The U.S. Postal Service, now best known for suspicious pre-election mail delays, also is delaying decisions to upgrade its aging delivery fleet. This puts nascent electric-vehicle maker Workhorse Group (NASDAQ:WKHS) and WKHS stock in precarious spot.
It’s obvious that many investors bought WKHS stock because it is a finalist for the postal fleet contract. This is no small matter, as the contract is estimated to be worth $6 billion. Even part of the contract will be meaningful for this relatively new company. Remember, Workhorse has not produced very many vehicles aside from a tryout order of about 1,400 vans for postal competitor United Parcel Service (NYSE:UPS).
Workhorse’s vans look cool and the promise of battery-powered vehicles replacing pollution-belching delivery vans makes one take a deep breath of contentment.
But Workhorse’s struggles to ramp up serious production aren’t reassuring.
Workhorse and the USPS Contract
If the postal service truly adopted a long-term commitment to mail delays, then not updating its fleet certainly fits the script. Most of its last-mile vehicles are 25 to 32 years old, which means they have rolled many miles of stop-and-go driving. And it’s hard to think of a better way to impede mail delivery than sticking with a broken fleet.
Nevertheless, officials at Workhorse and investment observers are keeping this prospective contract front and center. They are betting on potential.
However, only the most ardent optimists expect Workhorse to win the entire contract. Why? Look at this from the perspective of a fleet manager. Giving the contract to an as-yet unproven company would be foolish – even for the current postmaster general. (Unless it’s part of his evil plan.)
But seriously, it is sensible to expect a fleet buyer to consider the contractor’s ability to deliver the vehicles. Not only that, but its track record of quality and durability are also vitally important. In other words, will the next fleet last three or four decades? This is not an easy determination, even if the contender is an established manufacturer. I suspect it is going to be difficult for Workhorse to adequately answer this question. In addition, as attractive as the idea is, if Workhorse won the contract tomorrow, the company would be hard-pressed to fulfill the order.
Note that the company’s 2021 goal is to make 1,800 vehicles.
A Look at WKHS Stock
Until the middle of summer, WKHS stock was a tenant in the community of penny stocks. Since July, though, shares traded mostly in the 20s.
The stocks’ range in the last year bottomed at a measly $1.32 per share, while the top – reached in September – was $30.99. Currently, WKHS is trading around $28. The stock dipped in October as the third quarter ended, but shares rebounded from about $15 as November began.
Speaking of that third-quarter report, Workhorse said its revenue totaled $565,000. Second-quarter revenue was $92,000. It is interesting to see that revenue in Q3 last year was only $4,000.
Workhorse is losing money – a trait it shares with many other electric-vehicle firms. The company posted a net loss for the quarter of about $84 million. The net loss for the same period a year was much less, about $11.5 million. Per share, the loss was 78 cents, which was vastly more than the 10 cents analysts expected.
In September, I wrote in InvestorPlace that Workhorse was on the right path. The path, it seems, is getting tougher.
The Bottom Line
An investment in WKHS stock is speculation that the company will prosper and that the shares bought at this stage will grow in value like Tesla (NASDAQ:TSLA).
It looks to be a tough trip. For example, efforts by Workhorse to meet its production target of 300 to 400 vehicles by the end of 2020 were derailed by supply-chain problems and the novel coronavirus, which hit the company’s workforce hard. The virus outbreak prompted managers to modify assembly work and delay hiring.
A long-term investor who is comfortable with risk can look beyond short-term problems and look at potential. But waiting on WKHS stock may be best for now.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.