After Workhorse (NASDAQ:WKHS) failed to obtain a major deal with the U.S. Postal Service, some of those who are bullish on WKHS stock are hopeful that Congress will get the beleaguered electric vehicle maker a USPS deal after all.
But I believe that there are four main reasons why Congress is highly unlikely to come to Workhorse’s rescue anytime soon. Consequently, I expect the shares to, at the very least, in the medium term fall back to the intra-day low they reached in the wake of the company’s rejection by the USPS.
That level appears to be $11.87.
USPS Could Turn to Other EV Vendors
Sparking the hopes of WKHS stock bulls, a relatively small number of Democratic members of Congress have floated the idea of giving USPS another $6 billion to buy more EVs. The bulls seem to be assuming that, because Workhorse was the only pure-play EV maker to bid on the original contract, it will automatically get a piece of any new money the USPS spends on EVs.
But that assumption is, in my opinion, quite misguided. First of all, Oshkosh (NYSE:OSK), which won the original deal, has reportedly agreed to develop some internal-combustion vehicles and some EVs under the contract. Consequently, it’s safe to assume that Oshkosh is capable of building EVs for the Postal Service and therefore could potentially be awarded any new deal to create additional EVs for the agency.
Moreover, with a new administration in charge of the process (not to mention input from Congress, assuming it appropriates the money), other EV makers could very well seek to get a slice of any new deal. For example, Tesla (NASDAQ:TSLA), Rivian and Canoo (NASDAQ:GOEV) could all try to get a piece of the action.
Workhorse Has Red Flags
In previous columns, I’ve pointed out that the company has multiple red flags. For example, I noted that Workhorse says factory may not be able to make the vehicles cheaply enough to meet USPS needs. I also reported that a number of the company’s drones reportedly had technical issues, while pointing out that Fuzzy Panda, which shorted WKHS stock, alleged “that the company’s vehicles have malfunctioned on multiple occasions.”
Given these points and other red flags, I think it’s quite possible that the USPS decided to never order any vehicles from Workhorse, no matter how much money it gets from Congress.
Political Issues
Seventeen House Democrats reportedly launched a bill to give USPS $6 billion to build EVs and House Transportation and Infrastructure Chairman Peter DeFazio is backing the legislation. But I haven’t seen any signs that the Democratic leadership of the House is behind it.
Meanwhile, at least 10 Senate Republicans would have to back giving the bill or the legislation will probably not get done this year. The former scenario is unlikely to materialize.
Finally, some House Democrats probably have ties to Oshkosh, which probably wants to build all of USPS’ vehicles. Consequently, any bill that would result in Workhorse getting a piece of the action may not even pass the House.
A Prolonged Process
Workhorse CEO Duane Hughes himself warned that any effort by the company to obtain a deal with the USPS could be “prolonged.” Specifically, he said that an early March “meeting with the USPS marked the first step in what we expect may be a prolonged process to explore our options and possibly pursue further action related to our…bid.”
While the process plays out, WKHS stock is likely to drop much further unless the company is able to obtain multiple, large orders from other entities. Further, Hughes did not sound certain that Workhorse would take further action to obtain a deal from the USPS.
The Bottom Line on WKHS Stock
At this point, Workhorse is highly unlikely to win any business from the USPS in the next year, and there’s a good chance that the company will never make a deal with the Postal Service.
As a result, WKHS stock, which still has a fairly large market capitalization of $1.9 billion and likely incorporates some hope of a USPS deal, is likely to languish for the foreseeable future and may never recover. Meanwhile, the company hasn’t done anything to make me less wary of its red flags.
Given these points, I continue to urge investors to sell the shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
