For several years, electric vehicle specialist Workhorse Group (NASDAQ:WKHS) floundered in mediocrity. Strangely enough, amid possibly the worst economic crisis in American history, WKHS stock enjoyed astounding gains. While 2020 will be forever marked as the year of the novel coronavirus, it’s also when EV companies experienced a paradigm shift in interest, integration and credibility.
But don’t mistake Workhorse Group stock as merely benefiting from a rising tide in its core industry. Rather, Workhorse Group has two major catalysts that support its bullish narrative. First, the company’s all-electric “C-Series” delivery trucks received Executive Order: A-445-0003 from the California Air Resources Board. Long story short, this certifies the C-Series as zero-emissions vehicles in the Golden State.
And this segues into a second potential tailwind. Up for grabs is a $6 billion federal contract to upgrade and modernize the U.S. Postal Service’s aging fleet of long-life vehicles (LLVs). And by aging, Uncle Sam takes the definition to the extreme. Some of the LLVs that are on the road today are between 20 to nearly 30 years old.
Specific to Workhorse Group stock, Workhorse has an excellent shot at winning the contract. It’s one of only four contenders remaining. Also, Workhorse is the only all-electric solution.
The latter point could be a significant deciding factor. As everyone in logistics knows, it’s the last mile that’s most costly. This is where the product arrives at the destination, which may be hindered by stop-and-go traffic and multiple destinations. As such, you don’t have the luxury of an unfettered, singular route, such as a cargo flight.
However, the inherent efficiencies of EV delivery trucks could help mitigate the onerous costs of the last mile.
WKHS Stock Is Not an Easy Bet
On the surface, Workhorse Group stock seems like a no-brainer. With the underlying company on the cusp of a multi-billion-dollar federal contract and zero-emissions credibility from California, Workhorse has come a long way from its beleaguered past. Plus, society and the business world incentivize the shift to EVs.
Obviously, with zero emissions, EVs individually – I’m not talking about the broader supply chain involved in building them, which is a different story – provide a cleaner environmental footprint. Like it or not, society is changing attitudes. And EVs will be a permanent fixture of this transition.
Further, EV fever is catching on and major corporations are willing to pay big bucks for it. High-profile examples include United Parcel Service (NYSE:UPS). Earlier this year, the courier service announced that it will purchase 10,000 electric delivery vans from U.K.-based startup Arrival. Also, UPS has the option to purchase 10,000 more. Don’t be surprised if management exercises it.
Simply, the cost-benefit structure for EVs makes sense for major entities to make the switch. Although the initial sticker shock is a factor to consider, EVs allow purchasing businesses to break even quicker. Further, with their fewer moving parts and thus relative ease of maintenance, each electric vehicle can generate long-term savings.
So far, so good for Workhorse Group stock. However, the problem is that everyone else is seeing the same numbers. Ironically, the simplicity of EVs compared to their combustion-engine counterparts also lowers the barrier to entry. Therefore, rivals can step in and rack up market share.
For these and other reasons, short-selling firm Hindenburg Research “believes there is an ‘immediate’ 50% downside” to Workhorse Group stock. In its words, the firm stated that the chances for Workhorse Group to secure a material contract with the USPS is “virtually zero.”
It May Come Down to Who You Believe
No matter how you look at it, Workhorse Group stock is an intriguing bet. While short sellers may question its premium, most folks apparently do not. All it takes is for the government to weigh in with its decision.
But here’s where the wager gets tricky. On so many levels as I mentioned above, Workhorse’s EV solution for the USPS makes perfect sense. Additionally, let’s be brutally honest. If the USPS were a private entity, it would have been bankrupt decades ago.
As digitalization and e-commerce trends expand, our postal service becomes exponentially less relevant. In such an environment, the federal institution needs maximum cost savings. Workhorse just might be able to provide it.
However, the government isn’t exactly known for being rational and it doesn’t have to be. We the taxpayers will backstop any bad decisions because we have to. Thus, Workhorse winning the contract isn’t a sure thing.
But if you want my opinion, I think Workhorse pulls it off due in part to the broader EV frenzy. But I would spread my bets accordingly. This is hardly what you would call a high-confidence suggestion.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
