Iceberg Research

Hyzon Unleashes a Load of Hot Air with its 3Q21 Results

November 16, 2021

Clear as mud HongYun raises serious questions on Hyzon’s 85 trucks sales guidance

Hyzon ended the third quarter with the sale of only two trucks recorded at the start of August. No other vehicle seems to have been delivered since then and we are 45 days from the end of the year. Still, Hyzon maintains it will sell 85 trucks in 2021. This has reinvigorated its share price.

Sell-side analysts on Hyzon’s 12 November earnings call scratched their heads over where the remaining 83 deliveries would go. These vehicles were supposed to be delivered in Europe, initially. But Hyzon declared the company made a ‘conscious decision to shift the mix of delivery locations from predominantly European to predominantly Asian customers, in China, specifically.’ 

Meanwhile the now infamous Shanghai Hydrogen HongYun Automotive Co., Ltd (上海氢力鸿运汽车有限公司) has ordered 62 trucks. We believe that HongYun was brought in to plug the order gap. As a reminder, this HongYun was set up three days before Hyzon announced a major deal for 500 trucks. HongYun had no paid in capital, no WeChat account, and no website. Hyzon was unable to give any reassuring information on this customer’s financial substance in its weak rebuttal on 5 October. 

How HongYun will finance its purchase remains a mystery. We strongly doubt Hyzon will meet its sales guidance unless it provides HongYun with financing (directly or via leases). 

A mysterious “large industrial conglomerate” is supposed to be the “end-user” of these 62 trucks, not HongYun. It is strange that a conglomerate would plunge headlong into using so many trucks without any pilot tests. 

Hyzon is incentivised to keep the HongYun charade alive till the lock-up for 170m shares expires on January 17th next year, in our view. Its guidance shows HongYun is essential for 2022 sales as well. Hyzon has forecast 600-700 vehicle deliveries in 2022, of which HongYun would be responsible for 400 (~60%) under the MoU signed on 9 September. 

We contacted Hyzon to ask about counterparty risk with HongYun, and whether any financing will be provided. We have not received any answer. All of our questions are detailed below:

  • How many trucks does Hyzon expect to deliver to HongYun in 4Q21?
  • Will HongYun buy or lease these trucks?
  • How did Hyzon assess HongYun’s counterparty risk i.e., its ability to pay Hyzon? Does HongYun have financial substance? This customer was set up just three days before Hyzon’s 9 September announcement. 
  • Will Hyzon finance HongYun’s order? 
  • What is the name of the “large industrial conglomerate” that would use HongYun’s trucks? 

We will share our findings on Hyzon’s guidance with the SEC. 

We also believe many investors have misunderstood Hyzon’s business model as we explained in our first report. The company likes to portray itself as a truck manufacturer. Hyzon simply retrofits OEM trucks with fuel cells and hydrogen tanks by hand, before its logo is slapped on at the end. The company is sandwiched between truck OEMs and its parentco Horizon (whose main client defaulted), which means margins will be squeezed on both ends. 

Hyzon tried to hide the link between CFO Mark Gordon and hub partner Raven

Hyzon wants to promote hydrogen production in the US to boost the adoption of fuel cell trucks. Creating the infrastructure is one of the industry’s biggest challenges. To this end, Hyzon will spend $150m to help Raven build hydrogen production hubs [Pg 38 of the July investor presentation] over the next four years. This represents 30% of the ~$500m Hyzon raised through the SPAC merger.

Raven comes across as a serious partner because of the plan to build up to 250 hubs. CFO Mark Gordon — a former employee of Goldman Sachs — was ecstatic about the Raven investment during the call: he stated the ‘appetite to debt finance these hubs is extreme…’. 

But who is Raven? The California-incorporated company has just nine employees as shown on LinkedIn. Its key investor and offtaker will be Hyzon that has almost no revenue. This means the likelihood of getting project finance is very low.

Raven, while presented as independent from Hyzon, is connected through CFO Mark Gordon. Gordon is the CIO of private equity firm Ascent Hydrogen — a Raven investor. That may explain his enthusiasm.

Raven is one of Ascent’s portfolio companies

Source: Ascent Hydrogen Fund portfolio page

Hyzon and Ascent have gone to great lengths to hide this connection. Ascent’s website, before October’s short reports, clearly showed Gordon as its CIO and Hyzon chairman George Gu as its advisor.

Page showing Ascent’s team

Source: Ascent Hydrogen Fund leadership page – accessed on 24 August 2021

The same webpage is now down, a sign that once again, Hyzon has hidden the true nature of its partnerships to hype its business prospects.

Same Ascent team page about three months later

Source: Ascent Hydrogen Fund website

Hydrogen trucks are already threatened by battery-electric trucks 

The typical case for hydrogen trucks argues that battery-electric trucks (BEVs) require large batteries and are therefore too heavy for long distances. But this assumption is now challenged with advances in battery technology against hydrogen’s inefficiencies. Case in point: Volkswagen’s Scania, despite having hydrogen fuel cell trucks (FCEVs) in operations, announced earlier this year they would stop developing FCEVs to focus on battery-electric trucks. According to Scania, “The rapid development of electric solutions for heavy duty vehicles includes the fast advancement of battery technology in respect of energy storage capacity per kg. Charging time, charging cycles and economics per kg are improving rapidly.”

In other words, hydrogen is fast becoming a non-starter, even for large trucks. The structural flaws of the hydrogen solution are well documented. They are the reasons why hydrogen cars have lost the competition against BEV cars.

  1. Hydrogen is massively inefficient compared to battery-powered alternatives. A Transport & Environment study shows BEVs use 73% of original electricity for propulsion versus just 22% for FCEVs. This means FCEVs need 3x as much power to drive the same distance as a BEV, which translates to higher costs.  
Source: Transport & Environment

  1. BEV infrastructure is far easier to build compared to FCEVs which require new hydrogen production hubs and dedicated fuelling stations. Hyzon’s CEO Craig Knight acknowledges this issue and told investors that customers need infrastructure before they commit: ‘Yeah, timing is definitely a factor. We’re not seeing customers lose faith, but we are seeing some deliveries delayed for a few different reasons, we’ve had some customers scenarios where — where the hydrogen infrastructure rollout is a little delayed. So, therefore, there’s not really much point delivering vehicles without hydrogen being available.’

The confluence of hydrogen’s poor energy efficiency, constant improvements in battery energy density, and high infrastructure costs, will translate to uncompetitive price points for hydrogen, and see customers turn their backs on FCEVs. ARK Investment holds a similar view. 

Just recently, Tesla announced it will deploy the first Megacharger station — a more powerful version of its Supercharger network — to support its future Tesla Semi electric trucks that were projected to travel 400 miles after just 30 minutes of charging. This is an ominous sign for hydrogen truck makers. The Supercharger network has been a key driver of the EV maker’s success, and just like they did for cars, Tesla has the means to fund the roll-out of this network. Hyzon is fighting against the odds and its chances for success will fade with time.


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