Workhorse Needs to Solve Its Production Problems

Workhorse (NASDAQ:WKHS) is taking a beating as of late. Down more than 30% since its mid-September high point, WKHS stock is currently trading at about $20 per share. That’s downright cheap for an electric vehicle (EV) stock these days.

Image of a Workhorse (WKHS) logo and drone on the side of a truck.
Source: Photo from WorkHorse.com

Unfortunately for Workhorse, production delays related to its battery supplier and an outbreak of the novel coronavirus are a sore point.

The company is also a finalist for a $6 billion U.S. Postal Service contract, but the waiting game is weighing heavily on WKHS stock.

Considering the bullish sentiment that drove Workhorse higher this year, it’s fair to wonder if this is the proverbial end of the road for investors and Workhorse.

I don’t think so. But first, let’s look at the most recent earnings report.

Q3 Earnings at a Glance

Workhorse reported third-quarter earnings on Nov. 9. The company reported revenue of $565,000, which is a massive increase from $4,000 in the third quarter a year ago. It also topped analysts’ expectations by 41%.

Last quarter, Workhorse reported revenue of $92,000, so the trend is headed in the right direction.

The company reported an increase of costs of goods sold from $1.4 million a year ago to $2.8 million in Q3. Research and development (R&D) remained flat at $1.6 million, but general and administrative expenses rose from $2.6 million last year to $6 million in the most recent quarter.

Overall, Workhorse posted a net loss of $84.1 million compared to a net loss of $11.5 million in the same quarter a year ago. The company reported cash and cash equivalents of $80.2 million at the end of the quarter. That’s an increase from $23.9 million at the start of the year.

Production Problems

Weighing on the company was its failure to produce vehicles. Workhorse said it only produced seven C-1000 vans in the third quarter, thanks to problems with a battery supplier that Workhorse had prepaid for several thousand units.

CEO Duane Hughes addressed the supply problem in a conference call with analysts:

“We’ve been working with other battery suppliers. While we had a primary supplier that had a little bit of a hiccup, they are quickly reacting … This has been a work in progress. We’re well into it and will have solutions in the first quarter of 2021. We have identified multiple battery suppliers and have prioritized them in terms of integrating.”

Another issue has been an outbreak of Covid-19 within the company, resulting in 36% of the production staff to either be infected or quarantined while awaiting test results. The outbreak forced Workhorse to delay the hiring of 200 additional production staff.

While Workhorse won’t achieve its goal of producing 300 to 400 vehicles this year, the company says it plans to produce 1,800 vehicles next year.

Why WKHS Stock Is Still Interesting

Workhorse has had a difficult year, to be sure. But there’s still plenty to appreciate about WKHS stock.

First, the Postal Service contract can’t be ignored. Workhorse is one of three finalists for a contract that would provide a new fleet of delivery vehicles in 2022. The Postal Service maintains a fleet of more than 200,000 vehicles, with most of them between 25 and 32 years old.

Workhorse’s proposed electric fleet would be perfect for the Postal Service. It would cut pollution, reduce fuel and maintenance costs and the vehicles could recharge each night.

And second, remember that Workhorse has a 10% stake in Lordstown Motors (NASDAQ:RIDE), which recently went public through a SPAC deal.

Lordstown’s top product is its Endurance electric pickup truck, for which it’s already received more than 40,000 orders. Lordstown is headed by former Workhorse CEO Steve Burns. I expect Lordstown to be highly successful.

The Bottom Line

While Workhorse had a tough third quarter, the stock is now available at a discount — and will be seen as a veritable bargain if the company is able to land the Postal Service contract.

Workhorse needs to have a solid fourth quarter and show that its production problems are behind it as it heads into 2021.

WKHS stock has a ‘B’ grade and a buy recommendation in my Portfolio Grader right now.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. 


Article printed from InvestorPlace Media, https://investorplace.com/2020/11/workhorse-needs-to-solve-its-production-problems-wkhs-stock/.

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