Workhorse Truck Builder Needs Post Office to Deliver

August 21, 2017 by Jerry Hirsch, @Jerryhirsch

Shares of Workhorse Group, a fledgling builder of electric trucks, are trading at less than $3, and the company’s losses are growing.

But the negative metrics haven’t stopped the analysts at Cowen & Co. from issuing a rosy assessment of the Loveland, Ohio, manufacturer, predicting that the shares will nearly double in value to $5.25.

Workhorse had just $270,000 in revenue in the second quarter ended June 30. Its losses more than tripled to $9.2 million compared, with the same quarter a year earlier.

Not to worry, Jeffrey Osborne, a Cowen automotive analyst, wrote in a recent report for investors. The meager sales and large losses are a result of some smart moves to use electric vehicles to crack the work and pickup truck market.

Workhorse already has an important relationship with shipping giant UPS, which has placed increasingly larger orders that now encompass 200 delivery trucks. It also has pre-orders from American Electric Power, Duke Energy, Ryder System Inc. and Portland Gas & Electric for 5,000 Workhorse W-15 electric pickup trucks.

Although there are risks, just the delivery van and pickup truck business combined are enough to help Workhorse into the black, growing annual revenue from $31.8 million next year to $312.8 million in 2020, Osborne said.

That would be enough to make Workhorse profitable, he said.

But the real prize could be awarded next year by the U.S. Postal Service.

Workhorse, in combination with truck body manufacturer VT Hackney Inc., is one of five remaining finalists in the USPS’ Next Generation Delivery Vehicle Program.

The prototypes are due later this year, and an award is expected in the first half of next year. Other competitors include AM General, Karsan, Mahindra and Oshkosh.

The payoff could be huge.

The new vehicle will replace the boxy Grumman Long Life Vehicle that has delivered letters and packages since it was designed for the USPS in the 1980s. Of the 215,000 mail trucks in rotation, 140,000 are at least two decades old. The new contract could be for as many as 180,000 trucks.

“The contract is quite substantial for the vendor chosen,” Osborne said.

Workhorse, which already has an electric delivery van in production and working prototypes of an electric pickup truck, may have an advantage.

The Surefly Octocopter concept with the Workhorse W-15 electric pickup truck.

The Surefly Octocopter concept with the Workhorse W-15 electric pickup truck. (Photo: Workhorse)

Osborne said the vehicle that Workhorse is developing for the USPS “is essentially a modified pickup truck” that shares 80 percent of its chassis and powertrain components with the W-15.

The USPS has said that half of the prototypes “will feature hybrid and new technologies, including alternative fuel capabilities.” 

“Our goal is to obtain vehicles that will help us provide reliable and efficient delivery service for customers and honor our commitment to reducing the environmental impact of our fleet, while meeting the needs of our employees to best do their jobs safely,” the office of the USPS inspector general said in a statement.

Workhorse looks to be the only competitor offering a pure battery electric truck. It will have a small BMW gasoline engine that will act as a generator to extend the range of the truck. Workhorse will supply the powertrain and chassis, and VT Hackney will build the body. The truck must be able to carry 1,500 pounds of mail and have at least 155 cubic feet of cargo space.

Not everything will fall in place for Workhorse at once, Osborne said.

“We expect results to be lumpy and see the investment opportunities for Workhorse to be similar to those of a ‘biotech’ company,” he said.

Workhorse has to prove that it can build and deliver pickup trucks by the thousands. It is using an old Navistar factory in Union City, Ind., for the work.

It also still has to win the USPS contract. And it will have to raise cash to meet is capital needs to pay for further vehicle development and ramping up production. The company plans to save money on production by making vehicle powertrains and chassis while outsourcing steel or carbon-fiber body panel manufacturing to third parties depending on the vehicle, Osborne said.

“This strategic decision saves several hundred million dollars in potential capital expenditures,” he said.

The upside for Workhorse could be higher than $5.25 a share.

“We would expect the stock to gain steam when there is positive visibility on the number of W-15 shipments as well as a favorable outcome of the USPS contract,” Osborne said. “A potential

contract with USPS coupled with an existing contract with UPS would provide revenue visibility and solidify Workhorse’s EV footprint in the U.S .”

Read next: New USPS Mail Truck Visions: a Hummer, a Tesla, a Ferrari?

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