TSLA – The Electric Vehicle industry’s growth is attracting several startups. While Tesla (TSLA) is the dominant player in this industry, a new company, Hyliion (HYLN) is getting ready to compete in the electric truck market. Is it worth buying HYLN before it grabs a significant market share or is it better to bet on TSLA which already has a proven track record? Let’s find out.
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Tesla, Inc. (TSLA) has been dominating the electric car market for several years, with a 28% global market share in the first half of 2020, as reported by Jose Pontes. Before TSLA car models, electric vehicles were perceived to be less cost-efficient. However, the luxury sedan Model S broke all such stigma and was tested to be the safest car by the National Highway Traffic Safety Administration. Since then, the company has managed to remain the leading player in this industry.
Other than battery solutions, Hyliion Holdings Corporation (HYLN) has a different business model compared to TSLA. Operating as a clean energy company, HYLN focuses on electrified powertrains and battery solutions for class 8 commercial vehicles. The company went public on October 2nd through a reverse merger with Tortoise Acquisition Corporation.
TSLA’s popularity drove the stock to reach new highs this year, with 385.3% gains year-to-date. However, HYLN has been emerging as a strong competitor, despite trading for less than a month. HYLN has gained approximately 95% since the announcement of its SPAC in June. Will HYLN grow faster than TSLA in the future? Let’s find out which stock is the better buy now.
Latest Movements
TSLA conducted a 5-for-1 stock split in August following record highs. The company reported profits in 5 consecutive quarters, following which CEO Elon Musk collected the fourth tranche of moonshot award. Musk’s total compensation under the moonshot pay package is $11.80 billion to date, making him the largest gainer in the Bloomberg Billionaires Index.
TSLA is currently planning to launch three new electric vehicles soon, including the Tesla Cybertruck and 2 electric cars. It is currently planning to expand in Indonesia to ensure a steady supply of nickel, a key component in manufacturing car batteries. TSLA has also entered into the solar roof business, with CEO Elon musk expecting it to become the next “killer product” in 2021. Total solar deployments in the third quarter ended September 2020 more than doubled sequentially to 57 MV, while solar roof deployments tripled over this period.
TSLA is planning to invest up to $12 billion in electric vehicles and battery factories over the next two years, with manufacturing facilities in three continents. The company raised $4.97 billion through an at-the-market stock offering in September to fund its capital-intensive projects soon.
TSLA is reportedly planning to launch its products in India in 2021. With a huge population and thereby a market base, this expansion is expected to ramp up the profits for the company. CleanSpark software and services company recently partnered with TSLA to use its batteries for a Microgrid project in South America.
HYLN, on the other hand, is currently focused on rolling out the prototype of its first power train. On October 15th, HYLN partnered with American Natural Gas to offer discount pricing on renewable natural gas to its customers at American Natural Gas stations.
Recent Financial Results
TSLA reported impressive results in the third quarter ended in September 2020, surpassing analyst expectations. Its EV deliveries increased 7% year-over-year (subject to operating lease accounting) over this period. TSLA’s revenue increased 39% year-over-year to $8.77 billion in this quarter, while gross profit rose 73% from the same period last year to $2.06 billion. Its net income and EPS rose 131% and 69%, respectively.
HYLN, being a much newer company, didn’t generate any revenue from operations in the second quarter ended June 2020. However, the company reported a net loss of $2.30 million, accruing to general, administrative, and tax expenses. It generated $110,000 as investment income in the last quarter.
Expected Financial Performance
Analysts estimate TSLA’s EPS to rise 114.6% in the current quarter, 5375% in the current year, and 74.9% next year. Furthermore, the company has an impressive earnings surprise history, as it beat the street EPS estimates in each of the trailing four quarters. The consensus revenue estimate indicates 36.2% growth in the current quarter, 26.2% in the current year, and 42.6% next year.
HYLN expects to generate $1.10 million in revenues in 2020. The company plans to roll out a model electric power train in 2021, and thereby start commercial production by 2022. HYLN expects to generate $344 million in revenue in 2022, over $1 billion in 2023, and $2.10 billion by 2024.
POWR Ratings
While TSLA is rated “Neutral” in our proprietary POWR Ratings system, HYLN is rated “Sell”. Here’s how the four components of overall POWR Rating are graded for both these stocks:
TSLA holds a “B” for Trade Grade and Industry Rank, and “C” for Peer Grade and Buy & Hold Grade. In the 29-stock Auto & Vehicle Manufacturers industry, it is currently ranked #11.
HYLN has an “F” for Trade Grade and Buy & Hold Grade, “D” for Peer Grade, and “B” for Industry Rank. It is currently ranked #16 out of 20 stocks in the Trucking Freight industry.
The Winner
HYLN, though attracting investor attention given the ingenuity of its product, has a long way to go to compete with TSLA. With products still under development, the efficiency and sustainability of HYLN are still under question.
With commercial production expected to begin in 2022, investors will have to wait for years for the company to deliver profits. Thus, with no factual data available regarding the performance of HYLN’s products and acceptability in the market, it is a largely speculative and risky investment right now.
TSLA, on the other hand, has emerged as one of the most profitable stocks in 2020. The company generated five consecutive quarters of profits. Analysts are currently speculating TSLA’s probable addition to the S&P 500 index after its impressive third-quarter results, after being overlooked in September.
With an array of expansion projects already scheduled and/or underway, TSLA’s rally should continue well into next year. Thus, TSLA is a better investment here. However, it would be wise to wait for a better entry point for buying the stock.
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TSLA shares were trading at $412.56 per share on Thursday afternoon, up $6.54 (+1.61%). Year-to-date, TSLA has gained 393.10%, versus a 4.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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