Electric Truck Maker Workhorse Taps Stock Market for More Cash

February 01, 2017 by Tiffany Hsu, @tiffkhsu

Workhorse Group Inc., which makes electric delivery vehicles and drones, is hoping to raise funds to cover working capital by offering 7.3 million shares of its common stock at $3 a share.

The Loveland, Ohio, company raised $20.5 million in net proceeds from the sale – which closed Wednesday – to cover corporate expenditures, research and development and more.

The company’s stock surged past $11 a share in mid-April, but quickly slumped down. Workhorse, which has a market capitalization of roughly $90 million, started the new year at $7.06 a share but closed on Jan. 31 at $3.24 a share.

Workhorse’s revenue exploded in 2016, soaring to an estimated $6.5 million by year-end compared with $139,980 the prior year, according to its Securities and Exchange Commission filing. But since launching in 2007, it has incurred $56.6 million in net losses and expects the outflow to continue “for the foreseeable future.”

The company has yet to achieve positive cash flow and is increasingly cash-poor, with roughly $500,000 as of Dec. 31, compared with $3.1 million on Sept. 30.

Like other start-ups, the company offered a series of standard warnings in the risks portion of its stock offering prospectus, saying, “we may never achieve or sustain profitability.” Workhorse also warned that its “existing capital resources, including the expected proceeds from this offering, will be insufficient to fund our operations beyond the end of the fourth quarter of 2017. Accordingly, we will need additional financing.”

Workhorse – known before 2015 as AMP Holding Inc. – has a lot of activity to fund. It is currently on contract with UPS to provide more than 300 battery-electric delivery vehicles.

In September, the company said its partner, body manufacturer VT Hackney, is among six candidates to win a contract with the U.S. Post Office to produce hundreds of thousands of a new mail delivery truck. Workhorse and VT Hackney will spend the year developing 50 prototype vehicles for the agency to evaluate.

Workhorse is also developing a truck-mounted, FAA-compliant drone delivery system called HorseFly.

In May, the company plans to present a working prototype of its W-15 electric pickup work truck at the ACT EXPO Conference in Long Beach, Calif. The W-15 is being billed as the most economical, safest and lowest-emission pickup in the country.

The vehicle – which is designed for fleets – has an 80-mile battery-powered range, with a gasoline range-extender. Duke Energy is one of several possible clients that have signed non-binding letters of interest, with a potential purchase order of up to 500 trucks.

Workhorse owns an assembly plant in Indiana and a production facility in Ohio.

But in its prospectus, the company divulged a litany of concerns about its future. It currently loses money on each vehicle it sells and is working hard on initiatives to reduce costs to boost its competitiveness.

Market forces – volatile demand, currency fluctuations and uneven pricing for lithium-ion cells and other raw materials – could upend the company, as could sustained low fossil fuel prices. Workhorse said it doesn’t have long-term supply contracts in place.

Its electric vehicle business could be vulnerable to better-equipped rivals such as Ford Motor Co. and Freightliner, while its drone operation is facing up against behemoths such as Google and Amazon.

But Workhorse seemed especially concerned about whether changes in the electric vehicle market – sparked in part by Donald Trump’s presidential victory and regulatory uncertainty about alternative energy subsidies in the hands of a Republican Congress – could cause its products “to become obsolete or lose popularity.”

“The modern electric vehicle industry is in its infancy and has experienced substantial change in the last few years,” the company wrote. “To date, demand for electric vehicles has been slower than forecasted by industry experts.”

Editors note: This story was updated on Feb. 2. 2017 to reflect the final amount Workhorse raised via the stock offering.

Related: Workhorse CEO Burns Explains How Drones Will Change Delivery Trucks

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