Workhorse Group (NASDAQ:WKHS) was one of more compelling electric vehicle (EV) plays that charged higher in the second half of last year. As traders clamored to get their hands on everything and anything EV-related Workhorse stock plowed ahead to nearly $43.
Then the bottom fell out from under it. Last week's EV stock sell-off combined with disappointing news about Workhorse's potential relationship with the U.S. Postal Service (USPS) abruptly cut the share price in half. The company now finds itself with a lot of work to do to regain favor with the market.
Why Did Workhorse Group Stock Drop?
On February 23rd, the USPS announced that it had awarded rival EV manufacturer Oshkosh a $482 million initial design contract for its fleet of next-generation delivery vehicles (NGDV). This news dealt a devastating blow to Workhorse which had been rumored to be in the running to earn a long-term contract from the USPS.
It was this rumor that largely fueled the stock's meteoric 550% rise in 2020 that carried into the early weeks of this year. The USPS contract is estimated to be worth approximately $6 billion based on its need to replace over 150,000 trucks over the next 10 years. With Workhorse no longer the lead horse for this business, its share price plunged 47% in one day erasing months' worth of gains.
Investors' high hopes for the USPS contract in hindsight may have been out of touch with reality considering Workhorse plans to crank out less than 2,000 vehicles this year. But while its production capacity may not be a fit for an order the magnitude of a USPS, the market nevertheless hoped it could at least secure some of the award.
This left Workhorse scrambling to do some damage control. Refusing to wave the white flag, management said it may protest the award as is commonplace in the world of government spending.
How Did Workhorse Group Perform in Q4?
A week later with its tail between its legs Workhorse Group found itself back at the podium to announce its fourth quarter financial performance.
Sales came in at $652,000 (versus just $3,000 in the prior-year period) and net income was around $280 million. Nearly half of the revenue was derived from the company's 10% stake in Ohio-based EV manufacturer Lordstown Motors which operates in the former General Motors assembly plant. In October 2020 Lordstown joined forces with the DiamondPeak Holdings SPAC to launch its IPO under the RIDE ticker.
Management also hinted at using some of its $200 million cash balance to expand its manufacturing capabilities. This would certainly appear to be a step in the right direction, that is, if the demand is there.
With investors more interested in the latest USPS contract developments, however, the report did little to swing the stock price in either direction.
Is Workhorse Group Stock a Buy?
It seems many investors were only along for the USPS ride. The stock has staged a bit of a recovery after the company disclosed a March 3rd meeting with the USPS. But whether this amounts to a simple gesture of courtesy from the postal carrier or the rekindling of a relationship remains to be seen.
Putting the USPS setback aside, Workhorse Group does have other growth avenues. What sets it apart from other battery-EV players is its focus on the last-mile delivery sector and the drone-integration of its vehicles. This along with its cloud-based real-time performance tracking systems help would-be customers optimize energy usage and run more efficient routes (while helping the environment).
Also in the plus column is an increasing EV order backlog of 8,000-plus vehicles which represents around $600 million in deferred sales. This includes purchase orders from automotive group Pritchard Companies and trucking company Pride Group Enterprises—no slouches in the auto industry but a far cry from an organization the size of the USPS. The 6,320 vehicle Pride Group order accounts for the bulk of the backlog.
Yet given its current lack of scale, Workhorse will have a challenge convincing investors that it can hang with the big boys in the EV space. That's not to say, however, that the company can't grab a share of the massive global EV market opportunity. It could ultimately carve itself a nice little niche market catering to smaller government and commercial fleets. This could work out just fine, but as the market has been quick to point out, it may mean a more modest valuation for its equity.
Pending a surprise development around the USPS or another potential big-ticket customer, Workhorse Group stock may have to get more comfortable hanging out in the minor leagues. And for this reason, investors are better off on the sidelines for now.
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