Can Workhorse Group (NASDAQ:WKHS) stock muscle into the broader electric vehicle market? Currently, the Cincinnati, Ohio-based company is a niche player in the fast growing electric vehicle sector, focusing on electric powered delivery and utility vehicles. It’s a strategy that has, to date, paid off for the company and its shareholders.
Workhorse stock has risen more than 700% this year, a staggering amount by any metric. The share price has rocketed to a high of $30.99 in September from $1.47. While the stock has since given up some of those gains, it is currently trading at around $25 a share.
Much of the growth has come from the tremendous run up of stocks that are part of the broader electric vehicle sector, led by Tesla (NASDAQ:TSLA), leaving investors wondering if Workhorse Group can broaden beyond its niche focus on commercial vehicles and maintain its torrid pace?
WKHS Stock Is a Contender
Workhorse Group is a small company that’s competing for some big contracts. Most impressive, the company is currently on the shortlist for a U.S. Postal Service contract to purchase 180,000 new trucks to upgrade its national delivery fleet. Workhorse is on a shortlist of just three companies to win the lucrative Postal Service contract, estimated to be worth $6.3 billion. The other two companies on the list are Morgan Olson and an alliance between Ford Motor Co. (NYSE:F) and Oshkosh (NYSE:OSK).
While Workhorse Group is viewed as the underdog in the U.S. Postal Service contract lottery, the fact that the company is on the shortlist should be viewed as a vote of confidence (the original list of bidders totaled 15 companies). Many analysts feel that Workhorse Group is one big contract win away from outperforming electric vehicle leaders such as Tesla.
The City of Orlando, Florida is also reported to be considering purchasing Workhorse Group’s electric utility trucks. Workhorse is in talks with General Motors (NYSE:GM) to takeover the Lordstown Assembly plant, a 6.2 million square foot manufacturing plant located in Lordstown, Ohio that Workhorse currently has a 10% stake in.
Profits Remain Elusive
While Workhorse Group’s delivery and utility vehicles are attracting attention, the company has yet to land any major contracts and remains unprofitable. Much of the lift in Workhorse stock is due to the fact that investors are snapping up shares of any and all electric vehicle companies, regardless of where they are at in terms of manufacturing and delivering automobiles.
While a rising tide seems to be lifting all boats, it’s worth noting that Workhorse Group has been around since 1998 and became a publicly traded company in 2010. It’s not a flash in the pan. However, its niche focus on commercial electric vehicles may limit its potential market at a time when it is facing growing competition.
The electric vehicle market has been growing exponentially in recent years and there are expected to be more than 250 million electric vehicles driven around the world by 2030, according to the International Energy Agency (IEA). By some estimates, there are expected to be more than 100 different electric vehicle models available for sale in the U.S. by 2024 as major automotive manufactures such as GM, Volkswagen (ETR: VOW3) and Nissan (OTCMKTS:NSANY) ramp up plans to produce both commercial and consumer electric vehicles. The competition Workhorse Group faces is only going to become more fierce in coming years.
Wait For Stronger Fundamentals
In its most recent quarterly results ended June 30, Workhorse Group reported revenue of just $92,000 and operating expenses of $5.57 million. The company’s net loss was $131 million, mostly due to increased interest expenses of $124.3 million. These are not encouraging results and show clearly that Workhorse remains in start-up mode. There has been some speculation that the company might be targeted for a takeover by a larger, more established automaker.
Given its lack of viable contracts and production as well as its poor financial results, investors would be best advised to steer clear of Workhorse stock for the time being. There are too many other more established electric vehicle makers and automotive companies available for investors to risk their hard earned money on.
If the company wins the U.S. Postal Service contract or things change for the company in another fundamental way, then by all means consider buying shares. Until then, steer clear of Workhorse Group.
On the date of publication, Joel Baglole held shares of TSLA.