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Hyzon Motors – Company newly positioned

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October 10, 2023

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Hyzon Motors – Company newly positioned

The past few months have been extreme for Hyzon Motors, but all figures for the past two years since the IPO had to be reprocessed because of the accounting debacle, in order to comply with accounting guidelines and the conditions for listing on the stock exchange (quoted share price needed to be above 1 USD again, all quarterly reports available, deadlines met). All this has now been accomplished and there is clarity. In addition, the board of directors was newly formed and expanded to include experienced professionals.

The stock market has translated this – as I predicted – in the form of rising share prices, which involved a rapid increase from about 0.50 USD to just over 2 USD (company value rose from 150 to over 400 million USD). Recently, a marked decline in the price occurred again, which however in view of the company prospects should be transitory in nature.

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To the figures: At the end of the second quarter, cash and cash equivalents still amounted to 172.4 million USD. The loss for the quarter in the amount of 60.2 million USD contains the high legal costs in connection with the SEC investigations and the necessary legal measures, for which 32 million USD was recorded and 28.5 million USD of that can be regarded as non-recurring.

The capital requirement per month is estimated at 9 to 12 million USD, with between 73 and 81 million USD of capital expected to be put to use in the second half of the year, and then in total 110 to 120 million USD in 2024. So the company is still well financed, but will surely have to raise capital in the course of 2024 (issuance of shares, loans, subsidies under the Inflation Act, etc.) or seek other forms of financing (convertible bond, participation by a strategic partner). Still unclear, however, is what the costs for the final report from the Securities and Exchange Commission for Hyzon will come to in year 2024.

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Matthew Foulston new board member

Matthew Foulston has over thirty years of experience mainly in the automotive industry and there especially in the heavy haul industry. Among other things, he was CFO at Navistar Truck and CFO of Mazda North America as well as in top positions at Ford Motor. Hyzon will certainly have made a good choice in this regard that serves the company’s goals.

In addition, on August 24, 2023, current board member Erik Anderson was elected Chairman of the Board of Directors. Anderson succeeds George Gu, who stepped down from his position.

200‑kW fuel cell has reached milestone

The site in Rochester, New York will be closed down or sold to reduce costs. The 200‑kW stack that was developed in the production facilities and the corporate-owned research center in Bolingbrook, Illinois, on the other hand, is in test series and on the road. The start of production there and commercialization can therefore begin in 2024. In parallel, the fully automated production of the MEA (membrane electrode assembly) was set up. Now it’s on to the product design and acceptability. Another 16 prototypes are still to go through testing.

The 200‑kW stack (single stack) has many advantages compared to the competition, according to the press release on it, regarding the size, weight, range (more km per kg hydrogen), but also the price (25 percent lower). In addition, the service requirement is lower. Ten trucks have already been equipped for test runs with these 200‑kW stacks, three of them in Europe and seven in Australia. All very good news.

A global market of 68 million diesel-powered trucks can be retrofitted with such and thus contribute to decarbonization. The Inflation Reduction Act would come into play here to, as 60 million USD have been made available for processes for the reduction of diesel emissions, another 2 billion USD for related production facilities on US soil, another 3 billion USD for technologies that help technologically improve motor vehicle production, etc. Hyzon will surely be named some figures, as they expect subsidies out of these for themselves, since they’ve classified themselves as a “technology innovator.”

A good sign: The short sellers are stocking up. Over 20 million shares were still sold short a few months ago, so this number has fallen to under 13 million. After prices around 2 USD, it went back down, to 1.20 USD, although this could be seen as a reaction to the rise from 0.50 USD to 2 USD (profit taking, technical reaction). The current prices around 1.20 USD invite considerations again of buying.

Hyzon, likewise to Nikola and Ballard, is engaged in exactly the right market – the fuel cell in the commercial vehicle segment. Some orders in 2024 will drive the share price of Hyzon in the positive direction. Also the participation of a strategic investor is conceivable at any time. Hyzon is thinking about pursuing partnerships like that with Fontaine Modification (system integrator in USA) in others regions as well, like with partners present in Europe.

Tests with 110‑ and 120‑kW modules

Hyzon Motors also is transitionally positioning itself with its 110‑kW and 120‑kW modules. Already 15 test trials of FC trucks with customers (Performance Food, Airgas, Bison Transport, Talke, Total Transportation Services, MPREIS, Hylane and lastly Seaboard Transport) were able to be successfully completed. They were tested under extreme weather conditions and in all conceivable daily operations. Over 2,900 hours of continuous use of the FC systems and over 68,000 miles (110,000 km)in distance were clocked in the process. This test program is underway in Europe and the USA and is to be extended to Australia – with customer Remondis. The number of employees is to remain at around 380.

Partnership with Fontaine Modification

Hyzon builds, in contrast to Nikola Motors, no truck chassis of its own, but supplies the complete fuel cell module. The installation is carried out by companies such as Fontaine Modification from the USA as a system integrator for Hyzon. After all, Fontaine alone converts over 44,000 trucks for customers every year. With it, Hyzon has the perfect partner.

Fontaine Modification belongs to the holding company Marmon Holdings, which has a stake in over 100 companies from, among others, shipping and logistics, machine building and medical technology, with an annual turnover of 10 billion USD. Marmon Holdings in turn belongs to the investment portfolio of billionaire Warren Buffett, Berkshire Hathaway. For me, this can be used to justify the speculation that Marmon could make a stake in Hyzon in order to use the FC knowhow (patents, products) in-house for subsidiaries like Fontaine.

So you can well imagine that Hyzon is going with FC modules a way similar to Ballard Power with Ford Trucks or Nikola with Bosch, but could also become part of a larger strategic whole. Fontaine/Marmon could be this, but also companies like Cummins or automotive suppliers such as Dana or Magna could be considered. Or truck producers who themselves would like to have the FC powertrain in house, but have “slept through” the development. So Hyzon is becoming highly interesting, in addition to the growth prospects around the FC stacks, as an acquisition speculation.

Disclaimer

Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.

Author: Sven Jösting

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