Hyzon Motors: Highway To Hell (NASDAQ:HYZN)

observe:

I lined Hyzon Motors Inc. (NASDAQ: HYZN, NASDAQ: HYZNW) earlier, so traders ought to view this as an replace to my earlier articles to the corporate.

Earlier this month, Hyzon Motors Inc. or Hyzon reported Q1 2024 outcomes. with revenues boosted by end-customer adoption of ten tour buses and one rubbish truck in Australia:

Nonetheless, the corporate continues to burn by way of money at an alarming charge and can want a considerable amount of extra capital to outlive subsequent yr.

Because of this, administration needed to embody a going concern warning in Hyzon’s quarterly report on Kind 10-Q (emphasis added):

The corporate has incurred web losses since inception. Web money utilized in working actions was $31.2 million and $46.0 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the Firm has $52.4 million in unrestricted money and money equivalents, $30.2 million in short-term investments and $6.0 million in restricted money. The corporate posted web losses of $34.3 million and $30.3 million for the three months ended March 31, 2024 and 2023, respectively. The amassed deficit was $276.9 million and $242.6 million as of March 31, 2024 and December 31, 2023, respectively.

The Firm has concluded that, on the time of this submitting, there may be substantial doubt about its skill to proceed as a going concern as a result of the Firm believes that its monetary sources, present money and extra sources of liquidity are inadequate to help its deliberate operations past the subsequent 12 months.

Administration mentioned on a convention name that it prefers strategic traders, however with the FCEV truck market in its infancy and the corporate’s inventory value at an all-time low, it is arduous to think about potential traders lining up in droves.

Like bigger rival Nikola Company, or “Nikola” ( NKLA ), Hyzon is concentrated on rolling out a big fleet of autos:

Nonetheless, this method is prone to stay an uphill battle on account of a number of key points:

1. Intensive testing necessities.
2. Lengthy decision-making processes, particularly relating to new applied sciences.
3. Everlasting lack of hydrogen infrastructure.
4. Issues concerning the firm’s monetary viability.
5. Clients require the corporate to share within the monetary dangers related to the brand new expertise.

Specifically, the final level impacts the timing and processing of income recognition on the preliminary stage:

The corporate plans to roll out 20 to 40 FCEV vans this yr, with the overwhelming majority nonetheless powered by the ageing Hyzon 110kW gas cell system.

Nonetheless, the corporate will want extra capital to fulfill these pretty modest targets, as indicated by administration on the decision:

By deploying fewer vans per fleet for precedence giant fleets, we’re intentionally managing working capital and the related web money burn whereas maximizing the business base we’ve got for the chance to scale in 2025 and 2026, noting that Hyzon is tied to progress in elevating our strategic capital and could also be adjusted pending outcomes this yr. Lastly, we’re centered on strengthening our steadiness sheet and securing extra capital to fund our enterprise.

The corporate continues to plan for business manufacturing of its new 200 kW gas cell system within the second half:

However in any case, Hyzon will want a big quantity of recent capital within the second half of this yr to execute its marketing strategy.

Assuming a quarterly money burn of $28 million, the corporate will want greater than $100 million to outlive subsequent yr.

Given Hyzon’s market capitalization of $128 million, a direct capital increase will nearly actually lead to huge dilution to present shareholders.

Whereas the corporate has no debt, it additionally has no important belongings, so issuing secured debt won’t be an possibility.

Nonetheless, like Nicole, Hyzon might situation poisonous convertible notes to specialist institutional traders, however just like a direct capital enhance, this could doubtless require the corporate to acquire shareholder approval to extend the approved shares nicely above the present 400 million threshold, and in addition set out within the firm’s quarterly report on Kind 10-Q (writer’s emphasis):

The Firm plans to enhance its liquidity by way of a mix of fairness and/or debt financing, alliances or different partnership preparations with entities enthusiastic about our applied sciences, and liquidation of sure inventories.

If the Firm raises funds sooner or later by way of the issuance of fairness securities, stockholder dilution will happen, which can be materials, and the Firm could must receive stockholder approval to extend its share capital and situation fairness securities. Any fairness securities issued might also carry rights, preferences or privileges superior to these of frequent stockholders.

If the Firm raises funds sooner or later by issuing debt securities, these debt securities could have rights, preferences and privileges superior to these of frequent stockholders.

The phrases of any debt securities or borrowings could impose materials restrictions on the Firm’s operations. (…)

Given Hyzon’s important money wants, lack of scale, and disappointing tempo of FCEV truck adoption, I do not anticipate the corporate to achieve success to find strategic traders, particularly given the truth that its largest shareholder and first IP supplier stays Horizon Gas Cell Applied sciences. a Chinese language firm.

Given these challenges, I anticipate Hyzon to return to market with some kind of equity-linked providing within the second half of the yr, and given the massive sum required, important dilution appears doubtless.

Due to this fact, I’d urge present shareholders to contemplate promoting their holdings and transfer on.

Dangers:

Though the chance seems very low, an surprising strategic funding on favorable phrases will doubtless result in a big rally within the inventory from the present all-time lows.

Outcome:

Hyzon Motors will want a big quantity of extra capital within the second half of the yr to proceed executing its marketing strategy.

Whereas administration seems to be for a strategic investor, I believe the most certainly consequence at this level is a big inventory enhance or sale of equity-related securities, as even not-much-larger rival Nikola has managed to draw strategic traders in current quarters.

As a result of fast depletion of remaining liquidity and the necessity for extra funds for the deliberate deployment of autos within the second half of the yr, there may be an elevated threat of serious dilution within the close to time period.

Because of this, present shareholders ought to contemplate promoting their holdings and transfer on.

Editor’s observe: This text covers a number of small-cap shares. Concentrate on the dangers related to these shares.