It’s a been a weird first quarter for electric-vehicle companies, and Workhorse Group Inc. (NASDAQ:WKHS) is no exception. After spiking by more than 100% in early February, WKHS stock gave all those gains back and then some. Now for 2021, it’s down 11.5%. It’s as though someone swapped all those batteries for an army of apathetic hamsters asleep at their wheels.
Investors in WKHS stock were crushed when the company lost a U.S. Postal Service delivery-truck deal to Oshkosh Corp. (NYSE:OSK). The contract is worth nearly $6 billion, and Workhorse was long considered the favorite before the decision came down on Feb. 23.
Yet this battle is far from over. In fact, it’s just beginning. And get this: It involves a call for a Securities and Exchange Commission investigation. Pushback from U.S. House Democrats. And a controversial Postmaster General who not long ago admitted that he didn’t know how much it costs to mail a postcard.
WKHS Stock and the Postal Service Stink
While the actions of elected officials can sway the price of a stock, it’s extremely rare that their efforts target one company for apparently benevolent, eco-friendly reasons. Some House members are furious that only 10% of the vehicles that Oshkosh plans to make for the post office will run on electricity. Workhorse, of course, would have produced 100% electric vehicles for the agency.
On March 11, 17 House Democrats introduced a very Workhorse-friendly bill. It would give the U.S. Postal Service another $6 billion to assure that its next-generation mail trucks run on electricity. But this is not where the money trail ends, WKHS stock fans.
Less than 24 hours before U.S. Postmaster General Louis DeJoy announced that Oshkosh had won the contract, someone placed a big trade for OSK stock. A $54 million trade, in fact. No one is saying DeJoy had anything to do with this. But given the very suspicious timing of the trade and DeJoy’s announcement, a furious Rep. Tim Ryan (D-Ohio) has asked the SEC to look into reports of “unusual trading.” (It should also be noted that Oshkosh does significant business with the U.S. Army.)
Don’t Count on a New Contract
If you own WKHS stock, it’s wiser than wise to consider this additional funding a long-long shot. The partisan rancor in Congress has never been greater.
Republicans may charge that the Democrats seeking to mandate that the USPS build EVs are favoring Workhorse. And that is a fair question. The connection between a new contract and the EV maker may have zero correlation to politics and favors.
Regardless, making the other side look bad is blood sport these days. And on a good day, Congress moves slower than the mail. It’s best to put any hopes you may have of a new Postal Service deal on the back burner.
That means considering WKHS stock on its own merits. And let’s face it, this investment isn’t exactly on fire. It doesn’t help that the company has sold just a handful of its commercial vans and delivery vehicles. Your kid may have a bigger Hot Wheels collection stashed under the bunk bed.
Workhorse by the Numbers
Workhorse Group is small, even for a fledgling EV company. It’s worth a hair above $2 billion and employs fewer than 120 people. By comparison, five coffeeshops operated by Starbucks Corp. (NASDAQ:SBUX) employ just as many baristas and managers. As for energizing investors, WKHS stock is an unlikely candidate, even in an ultra-juiced sector.
When it shared its fourth quarter results on March 1, Workhorse reported that its sales revenue had rocketed by more than 200 times year-over-year. Still, its top line came in just $652,000. To put that in perspective, that’s not even enough money to put 25% down on a Mercedes-AMG Project One.
There was, however, some good news in the report. WKHS stock is in part a play on Lordstown Motors Corp. (NASDAQ:RIDE). Lordstown is also located in Ohio, just four hours northeast of Workhorse. And both companies share a founding father in Steve Burns, who is now Lordstown’s CEO. Workhorse holds a strategic stake in Lordstown that was worth an estimated $320 million as of late February, before EV stocks started sinking.
Sector-Wide Punishment
Despite losing the Postal Service contract, Workhorse is far from alone in its woes. Frankly, the EV sector has been spanked something fierce and it’s tough to know exactly why. It seems like a mix of bubble jitters and profit taking. So if you own WKHS stock and are feeling a bit blue lately, take note of the figures I’m about to share,
Since Feb. 9, Chinese automaker Nio Inc. (NYSE:NIO) is down 28%. Using that same date as a marker, hydrogen fuel cell maker and 2020 rockstar Plug Power Inc. (NASDAQ:PLUG) is down by nearly a third. Tesla Inc. (NASDAQ:TSLA)? Off 19%. I own all three of those stocks. Writing this paragraph just made me nauseous. Even Lordstown is down 35%.
So the owners of WKHS stock can take some consolation in the fact that they don’t sit on a similar house of cards. Or cars? After all, they only make delivery vehicles.
Not the Strongest of Buys, But…
Now on the one hand, I doubt the Postal Service contract reboot is going to happen. Don’t rule it out. But for Republicans hoping to embarrass Democrats, it’s too easy a target to hit. More to the point: Drowned out in all this media and political froth of late, you’ll find that three analysts have a “buy” on WKHS stock, while another three rate it a “hold.” Their average 12-month price target on the shares is $21.50, a markup of nearly 30%. Not bad.
Now definitely, the views of a half-dozen firms doesn’t equal shouting from the rooftops. But I do see a rough correlation between WKHS stock and much of the EV sector.
Workhorse’s strong financial ties to its ambitious sister company Lordstown Motors may also mean that investors have double the chance to succeed if one company or the other makes good on its promise.
Indeed, Workhorse isn’t a warhorse. But I can easily see it breaking out of its stall. And if that comes to pass, investors should seriously consider saddling up.
On the date of publication, Lou Carlozo held long positions in TSLA, NIO and PLUG.