Workhorse Founder Needs Big Contract to Make Lordstown Deal Work

May 09, 2019 by Alan Adler, @AlanAdler

Remaking General Motors’ shuttered Lordstown, Ohio, factory into an electric truck plant will require Workhorse Group Inc. founder Steve Burns to find investors and land a big production contract.

General Motors Co. and Workhorse are negotiating a complicated deal to turn the closed factory into an electric vehicle plant. They have revealed scant details since President Donald Trump announced the pending transaction Wednesday on Twitter.

The companies said a “newly formed entity” affiliated with Workhorse would be the buyer. Burns, who stepped down as chief executive of Workhorse earlier this year, would head it. And Workhorse would hold a minority interest in the business.

FUNDING SOURCE?

Where the business would get its working capital or funding for the transaction is unclear.

The first product from the new, unnamed entity likely would be an electric pickup for commercial fleets, Burns said. Components and engineering from the W-15 electric pickup that Workhorse has developed but not produced likely would underpin the truck.

Workhorse W-15 rendering, circa 2018

A rendering of Workhorse’s W-15 electric step van, released in 2018. (Rendering: Workhorse)

“If this gives us a chance to start on the 50-yard line and punch one in that’s great for everybody,” said Tom Colton, a Workhorse spokesman.

But Burns would need at least three things to make a go of the 6.2 million-square-foot Lordstown complex, which consists of an assembly plant, paint shop and metal-fabricating plant:

  • Investors to buy the plant
  • Contracts for enough electric trucks to make production financially viable
  • Agreement from the United Auto Workers

Production contract speculation is focused on the next-generation U.S. Postal Service delivery vehicle. Workhorse and partner VT Hackney are among five finalists for the $6.3 billion contract. The postal service has finished prototype testing. But it has not announced a winner.

“There’s got to be some big contract behind this because Workhorse’s financials and forecasts just don’t merit a plant that makes 450,000 units a year,” said Kristin Dziczek, director of the labor and industry group for the Center for Automotive Research.

GM plans to build its own electric pickup trucks, so it is doubtful the company would spin off the plant to a potential competitor, she said. GM had been in discussions with electric truck startup Rivian. But those discussions broke off. And Ford Motor Co. has since agreed to invest $500 million in Rivian.

UAW DEMAND

The UAW is demanding that GM assign a product to Lordstown to replace the Chevrolet Cruze compact sedan. The car was built there from 2010 through this March.

Workhorse says it has about 6,000 orders for the W-15, including 2,500 from Ryder System Inc., the fleet management giant. That volume could not keep a large auto factory running. But Burns has told Trucks.com that the truck shares many components with the prototypes Workhorse built for the Postal Service’s mail truck competition. They could likely be run off the same line.

In a conference call with investors earlier this week, Workhorse Chief Executive Duane Hughes said the Postal Service has prohibited companies participating in the mail truck contract competition from discussing the program. Nor can they discuss any progress toward a final decision.

“However, I would like to reiterate that we remain confident in the strength and quality of our prototype vehicles and the way they performed during the testing process,” he said.

SPINOFF?

Spinning off GM’s aging but popular Chevrolet Express and GMC Savana passenger and cargo vans to the new entity led by Burns and moving them to Lordstown would be another possibility, Dziczek said.

Ray Chess, who is Workhorse’s chairman, worked for GM for more than three decades. He ran the automaker’s commercial vehicle business from 2001-2009.

GM is considering a $500 million investment in its Wentzville plant, where the body-on-frame vans are built alongside the Chevrolet Colorado and GMC Canyon midsize pickups. GM recently contracted chassis production for the medium-duty versions of the vans to Navistar International Co.’s plant in Springfield, Ohio.

Workhorse and GM share some history. GM once produced step van and motor home chassis that Workhorse builds. Workhorse, then called Amp Electric, acquired the business, including a plant in Union City, Ind., from Navistar in 2015. The plant can build 60,000 trucks a year.

Associates said Burns likes these types of deals.

“He’s a serial entrepreneur,” Hughes, who succeeded Burns as Workhorse chief executive in February, told Trucks.com. The two men have worked together off and on since 1994.

NGEN 1000 STEP VAN

For now, Workhorse is focused on building its lightweight NGEN1000 electric step vans at the Union City plant beginning in the fourth quarter. United Parcel Service has a pending order for 950 electric trucks.

Workhorse NGEN1000 step van

Workhorse is gearing up to produce its NGEN1000 electric step van later this year at its Union City, Ind., plant. (Photo: Workhorse)

“We’ve produced hundreds of electric trucks out of that factory so far, and we’re really trying to get to the point where we produce tens of thousands of vehicles a year,” Burns told Trucks.com when preproduction of the NGEN1000 began in August 2018.

Investors bid up Workhorse shares after learning it is in discussions with GM.

Shares of the financially struggling Workhorse – the company has never earned a profit – closed Wednesday up 215 percent at $2.65 a share. Trading on the NASDAQ was briefly halted because of volatility. Shares had closed Monday at 84 cents.

“We see the potential acquisition of the Lordstown facility as a positive in many ways,” Jeffrey Osborne, an analyst with Cowen Co., said in a note to investors.

He said the seasoned automotive workforce at the plant could improve the quality of Workhorse vehicles, which has become “a key issue in recent quarters given warranty charges.” Workhorse absorbed $8 million in warranty expense in 2018 for defective battery packs in older electric vans.

The Lordstown complex has space to ramp up battery pack assembly, Osborne said. Workhorse is using 18650 NCA cells from Panasonic, similar to the Model S/X from Tesla.

Ryan ZumMallen May 8, 2019
A test drive in the Workhorse W-15 electric pickup revealed the future direction of the company now slated to partner with General Motors on production.

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