Electric vehicle stocks have been on fire in 2020. Workhorse Group (NASDAQ:WKHS) has been no exception. Shares of the electric delivery van manufacturer are up about 400% year-to-date. Some pundits believe this rally in WKHS stock is way overdone, and that the next big move in the stock will be a big drop.

I think that bear thesis is unnecessarily short-sighted.

Sure, WKHS stock may be somewhat weak for the foreseeable future. It may trend lower and chop as investors do some profit-taking on a name that’s up for 400% in a few months.

Don’t let these natural profit-taking dynamics scare you.

Instead, buy on dips, and let patience be your best friend, because Workhorse Group is a long-term winner, and WKHS stock has big long-term upside potential.

Here are three big reasons why that’s the case.

Last-Mile Delivery and WKHS Stock

The first big reason to like Workhorse stock long-term is that the company is at the epicenter of what will be an enormous disruption of the last-mile delivery market over the next 5 to 10 years.

Long story short, the mass electrification wave is rapidly proliferating across all things transportation. Passenger cars. Buses. Planes. Trains. Ships. And, yes, delivery vans.

The U.S. delivery van market is huge. More than 350,000 last-mile delivery vans are sold every year. At an average price of $50,000. For a total market size of $18 billion.

That $18 billion market is built on the back of legacy, diesel-powered delivery vans that are increasingly becoming antiquated. Breakthroughs in EV tech are creating a new class of zero-emission delivery vans that are just as functional as traditional diesel-powered vans, with lower operating costs and high efficiency.

Over the next 5 to 10 years, fleet operators will upgrade and electrify fleets rapidly, resulting in enormous disruption across the entire $18 billion U.S. last-mile delivery van market.

Workhorse is at the epicenter of this disruption. On that basis alone, WKHS stock appears to have huge long-term upside potential.

Workhorse Is a Leader in an Emerging Category

More than being at the epicenter of last-mile delivery van electrification, Workhorse is proving itself as an early leader in this emerging category.

Workhorse’s C-Series electric delivery vans are already more fuel-efficient than diesel trucks, offering 40 miles per gallon gas-equivalent versus six miles per gallon for a traditional UPS truck. They are also much cheaper, with 65% lower operating costs per mile. Both of those metrics will only improve over time thanks to technological improvements.

That is, Workhorse’s vans will only become more efficient than they already are, with lower operating costs, meaning the value prop of these trucks to fleet owners will become more and more obvious and clear in the coming years.

At the same time, Workhorse’s vans are the only medium-duty electric vans permitted to sell and deliver vehicles in all 50 states. They have with a wide-reaching distribution deal with Ryder – one of North America’s largest delivery van retailers – and have already scored huge partnership deals with UPS and USPS.

So, in a nutshell, Workhorse’s vans are simply better than legacy diesel delivery vans and miles ahead of electric van competition in terms of reach, scale, and distribution.

Plus, Workhorse is developing drone delivery technology – dubbed HorseFly – to be integrated with its delivery vans. Once fully fleshed out, this tech should only extend Workhorse’s early leadership in this market.

Connecting all the dots, the big picture is clear. Workhorse Group projects as the leader in last-mile delivery van electrification over the next 5 to 10 years.

Workhorse Group Stock Is Not Overvalued

One of the biggest arguments against WKHS stock is valuation.

Bears correctly point out that the market cap is $1.6 billion, yet revenues last quarter were less than $100,000.

That’s entirely correct. But pointing to a trailing sales figure as way to value a next-gen growth company is inappropriate. In order to value WKHS stock, you have to look forward.

When you do that, it becomes obvious that WKHS stock is not overvalued.

About 23% of today’s delivery fleets are comprised of clean technology, according to a 2019 Mortenson survey of delivery fleet owners. Those fleet owners expect that number to rise to nearly 50% within 5 years. At that rate, roughly 75% of America’s 350,000 annual last-mile delivery van market could be electric by 2030, for total annual deliveries of over 260,000.

Given its early leadership and competitive advantages, Workhorse could easily grab 10% of that market. That equates to just over 26,000 deliveries by 2030. I think average sales price will be around $75,000 by then, up from today’s ASP of $50,000 thanks to HorseFly technology integration. At that ASP, total revenues for Workhorse could measure nearly $2 billion by 2030.

Assuming 20% operating margins and a 20% tax rate, that equates to ~$315 million in potential net profits by 2030.

A market-average 17-times forward earnings multiple on that implies a future market cap for Workhorse of $5.4 billion.

And that math doesn’t include any upside from the company’s strategic partnership with Lordstown Motors, whose Endurance electric pick-up truck has received over 27,000 pre-orders representing over $1.4 billion in potential revenue.

So, at $1.6 billion today, WKHS stock is not overvalued.

Bottom Line on WKHS Stock

Needless to say, Workhose Group represents a huge long-term investment opportunity.

Sure, WKHS stock has run up quite a bit over the past few months. Don’t chase the rally today. Let profit-taking happen. Let the stock chop and consolidate.

But, near-term weakness in WKHS stock will inevitably turn into long-term strength. So buy on dips, and hold for the long haul.