After a devastating setback, Workhorse Group (WKHS) will have to redefine the business plan going forward. The company was wisely building an order book beyond the large electric van contract with the USPS, but the failure to obtain any portion of the contract was unexpected.
Workhorse has seen its share price fall below $20, but investors shouldn’t rush into the stock until the dust settles and the company outlines life without the USPS.
Oshkosh Steals the USPS
Workhorse has worked with the USPS for years on suppling the mail service with a workable electric delivery van. The USPS had plans for ordering up to 180,000 EVs to replace their current fleet and had utilized prototypes from Workhorse for testing purposes.
On February 23, the USPS announced a deal with Oshkosh to replace the existing delivery fleet over the next decade with a Next Generation Delivery Vehicle (NGDV). The company will invest $482 million to finalize a production design and manufacturing facility to eventually assemble from 50,000 to 165,000 EVs in the next 10 years.
The USPS lists the full Postal Service fleet at 230,000 vehicles with 190,000 mail delivery vehicles. Oddly, the USPS doesn’t plan to replace all of the mail delivery vehicles over the next decade and the press release leaves the option for fuel-efficient internal combustion engines as part of the fleet going forward.
Workhorse always faced an uphill road for the full USPS deal considering the company lacked the manufacturing capacity to produce thousands of EVs a year. For 2021, the company only set a production volume target of 1,800 vehicles after failing to even meet a target of 300 vehicles in 2020.
Over a decade, Workhorse would only produce 18,000 vehicles at this rate. The company would’ve needed to increase the manufacturing output nearly 10x to reach the original hope of a contract for 180,000 vehicles.
Investors had thought the USPS would split up the order to multiple manufacturers so losing the complete order was a shock. Now the market will have to focus solely on the backlog of up to 8,000 EV orders currently on the books.
Analysts have Workhorse producing 2021 revenues of $139 million and 2022 revenues of $311 million as the company grows from less than 300 vehicle deliveries in 2020. Most of those revenues should be solid considering these revenue targets were based on non-USPS orders, but the business upside into 2023 and beyond will be questioned here. Analysts will have to cut estimates for Workhorse reaching annual revenues topping $1 billion.
The key investor takeaway is that Workhorse isn’t done as a growth story in the EV delivery van space. The company still has other contracts and the lack of the USPS deal could open up other opportunities.
For now though, investors should just watch the stock from the sidelines as a listed market valuation of $2 billion is very rich for a company missing 2020 targets and losing out on a major contract. As the company hits the drawing board and comes out with a new game plan, investors can reconsider the stock likely at lower levels.
Wall Street is somewhat divided on WKHS shares, a circumstance reflected in the Moderate Buy analyst consensus rating. That rating is based on 6 reviews, including 3 Buys and 3 Holds. (See WKHS stock analysis on TipRanks)
Disclosure: No position.
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