Electric delivery van maker Workhorse (NASDAQ:WKHS) was hit with disappointing news in early December when the U.S. Postal Service announced that it would yet again delay its decision to award a $6 billion contract to upgrade its aging mail trucks fleet. WKHS stock sunk by more than 20% on the news.

Why the big drop?

Because Workhorse is one of three finalists for that contract. And, as a startup EV maker delivering only a handful of vans every quarter, Workhorse is heavily reliant upon winning part or all of the USPS contract to support its inflated $3 billion market cap.

This delay — which follows a similar one announced in October — increases the risk that Workhorse won’t win the contract. Naturally, WKHS stock fell on the news.

But the delay is more a factor of the changing geopolitical climate and volatile public health situation, than of the Postal Service’s opinion of Workhorse’s abilities. Indeed, I don’t think this delay impacts Workhorse’s chances of winning the USPS contract at all. It just pushes the decision out a few months.

And investors bid WKHS up near-11% Thursday, as the USPS news is ultimately not too concerning for Workhorse bulls. Come early 2021, it’s still very likely that Workhorse wins part or all of the USPS contract. When that happens, WKHS stock will rebound.

Of course, that means the recent dip in shares is a buying opportunity. But not yet. Wait for the dust to settle. Wait for technical support to arrive. Then buy the dip.

Here’s a deeper look.

The Workhorse Bull Thesis

First, before we dive into details, let’s quickly review the overarching, big-picture bull thesis on Workhorse stock.

The entire automobile market is being electrified. This electrification wave is at an inflection point, due to falling EV costs (EVs are close to reaching cost parity with gas cars), improving battery technology (the market’s top EVs can now drive as far as gas cars) and rising geopolitical pressures (most governments across the world are committed to significantly reducing carbon emissions).

Over the next 10 to 20 years, all cars on the road in the world will be electrified. This includes passenger cars and commercial vehicles, like delivery vans, trucks, forklifts, etc.

Workhorse is at the epicenter of this electrification wave, and has emerged as one of a handful of leading electric delivery van makers in the world.

The bull thesis is that, over the next few years, Workhorse will leverage its first mover’s advantage, already established tech IP, and a few big contract wins to turn into one of the biggest players in the electric delivery van market.

The last-mile delivery van market in the U.S. alone measures about $18 billion. That entire market will be electrified in the 2020s. If Workhorse can nab just 20% of the electric delivery van market and net out to 15% profit margins, then this is a potential $10-plus billion company in the making.

Those seem like entirely reasonable assumptions, with wiggle room for even more upside potential in the event of bigger market share and/or international expansion.

Thus, long-term, WKHS stock is a worthy speculative investment opportunity.

Why the Delay?

Central to the bull thesis on WKHS stock is the “few big contract wins” part.

In that light, the USPS contract is a huge deal for Workhorse. Winning all or part of that contract will cement Workhorse as a leader in the electric delivery van market, and set the stage for the company to win more contracts with other delivery van operators over the next few years. Losing the contract, however, would be a near fatal blow for the company.

Two delays in the past two months from USPS make it ostensibly look like the odds of Workhorse winning the contract are dropping. After all, if USPS were that in love with Workhorse’s technology, wouldn’t they just sign the contract and move on?

Not exactly.

Other factors are at work here.

The USPS is a government agency. As such — even though it is not funded by taxpayer dollars — it is impacted by happenings in Washington. Right now, things in Washington are changing, as it appears that U.S. President Donald Trump is on his way out while President Elect Joe Biden is on his way in. This changing-of-the-guard in the White House is certainly a reason for USPS to hold off on making any big decisions like, say, upgrading its entire delivery fleet.

Meanwhile, the Covid-19 situation in the U.S. escalated significantly in November. Many states and cities are reinstituting lockdown protocols, which impacts USPS through workflow disruptions. There’s no reason for USPS to rush to make a big, long-term decision amid a world-changing pandemic — especially when it looks like we are close to ending this crisis with highly effective vaccines in 2021. Why not just wait a few months?

That’s exactly what USPS is doing.

It’s the smart thing to do. And it doesn’t imply anything about Workhorse’s chances of winning the contract.

Workhorse Will Still Win the USPS Contract

Given the context of the delay, Workhorse still appears very likely to win either part, most or all of the USPS contract.

The company is competing against two other finalists: Karsan and Oshkosh.

Karsan is based in Turkey, and given the global geopolitical climate and potential for global supply chain disruptions, USPS is likely turned off by the idea of working exclusively with a Turkish-based EV maker.

Meanwhile, Oshkosh is based in Wisconsin. But the company’s van submission is built with an internal combustion engine, i.e. it’s not an electric delivery van at all. So, Oshkosh’s submission doesn’t exactly hit those “green” targets that USPS wants to hit.

Who is left?

Workhorse. Based in the U.S. No supply chain risks. No geopolitical risks. And built with a fully-electric battery. No carbon emissions. Entirely green.

Workhorse is simply the “best fit” for the USPS contract, meaning that the company is very likely to win at least part of the $6 billion contract (if not most or all of it).

Should You Buy Workhorse Stock?

The trading logic here is simple.

WKHS stock follows USPS contract news flow like a puppy dog. Good news on the USPS contract front sends shares flying. Bad news send shares plunging. Naturally, then, if/when Workhorse wins part or all of this contract in early 2021, Workhorse stock should surge to permanent new highs.

That’s exactly what will happen. But given that this catalyst is still a few months off, there’s no need to rush into this falling knife today.

Instead, let the dust settle, and wait for technical support to arrive.

Technical support will arrive around the $15 level, which is where WKHS stock has roughly bottomed three times before — in July 2020, August 2020, and October 2020. The $15 level has basically acted as a “floor” for Workhorse stock since its big June breakout.

I think this technical support level will hold again, meaning the time to buy is around $15.

Bottom Line on WKHS Stock

If Workhorse wins the USPS contract, the “WKHS stock is a long-term winner” bull thesis gains tremendous credibility.

Fortunately for shareholders — despite this most recent delay — it looks like Workhorse will win at least part of the USPS contract.

So, look to buy the dip on recent weakness. But be patient, and wait for technical support to show up around $15 first.