though the numbers are off a low base with projected full year 2020 revenue of $21 million, the company did achieve positive gross margins of 12.1% in its third quarter, and it projects revenue to grow to $75 million for fiscal year 2021. 

Its business model is to fill the decades-long gap before there is enough full EV production capacity. It offers original equipment manufacturers, as well as fleet customers, an option to address decarbonization today. Founder and Chief Strategy Officer Tod Hynes said the company is utilizing its proven strong track record, long-term relationships, and established partnerships. He added in a statement that this will "continue to provide opportunities to further scale our business and broaden our product portfolio."

The company recently announced a second-generation plug-in hybrid electric upfit technology for certain Chevrolet and GMC fleet vehicles that will begin shipping in early 2021, for example. 

What investors should know

For investors, the first important milestone will be XL's combination with the Pivotal Investment Corporation II SPAC, set to be completed in the next six weeks. The new company will be called XL Fleet Corp. and will be traded under the symbol "XL" on the New York Stock Exchange. 

The company should enter the public markets with $350 million in cash and no debt. It predicts it will have an enterprise value of approximately $1.1 billion, making its valuation approximately 15 times estimated 2021 sales. 

While that's expensive, it's not unreasonable for a high-growth company that has a long runway. XL says its estimate for $75 million in 2021 sales is based on a growing sales opportunity pipeline. It believes that there is currently opportunity for about $220 million of new orders in the next 12 months.But the company sees a total addressable market of over $1 trillion in the long term, based on the growing demand for more sustainable solutions, and the approximately 1 million Class 2 to Class 6 commercial vehicles sold annually. 

XL estimates that its competition -- including start-ups Nikola, Hyliion, Lordstown, and Workhorse Group -- will combine in 2021 to only sell a little more than half as many units as XL does alone. Investors that have been piling into speculative EV start-ups with low, or no, sales should research XL Fleet and see if a company in an established niche, with existing sales, might be another place to invest in the sector.