A Sleepy Profit Play On The Death of Diesel
Dear Retail Investor,
His name was Phil Baker.
For 18 years, he worked as an engineer for Norfolk Southern Railroad in Georgia.
The pay was good…but there was a catch.
Black smoke from the train constantly flooded the crew cabins of the diesel trains he ran.
He ended up dying of a rare head and neck cancer.
A jury ruled all that exhaust caused it.
Anthony Nigro was also exposed to diesel exhaust every day he worked.
It came from buses he maintained for 28 years at the New York City Transit Authority.
A Workman’s Compensation judge ruled that exposure was a major cause of his lung cancer.
It took his life mere months after his retirement.
There was also a mechanic for the Illinois Central Railroad who died of throat cancer…
A machinist who died of multiple myeloma…
And a railroad trackman who lost his life to gastric cancer…
Like Nigro and Baker, courts ruled that prolonged exposure to diesel fumes contributed to their deaths.
Exposure to diesel kills thousands of people every year
In 2015, about 385,000 people died prematurely from vehicle exhaust pollution.
Diesels accounted for about 47% of those deaths.
Those figures come from a 2017 study by the International Council on Clean Transportation.
Ever hear of that group?
They’re the ones who brought “Dieselgate” to light.
Dieselgate, you may recall, was the high-profile 2015 case of Volkswagen (OTCMKTS: VWAGY) cheating on diesel emissions.
Turns out VW had set up emissions controls on their diesels to activate during testing…
…but not on actual roads.
Result? The vehicles met US standards for emissions of nitrogen oxide (NOx) during tests…
…but under real driving conditions, they spewed out up to 40 times more NOx than during the tests.
That’s not the worst of it.
For years before their cheating came to light, VW had been running a “clean diesel” campaign.
Talk about hypocrisy…
But VW wasn’t the only vehicle maker trying to game the system.
Illegal emissions tampering on diesel trucks is rampant
About 15% of diesel trucks in the U.S. have had their emissions control systems tampered with.
So says a 2020 Environmental Protection Agency (EPA) report.
The report also claims that emissions controls have been removed from more than 550,000 diesel pickups in the last 10 years.
And all those trucks have spewed an incredible amount of pollutants into our air.
Try more than 570,000 tons of NOx and 5,000 tons of particulate matter.
Six other car companies are now accused of lying about their diesel emissions
General Motors (NYSE: GM) is one.
So far, 705,000 owners of Chevrolet Silverado and GMC Sierra diesel pickup trucks have filed a class-action suit against the company.
They’re claiming GM took a page out of the VW playbook between 2011 and 2016.
Like the German automaker, GM allegedly installed devices on these trucks that allowed them to pass US inspections…
…yet under real driving conditions emitted 2 to 5 times the legal limit of NOx.
GM is the seventh automaker accused of using complex “defeat devices” to get around emissions rules.
The bottom line is VW’s admission of guilt and the allegations against other vehicle manufacturers have triggered diesel’s death spiral.
And nothing can stop it.
Governments around the world are killing diesel
At the start of 2021, 31 nations, states and cities had diesel bans in place.
They include the United Kingdom, Portugal, South Korea, Taiwan, Germany and Norway.
Major cities in Europe are following suit, including Paris, Madrid and Athens.
The mayors of these cities are outlawing diesel vehicles from their city centers by 2025.
Then there’s Oslo, Norway.
In 2017, its City Council put a temporary ban on diesel cars for the first time.
They also announced a plan to raise road tolls on diesel cars entering the city.
Paris is even stricter.
Its rules ban diesel cars made between 1997-2000.
Now Paris Mayor Anne Hidalgo wants to extend the ban to diesels made before 2006.
No doubt about it, diesel’s dying in Europe.
In fact, the market share of diesel vehicles in Europe has plunged from 55.7% in 2011 to 23.2% in Q1 of 2021.
Anti-diesel laws are sprouting up throughout the U.S., too.
California Governor Gavin Newsom signed an executive order in 2020 banning the sale of new gas- and diesel-powered vehicles.
