Electric vehicle equities are beloved and Workhorse Group (NASDAQ:WKHS) is part of that trend. WKHS stock is up more than seven-fold this year and the company is rapidly carving out a leadership role in the evolving electric delivery truck market.
Electric delivery trucks are a vital part of the WKHS stock thesis for a variety of reasons, not the least of which is staying away from consistent, head-to-head competition with Tesla (NASDAQ:TSLA). Tesla controls about 80% of the North American electric vehicle market, dominance attained through passenger cars. It’s smart of Workhorse to avoid this fight.
Workhorse also doesn’t compare well with the more controversial Nikola (NASDAQ:NKLA) and that’s good for the former. Workhorse emphasizes delivery vehicles and it’s actually delivering some. Nikola deliveries, well, let’s just say that’s a subject that’s up in the air for now and could be for some time.
Big Opportunity for WKHS Stock
Watch enough television and see enough Amazon (NASDAQ:AMZN) commercials and it’s obvious that package delivery outfits are embracing electric vehicles. Sure, it makes for some good public relations, but the bottom line is the last mile – the last leg of the trip to get a package from a warehouse to the customer’s door – is costly and cutting down on fuel expense is an easy way to trim costs while boosting profits.
Amazon isn’t a Workhorse customer yet. However, the EV producer doesn’t lack for marquee clients as UPS (NYSE:UPS) and the U.S. Postal Service are expected to sign up with the company. Indeed, the opportunity set in front of Workhorse is very real.
“With 5 [million] miles driven, Workhorse is far and away the leading platform from a miles-driven perspective for last-mile EVs,” wrote Oppenheimer analyst Colin Rusch in a recent note. “We believe their vehicles serve an [$18 billion] U.S. market in which consumers are not willing to compromise on service.”
Those statistics bode well for Workhorse, but with the stock up 630% year-to-date, some investors are likely to be skeptical. The good news is Workhorse has clear tailwinds, some of which are derived from the novel coronavirus pandemic.
As a result of the pandemic, e-commerce is taking an ever-larger slice of the overall retail pie in the U.S. This was happening prior to Covid-19, but the virus condensed years’ worth of online retail growth into the span of a few months. States, such as California, saw e-commerce growth coming and were already pressuring delivery companies to transition to electric vehicles, but the states aren’t saying to the likes of Amazon, “Hey, better have an all-electric fleet by 2021 or 2022 or else.”
Rather, Amazon, UPS and friends seeing the rise of e-commerce and are motivated to make the move to electric delivery vehicles as soon as possible.
Translation: there’s built-in demand for Workhorse products. So much so that some executives at delivery companies are saying they’re encountering difficulties procuring electric delivery options. Workhorse is likely to up production to 100 vans a month in the fourth quarter and it likely needs to at least reach its own forecast of 200 vans per month next year to adequately woo new clients.
Will Postal Service Deliver?
USPS is in the late stages of negotiating a $6 billion contract to replace old, antiquated traditional delivery trucks. Details on the process are scant, but it’s clear Workhorse is one of four competitors in the fray and this is an obvious stock-moving announcement, when it arrives.
Finding value here is practically impossible. Workhorse isn’t profitable and until it starts delivering vans in size, which will happen, revenue will remain light. The consensus price target on the stock is $24, implying limited upside from the Sept. 10 close of $22.39.
These aren’t marks against the stock if investors know what their betting on here. That wager is clear: Workhorse’s ability to up production to 200 vans a month next year and capture at least part of the USPS deal.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.
