Even after Workhorse (NASDAQ:WKHS) wisely decided to hire a new CEO, I remain bearish on WKHS stock.
In business, as in sports, a good leader is tremendously important.
In fact, I believe that many people greatly underestimate the impact that a top-notch CEO, coach, or baseball team manager can have.
But even the best leaders cannot transform a badly lagging team or a company with no real competitive advantages and crucial weaknesses into a winner in six months or even a year.
Also playing important roles in my continued pessimism are the automaker’s high valuation, its tough competition and the possibility that its new CEO is not the best choice for the position.
The Limits of Leadership
Without a doubt, a top manager can get much better results than a weak one. For example, in 2021 the San Francisco Giants, are winning much more than they have in past years.
I’m sure that the team’s manager, Gabe Kapler, who was hired at the end of 2019, has a great deal to do with its success.
Before Kapler took over, the Giants had many talented, top-notch players, including one of the game’s best catchers, one of its top pitchers, and a very strong infield. Kapler was able to better exploit those competitive advantages and develop others. But if he had had to start from scratch, it would have taken him many years to assemble a great team.
I think that Workhorse has important weaknesses. Allegations have been made that one of its prototype trucks malfunctioned due to multiple problems, and there was a report suggesting that its drones were not up to par.
Add to that there are strong indications that its largest potential customers i.e. UPS (NYSE:UPS) and the U.S. Postal Service, have been less-than-thrilled with its EVs. Taken together, these points suggest that the automaker’s technology and manufacturing capabilities are, at minimum, very problematic.
Meanwhile, my research on Workhorse has not turned up any meaningful competitive advantages for the company. As a result, even if the company’s new CEO Richard Dauch is the greatest possible person for the job, it would likely take him years to turn the company around.
Due to the automaker’s limited funds and its extremely tough competition, Workhorse and the owners of WKHS stock, in all probability, do not have that kind of time.
Dauch May Not Be the Best Person for the Job
Dauch, the new CEO, certainly has a great deal of experience as a top executive and in the auto industry. Most recently, he was CEO of Delphi Technologies, an auto supply company that specializes in providing auto parts and services for conventional vehicles.
During Dauch’s time at the helm of Delphi, the company was acquired by a larger peer, BorgWarner (NYSE:BWA). He was also CEO of two other auto suppliers that appear to specialize in legacy products: Acument and Accuride.
Dauch’s extensive experience in the auto sector, his leadership skills and his experience with managing manufacturing processes should all be very helpful to Workhorse. But I don’t see any indication that he has turned around a struggling company or led a firm that’s trying to implement new technologies while taking on gigantic competitors.
Dauch may be an excellent executive, and just because it appears that he hasn’t turned around a struggling, high-tech-oriented company does not mean he cannot do so eventually. But it probably means that investors should not expect any near-miracles from him.
It seems like Workhorse does need a near-miracle to even stay competitive in the EV sector and turn around quickly enough to stay out of bankruptcy or avoid being acquired at a very low price.
To justify the current high valuation of WKHS stock, a real miracle will probably be required.
The Bottom Line on WKHS Stock
Given Workhorse’s crucial weaknesses, its lack of competitive advantages, its market capitalization of over $1 billion, and Dauch’s likely inability to save it from an unpleasant fate, I continue to recommend that investors sell WKHS stock.
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.