If you’re a buy on the news kind of investor, Workhorse (NASDAQ:WKHS) hasn’t given you much to be excited about in the last month. WKHS stock has dropped 28% in that time. However, in the last five trading days (ending November 5), the stock is up 13%. There are a couple of reasons for this.
First, the company is approaching its next earnings date. Second, when the company reports earnings, it’s expected to give investors an update on its progress in obtaining a contract with the United States Postal Service (USPS).
And if investors needed additional reinforcement, there is the presidential election. As of this writing, it appears the sector will benefit from an administration that has said it will prioritize the electrification movement.
But as I see it, there’s a bigger opportunity for Workhorse. It may take a few years for the company to realize its full potential. But if you’re worth buying and holding a position in Workhorse, it looks like it will be well worth it.
The Right Market At The Right Time
Workhorse should have a large addressable market for its fleet of electric light commercial vehicles. (LCVs). And the reason for that is summed up in one word: e-commerce. Every day I see Amazon (NASDAQ:AMZN), United Parcel Service (NYSE:UPS) and Federal Express (NYSE:FDX) trucks roll through my community. Workhorse is going after this market that focuses on the last-mile deliveries that have become ubiquitous.
And while the pandemic will eventually come to an end, the world will still likely be dealing with our “new normal” for the better part of 2021. But even when things return to something approaching normal, the pandemic has changed the way people shop, and the way they think about shopping. To be honest, America was already moving in this direction. Covid-19 just kicked everything into high gear.
Ok, so you could make a case that if revenue for a company like UPS is going to be like fishing in a barrel, why would it invest in electrifying its fleet. Well first it already is. But second because companies that are interested in converting their existing fleet of LCVs to electric will not be facing the same type of capital expenditure (capex) as other commercial electric vehicles.
A McKinsey study shows why. Most LCVs only travel between 100km to 200km (62-125 miles) a day. This means that companies would be able to employ a nightly recharging regimen that today’s existing infrastructure could support. And these trucks would be efficient with the batteries of today, which will only get more efficient in the future.
Competition is Heating Up
As you can imagine, the field of electric vehicles is getting very crowded. Right now, Workhorse is the only publicly traded company in this sector. But that could be changing. One of its major competitors is Rivian. Amazon has chosen Rivian to help the company manufacture its custom-made LCV. This is part of Amazon’s initiative to become carbon neutral by 2040. And it’s also a contract that has industry insiders believing Rivian will launch an initial public offering in the near future.
This is bad news for Workhorse because they have produced trucks for Amazon. But they won’t be in the future. That could be seen as a vote of no confidence. And although Workforce has also benefited from its relationship with UPS, Vince Martin recently remarked that a short seller claims that UPS is moving on to a new electric truck partner.
All of this bad news could be turned around quickly if Workhorse is awarded a long-awaited contract from the United States Postal Service (USPS). Valued at $6 billion, the contract would automatically solve any revenue concerns. But it would also give Workhorse an opportunity to prove it can meet a scale of 300 to 400 trucks a year.
You Can Go Long On WKHS Stock
I like WKHS stock better at its current price, even as I believe it may have further to fall, particularly if the USPS delays its announcement (scheduled for December).
But as a speculative play in the EV sector, I like WKHS stock better than I do that of Electremeccanica Vehicles (NASDAQ:SOLO) and Ayro (NASDAQ:AYRO). That’s because Workhorse doesn’t have to prove the concept, only its ability to deliver on it. That’s not a guaranteed by any means, but it’s a story that sounds like it has a happier ending.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.