Workhorse Group (NASDAQ:WKHS) had a lot riding on its bid to win a contract from the United States Postal Service (USPS). As you know by now, it didn’t get the contract. As a result, WKHS stock is under pressure. The company’s stock dropped over 14% in the two days after the company released what were largely good quarterly earnings.
The narrative is simple. Workhorse has yet to scale its operations, but a contract to produce approximately 160,000 trucks for the USPS would ease investors’ concerns. It wasn’t that all of Workhorse’s eggs were in that basket; just the ones that were most ready to hatch.
Workhorse May Appeal the Decision
Workhorse has approached the USPS to ask for an explanation of their decision. There’s little chance that the USPS will reverse its decision to give the contract to Oshkosh (NYSE:OSK). However, Workhorse seems to have two potential lifelines. First, there was always speculation that the contract might be awarded to multiple vendors. That wouldn’t be the preferred outcome, but it would be better than nothing.
Second, at least initially, Oshkosh will provide traditional internal combustion vehicles. This would go against President Joe Biden’s administration’s initiative to electrify the federal government fleet.
Workhorse does have one powerful ally. Ohio Congressman Tim Ryan is calling into question the judgment of United States Postmaster General Louis DeJoy. That would make sense since Ryan represents the district where Workhorse is located. However, DeJoy just assumed the reins in June. The parameters of the bidding process were likely established long before that. And the devil will be in the details.
Always Read the Fine Print
Workhorse’s appeal to the USPS is likely to hinge on the details of the bidding process itself. Specifically, did the bidding process specify that USPS couldn’t source internal combustion vehicles? Since Workhorse was the only company with an all-electric proposal, that seems unlikely. Nevertheless, that is what many assumed since the decision caught many analysts flat-footed.
The USPS decision highlights the fact that for companies to begin accepting electric vehicles they have to have a charging infrastructure in place. Companies such as UPS (NYSE:UPS) have already invested millions of dollars into supporting an electric fleet. There would be no way that an agency as financially strapped as the USPS would have such an infrastructure in place.
So while I imagine the Biden administration may not be happy that the only company that proposed an all-electric solution was not awarded the bid, it may cause the administration to recalibrate its plan. If it wants the federal government fleet to go electric, there has to be an infrastructure to support that.
Where to Go With WKHS Stock
In late February, Mark Hake described WKHS stock as a “falling knife”. The knife has continued to fall since that article. At some point, it may become attractive enough to speculate on. And perhaps if Workhorse receives even a glimmer of hope from the USPS, it can get a bounce.
But this is a tough blow for the company. In an interview with Barron’s, Roth Capital analyst Craig Irwin said the USPS contract “would have differentiated them from the pack.” Irwin noted that this will make it much harder for Workhorse to scale the business. In fairness, that was a question even if they had been awarded the contract, but it would have given them a full order book and leverage with suppliers.
Irwin lowered his price target as well, but only to $15. WKHS stock is currently sitting around $14. However, other analysts have not issued new price targets since the USPS news. WKHS stock is looking for a bottom. Investors would be wise to let it find one before placing a speculative bet.
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 seven years. He has been writing for Investor Place since 2019.