Hyliion Holdings Corp. (HYLN)

Executive Summary / Key Takeaways

• Hyliion has strategically pivoted from its legacy powertrain business to focus entirely on the commercialization of its fuel-agnostic KARNO Power Module, a differentiated linear generator technology.
• The KARNO Power Module offers compelling technical advantages, including high efficiency (up to 50%), ultra-low emissions (>95% reduction vs diesel), low maintenance, high power density, and fuel flexibility across over 20 sources, positioning it uniquely against conventional generators and fuel cells.
• The company is progressing towards commercialization with initial early adopter units (200 kW) being deployed in 2025, including a key unit with the U.S. Navy, despite facing production challenges with components like the linear electric motor and printed parts.
• Significant market traction is evidenced by non-binding Letters of Intent for well over 100 units across diverse sectors like data centers, EV charging, and military applications, including a potential multiyear opportunity for up to 70 MW in the data center space.
• Hyliion maintains a solid cash and investment balance ($198.8 million as of March 31, 2025) which management believes is sufficient to fund operations through the anticipated commercial launch in late 2025, although cash outlays are projected higher ($65 million in 2025) due to accelerated manufacturing investments and tariffs.

The Strategic Pivot to Fuel-Agnostic Power

Hyliion Holdings Corp., founded in 2015, has undergone a significant transformation. Initially focused on electrified powertrain solutions for commercial vehicles, the company made a decisive strategic pivot following its September 2022 acquisition of the KARNO technology from General Electric (GE). This culminated in a November 2023 board decision to wind down the legacy powertrain business, preserving intellectual property while directing all resources towards the KARNO Power Module. This move positions Hyliion squarely in the burgeoning distributed power generation market, a sector increasingly vital amidst aging grid infrastructure, rising electricity demand driven by electrification and AI, and the growing need for reliable, on-site power solutions.

The KARNO Power Module is Hyliion's answer to these market demands. It is a modular, fully integrated, enclosed power generation solution centered around the KARNO Core, a linear generator. Unlike conventional systems that rely on rotating shafts driven by combustion engines or turbines, the KARNO Core uses a thermal converter to produce linear motion from temperature differences generated by the flameless oxidation of fuel. This linear motion, via a piston-shaft system with permanent magnets passing through electrical coils, directly generates electricity.

This innovative approach yields several key technical differentiators. Hyliion anticipates an electrical generating efficiency of up to 50%, expected to remain consistent across a wide range of power outputs, contrasting with the diminishing efficiency of fuel cells at higher loads or the limited peak efficiency range of internal combustion engines (typically 25-40%). The flameless oxidation process is designed to achieve ultra-low emissions, targeting over 95% reduction in NOx and CO compared to best-in-class diesel engines and aiming for California's stringent CARB 2027 standards without requiring aftertreatment systems. Furthermore, the design's simplicity, with only a single moving linear actuator per shaft (four per 200 kW core) utilizing low-friction helium bearings, is expected to significantly reduce maintenance requirements and costs compared to conventional generators, where maintenance can constitute 5-20% of total operating costs. The system also boasts low noise levels (approximately 67 dB at six feet) and high power density.

Crucially, the KARNO Power Module is designed to be fuel-agnostic, capable of operating on over 20 different fuel sources and mixtures, including natural gas, hydrogen, propane, biodiesel, and even waste gases like landfill or wellhead gas. It can seamlessly transition between fuels during operation. This flexibility is a significant competitive advantage, particularly in markets seeking to utilize diverse or renewable fuel sources or requiring operational resilience through fuel redundancy.

Competitive Landscape and Market Positioning

Hyliion enters a competitive landscape populated by established players offering conventional internal combustion engine generators (like Cummins Inc. (CMI)) and emerging companies focused on alternative power, including fuel cells (like Bloom Energy (BE)) and other linear generators. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Hyliion positions the KARNO Power Module to compete favorably based on its unique combination of attributes.

