The rapid rise and inglorious fall of Workhorse (NASDAQ:WKHS) stock is a painful lesson of investment in the electric vehicle (EV) space.
Workhorse is focused on manufacturing electric-powered delivery and utility vehicles. By all intents, it was a company with few solid catalysts. However, no one could have predicted its rise to $42.96 per share in February.
Although Workhouse is in a fast-growing market, the stock’s ebbs and flows in recent months were purely due to a USPS contract to assemble 50,000 to 165,000 new vehicles for its fleet to be delivered over the next ten years.
Workhouse was a frontrunner for the contract. However, last month, USPS awarded Oshkosh (NYSE:OSK) the contract. Shares lost $2 billion in value after the electric vehicle maker missed the Next-Generation Delivery Vehicle contract. USPS reps met with the company after the announcement. However, for now, it seems the decision is set in stone.
That leaves the small truck maker with big ambitions with little else to offer investors. Financials are nothing to write home about, with just $1.4 million of sales in 2020.
Indeed, even if the company had clinched the USPS deal, there was still incentive to take your profits and invest somewhere else since there is a lot of work the company needs to do before it can be classified as a viable investment.
USPS Contract Snub Will Haunt WKHS Stock for a Long Time
Workhorse is in one of the fastest-growing industries and is involved in a unique niche in the space. However, financials for the company leave a lot to be desired.
in 2020, the company managed just $1.4 million in sales. Net income was positive for the year. Still, that was mainly because of a $317 million increase in the fair value of an investment in Lordstown Motors (NASDAQ:RIDE). In the last three months alone, RIDE stock is down 66.2%. The ability to monetize this asset is growing slim. Hence, WKHS will have to rely on stock issuances to shore up its balance sheet and fund future growth.
Meanwhile, the USPS contract snub continues to hang over the stock’s immediate future. Shareholders who stayed the course got burned pretty badly due to the USPS decision. When I wrote on this stock in the past, I had expressed skepticism whether Workhorse could actually handle the contract.
However, the decision took everyone by surprise. In a research note, Roth Capital analyst Craig Irwin had predicted that Workhorse is a favorite to win the contract. He wasn’t the only one, though.
Several analysts had to eat humble pie after the decision. Oshkosh had little experience with electric vehicle manufacturing and wasn’t a frontrunner during the entire process. Meanwhile, Workhorse had a competitive advantage over the other companies in the mix, making the decision even more shocking.
Reportedly, the cost was one of the biggest factors in the decision. This is a major red flag since it essentially means Workhorse cannot offer cost-effective vehicles.
Is There a Twist in the Tale?
WKHS stock is down 43.0% year-to-date, and there is very little to suggest that a turnaround is around the corner. There have been a few developments on the USPS note that are interesting, though.
Firstly, after meeting with the Postal Service, Workhorse said it would “follow the proper due course procedures as defined by the USPS and will also look to other options available to us.” To that end, the company has retained the services of leading legal and corporate advisory firms to start a “prolonged process” to alter the U.S. Postal Service’s decision.
Time will tell if these efforts will bear fruit. Some are also hoping that if Postmaster General Louis DeJoy is pushed out from his position, a revision to the decision can occur. Again, however, this is reaching at straws. There is little to suggest that the decision will be reversed, and if you are a fan of the political theory, DeJoy’s ouster is not a done deal.
Compete, Don’t Envy
While WKHS struggles to gain its bearings after losing to Oshkosh, its peers are gaining ground steadily. For example, Amazon (NASDAQ:AMZN) has tapped Rivian to provide 100,000 electric vans by 2030. In addition, Ford (NYSE:F) aims to launch its own all-electric transit van by the end of the year.
United Parcel Service (NYSE:UPS) has agreed to purchase 10,000 electric vehicles from British EV startup Arrival and has also taken a strategic stake in the company. Meanwhile, there is no traction on Workhouse’s end.
My Final Word
In many ways, WKHS is a classic example of over-promising and under-delivering. As I touched upon in my earlier article, there were few reasons to invest in this one other than the USPS contract.
Investors that were savvy enough to exit their positions before the ball dropped made a lot of money. However, there is little incentive to remain committed at the moment. Competition is heating up, and there are little to no positive catalysts for the stock.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.