The state of Washington is proposing to ban the sale of gas and diesel vehicles after 2030.
And Massachusetts and New Jersey are also considering similar bans.
Signs of diesel’s death are accelerating in the U.S.
In model year 2015, there were 22 diesel brands available in the U.S.
In 2020 there were only 9.
As in Europe, much of the decline can be traced back to Dieselgate.
In the wake of that scandal, VW pulled 12 diesel models off the U.S. market.
Mercedes-Benz followed suit, pausing plans to sell diesel-powered luxury cars in the U.S.
Japanese automakers Nissan and Honda have also killed plans to introduce diesel sedans to America.
The trend is clear – automakers know diesel is dying.
Trucks are destined for electrification
I’m not just talking about pickups.
Tractor-trailers – the semi-trucks that haul goods to our stores – are also destined to be powered by electricity.
Several companies are already making fully electric semis.
They include Freightliner (private), Nikola (Nasdaq: NKLA), Volvo (OTCMKTD: VLVLY), Daimler and Tesla (Nasdaq: TSLA).
Of course, the U.S. is still in the very early stages of adopting electric delivery trucks.
For now, most electric tractor-trailers in this country will mainly be used for daily regional routes.
There’s a lack of charging stations in the U.S. that can efficiently charge semi-truck EVs.
A new company may change all that
I’m talking about Hyliion (NYSEL HYLN).
This company just went public on Oct. 2 and seeks to transform the commercial trucking industry.
But not by making electric-powered semis.
Instead, the Texas-based company has developed a way to convert diesel-powered trucks into hybrids.
It works through something called the Hypertruck Electric Range Extender (ERX).
The ERX uses a fully electric powertrain that can be retrofitted into semis.
What happens is an on-board generator that runs on renewable natural gas (RNG) charges the powertrain.
In turn, the powertrain charges electrical batteries that power the truck.
As a result, these trucks can get about 1,300 miles of cruising range.
Trucks powered via ERX technology save big money in operating costs
Hyliion says its powertrain produces electricity at 30% less than the average grid cost.
That means the 7-year cost of ownership of a truck using ERX technology is far less than any diesel, battery-electric (BEV) or hydrogen fuel cell Class 8 truck.
But that’s not all.
What makes Hyliion a game-changer in commercial transportation is its use of RNG.
The reason? RNG is NOT a fossil fuel.
Instead, it’s a combination of food waste and other biodegradable products.
And since RNG production captures methane that would otherwise escape into the atmosphere, the fuel has an exceptionally low carbon intensity (CI) score.
Result? Trucks using ERX technology can achieve zero net emissions.
That’s a big hairy deal to governments around the world.
Is Hyliion worth buying?
When Hyliion went public on Oct. 2, 2020, it opened at $40 a share.
It’s slid ever since.
As of writing this, you can get a share for around $8.
I think it’s a pretty good bet…
…as long as you’re willing to hold it awhile.
My main reason for this assessment is something I briefly touched on earlier.
It’s a huge advantage Hyliion has over its EV competitors.
See, pure EV semis can’t haul goods from coast to coast right now.
The reason? There aren’t enough charging stations to accommodate them.
Sure, there are charging stations throughout the country for passenger EVs.
But they won’t cut it for EV semis – their charging stations will need much higher drawing power.
Plus, they’ll have to be designed to accommodate huge semi-trucks.
We’re clearly years away from there being enough of these kinds of charging stations in the U.S.
What about semis using hydrogen power?
They have the same problem – a dearth of hydrogen fuel stations.
As of January 2021, there were a paltry 45 of them in the entire U.S. – 43 of which are in California.
But that’s not a problem for Hyliion, because their ERX technology relies on RNG.
That means they need natural gas fueling stations.
There are over 700 of them throughout the U.S. – more than enough to make Hyliion’s ERX technology viable for interstate deliveries today.
So if you’re a buy-and-hold investor looking for a long-term, small cap bet, Hyliion’s worth a look.
That’s it for now,
Contributing Editor, Dear Retail
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