Against conventional generators, KARNO offers superior efficiency, significantly lower emissions without complex aftertreatment, reduced maintenance, and fuel flexibility. Cummins, a dominant player, offers scale and reliability but is transitioning from its diesel heritage. Hyliion's technology provides a distinct environmental and operational advantage.

Compared to fuel cells, which are also targeting low-emission distributed power, Hyliion anticipates a lower upfront cost for the KARNO Power Module. Management estimates conventional natural gas engines at $1,000-$1,500/kW, fuel cells at $3,000-$3,500/kW, and KARNO somewhere in between. Hyliion also expects the KARNO system to have a smaller physical footprint (estimated about a third the size of a fuel cell system) and potentially better long-term maintenance and reliability due to the absence of degrading membranes found in fuel cells. Companies like Bloom Energy have demonstrated success in securing large data center deals, highlighting the market opportunity, but Hyliion believes its technology offers a compelling alternative with a strong return on investment profile driven by lower operating costs and maintenance.

Other companies in the broader commercial vehicle electrification space, such as Nikola Corporation (NKLA) and Workhorse Group (WKHS), focus primarily on vehicle powertrains, though some may explore stationary applications. Tesla (TSLA) with its Semi also represents a high-profile player in commercial vehicle electrification. While these companies compete for investment dollars and market attention in the sustainable transportation sector, Hyliion's current strategic focus on stationary power generation with the KARNO module differentiates its immediate competitive arena from their core vehicle offerings. The recent news of another linear generator producer raising significant funding validates the growing investor confidence in the distributed power category itself.

Hyliion's strategic response to this landscape involves leveraging its technological advantages to target specific high-growth market segments where these benefits are most valued. These include data centers (requiring reliable, dense, low-emission power), EV charging infrastructure (benefiting from native DC output and fuel flexibility), waste gas utilization (capitalizing on fuel agnosticism), oil and gas electrification, prime power/microgrids, backup power, e-mobility, and even industrial waste heat recovery. The company's ability to operate on diverse fuels and its modularity (scaling from 200 kW units to 2 MW systems) allows it to tailor solutions to varied customer needs and site constraints.

Operational Progress and Financial Performance

Hyliion's operational focus is currently centered on the development, testing, and initial production of the 200 kW KARNO Power Module. The company's R&D activities, primarily in Cincinnati and Austin, have involved extensive testing of the 125 kW Alpha core and incorporating learnings into the Beta design intended for customers. A key part of this effort is building additive manufacturing capacity in Austin, with over 20 printers installed, including GE's advanced M-Line machines, to support future production scale.

The company commenced recognizing revenue from R&D services in Q4 2024, primarily from contracts with the U.S. government, such as the Office of Naval Research (ONR). For the three months ended March 31, 2025, Hyliion reported $489 thousand in R&D services revenue with a corresponding cost of revenue of $477 thousand, resulting in a gross profit of $12 thousand. This compares to no revenue or cost of revenue in the same period of 2024. Management expects R&D revenue to increase in future quarters as deployments under these contracts resume.

Operating expenses remain significant as the company invests heavily in KARNO development. Research and development expenses increased to $12.2 million in Q1 2025 from $8.0 million in Q1 2024, reflecting increased spending on design, testing, additive component production, and parts procurement for initial deployments. Selling, general, and administrative expenses decreased slightly to $6.1 million from $6.6 million. Exit and termination costs related to the powertrain wind-down were $1.4 million in Q1 2025, down substantially from $4.4 million in Q1 2024 as the wind-down nears completion. The net loss for Q1 2025 was $17.3 million, compared to $15.6 million in Q1 2024. The company expects to continue incurring net losses in the short term.

