Where does Workhorse Group (NASDAQ:WKHS) stock go from here?
Workhorse has been a basket case since news broke in February that the U.S. Postal Service was not awarding the Cincinnati-based electric vehicle manufacturer a highly coveted 10-year contract to replace its mail delivery fleet with new energy efficient vehicles.
Workhorse stock immediately fell 50% on the news, and is now down 77% since the Postal Service announcement. The company’s shares had been trading over $40 on expectations that it would win the postal contract. Today, the share price is at $13 with no signs it has reached a bottom.
Shares moved higher as much as 20% in early trading today, perhaps as a sign that some speculative investors were willing to jump back in.
For now, however, investors are left to try and determine if there’s any hope for Workhorse Group after losing out on the postal contract, which would have been worth $6.3 billion to the company and seen government purchase 180,000 new trucks to upgrade its national delivery fleet.
Political Battle
Workhorse Group’s valuation was quite over inflated based on anticipation that it would win the Postal Service contract. Without that deal, Workhorse Group is only planning to build about 1,000 electric vehicles this year (2021). For all of 2020, the company posted sales of just $1.4 million.
Profitability remains a long way off for Workhorse Group. And yet, at the start of the year, the company had a market capitalization of nearly $5 billion based on its then share price and number of shares outstanding.
Without the contract to supply new electric postal trucks, WKHS stock was bound to come back down to earth. The company has responded to losing out on the contract by engaging in a political battle with the company that was awarded the lucrative Postal Service deal, Wisconsin-based truck manufacturer Oshkosh (NYSE:OSK).
Workhorse Group has marshalled the support of several Ohio politicians, including U.S. Rep. Tim Ryan, to contest the contract award and demand an investigation into how the Postal Service arrived at its decision.
Workhorse Group is arguing that Oshkosh does not have the ability to provide the Postal Service with all-battery electric vehicles and that low emission fossil fuel-powered vehicles would be used instead, violating the terms of the contract award. Oshkosh has denied this claim, saying that it is capable of meeting all requirements outlined in the agreement and can supply battery-powered electric vehicles.
Whether Workhorse Group gains any traction in the political arena remains unknown, but the company’s complaints seem like sour grapes at this point.
Where To From Here?
With the Postal Service contract now gone, it is unclear where Workhorse Group, which focuses on developing electric-powered delivery and utility vehicles, goes from here. The company has touted in the past that it was in talks to supply electric utility trucks for Orlando, Florida, but nothing seems to have come from those discussions. Right now, Workhorse Group says it has confirmed orders to deliver 8,000 of its vehicles, 6,000 of which come from Pride Group, a commercial vehicle rental company. But the Pride Group sales are tied to the demand for delivery vehicles from Pride’s end customers, which could fluctuate with the economy’s performance.
While the entire electric vehicle space is likely to benefit from the $174 billion the Biden administration has promised to invest in developing the U.S. electric vehicle market, Workhorse Group itself is not yet benefiting from any government-related contracts.
The company also faces plenty of competition in the market for electric delivery vehicles as other start-ups such as Rivian and Canoo (NASDAQ:GOEV), as well as automotive giants such as Ford (NYSE:F) and General Motors (NYSE:GM) push into the space.
The electric vehicle market continues to grow by leaps and bounds. There are expected to be more than 250 million electric vehicles around the world by 2030, according to the International Energy Agency (IEA). By some estimates, there are expected to be more than 100 different electric vehicle models available for sale in the U.S. by 2024 as automakers large and small ramp up production of commercial and consumer electric cars, trucks and sport utility vehicles (SUVs).
Deteriorating Finances
Unsurprisingly, all of the problems afflicting Workhorse group have hurt its finances, causing them to deteriorate. The company’s 2021 production forecast of 1,000 vehicles was lowered from a previous forecast of 1,800 vehicles. In its most recent quarterly results, Workhorse Group reported revenue of $521,000, missing analysts’ estimates of $2.6 million of revenue by a lot, according to Refinitiv data.
Workhorse Group also reported a quarterly loss of $136.6 million due to the reduction in the fair value of its 10% holding in electric pickup truck company Lordstown Motors (NASDAQ:RIDE), which has been struggling with its own issues.
Workhorse Group has been around since 1998 and been publicly traded since 2010. That’s a long time for a company to be around and remain unprofitable. Speculation persists that Workhorse Group could be targeted for a takeover by a larger, more established automaker. At this point, that looks like it would be the best-case scenario.
There’s No Reason To Buy WKHS Stock
Investors who take a position in WKHS stock at this point must ask themselves: What am I buying? Workhorse Group’s fortunes had been tied directly to the Postal Service contract. Without that contract, Workhorse is a small, niche player in the electric vehicle space that has no significant contracts, remains unprofitable and has deteriorating finances. There is bound to be a shakeout in the electric vehicle sector at some point, and Workhorse Group could be a casualty.
Besides there are many other electric vehicle stocks that investors can choose besides Workhorse Group. Tesla (NASDAQ:TSLA) stock is due for a rebound, right?
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