Hyliion's liquidity position remains robust. As of March 31, 2025, the company held $12.3 million in cash and cash equivalents and $186.5 million in short and long-term investments, totaling $198.8 million. This is down from $210.7 million at December 31, 2024. The investment portfolio is managed conservatively for capital preservation and liquidity. Cash used in operating activities was $14.0 million in Q1 2025, driven by the net loss and working capital changes. Investing activities provided $17.6 million, primarily from investment maturities/sales offsetting capital expenditures ($7.3 million for property and equipment, including additive printers). Financing activities used $0.4 million. Management believes its current capital is sufficient to fund operations for at least the next twelve months and through the commercialization of KARNO sales.

Outlook, Guidance, and Key Challenges

Hyliion's outlook is focused on executing its early adopter program and achieving commercialization of the 200 kW KARNO Power Module by the end of 2025. The company plans to deliver 10 early adopter units in 2025. While the first unit was delivered to the U.S. Navy in Q1 2025 and is undergoing testing, some subsequent deployments are now expected to shift into the second half of 2025.

The company reiterates its full-year 2025 revenue guidance of $10 million to $15 million, which includes both R&D services and anticipated revenue from early adopter unit sales. Revenue recognition for product sales is contingent on meeting specific terms, including certification, permitting, and performance criteria, expected to be achieved upon commercialization late in the year. Gross margin for R&D services is expected to be positive. While initial product gross margins may be positive due to prior expensing of components as R&D, the company targets achieving break-even gross margin on a cash basis near the end of 2026 as production volumes increase and costs decrease.

Cash expenditures are projected to increase in 2025. Capital expenditures are now expected to be closer to $30 million (up from approximately $25 million), driven by accelerated investments in additive printing capacity and the impact of tariffs (estimated $2-$3 million increase from a 10% tariff on German-assembled printers). Total cash outlays for 2025 are expected to be closer to $65 million (up from around $60 million). This spending is aimed at scaling manufacturing capabilities to support anticipated growth in 2026. The company expects to end 2025 with approximately $155 million in cash and investments.

Execution risk remains a key factor. The company encountered production challenges with the linear electric motor (LEM) assembly and residual metal powder removal from printed parts (regen). These issues impacted the timing of early deployments. Hyliion is addressing these by bringing some LEM manufacturing in-house and refining cleaning processes and part designs. Supply chain dependence, particularly on single-source suppliers, also poses a risk to production timelines and costs. Tariffs and broader economic uncertainties could further impact costs and market demand.

Despite these challenges, market traction is building. Hyliion has secured non-binding LOIs for well over 100 units across various applications, exceeding its planned 2025 deployments. This includes a significant LOI with a leading data center company for initial deployment of two 2 MW systems (20 units) and a potential multiyear opportunity for up to 70 MW (approximately 350 units), highlighting the strong demand from this sector. Other LOIs cover EV charging (US Energy (USEG), Flexnode), military (ONR, US Air Force/DOD CDAO), waste gas (DOE grant with ElectroGen), and international markets (Al Khorayef in Saudi Arabia, MMR Power Solutions).

Conclusion

Hyliion's strategic pivot to the KARNO Power Module represents a focused bet on the future of distributed, fuel-flexible power generation. The technology's anticipated advantages in efficiency, emissions, maintenance, and fuel flexibility position it as a compelling alternative in a market demanding cleaner, more resilient energy solutions. While the company is in the critical pre-commercialization phase, facing execution challenges inherent in bringing novel technology to market, the progress in development, initial deployments with key partners like the U.S. Navy, and growing market traction evidenced by a robust pipeline of LOIs underscore the potential of the KARNO platform.

The financial outlook for 2025 reflects this transition, with modest revenue expected from R&D services and initial product sales, coupled with significant cash investment to scale manufacturing capacity. Investors will be closely watching the successful resolution of production challenges, the timely deployment of early adopter units, and the conversion of non-binding LOIs into definitive orders as key indicators of Hyliion's ability to execute on its strategy and capitalize on the substantial market opportunity for distributed power. The path to commercial scale and achieving positive gross margins remains dependent on successful execution and cost reduction efforts in the coming quarters.