Workhorse’s Lordstown Factory Revival is a $300 Million Question

May 30, 2019 by Alan Adler, @AlanAdler

While the founder of electric truck startup Workhorse Group Inc. has no known way to fund his planned $300 million makeover of the sprawling General Motors Lordstown complex, Steve Burns has access to a potential contract and important technology that could lure investors to the project.

Burns can tap into the design and engineering of the W-15 electric pickup that Workhorse lacks the money to build. Workhorse also is a finalist for a $6.3 billion U.S. Postal Service contract for the next-generation delivery vehicle that uses much of the same engineering.

“If they were to win even a piece of Postal Service business, that could absolutely make the difference between them raising the money and not,” said Mike Ramsey, an analyst with Gartner Inc.

Workhorse-Hackney USPS prototype

Workhorse and partner VT Hackney are among five finalists in the competition to land a U.S. Postal Service contract. Speculation that Workhorse may land the contract surrounds its potential deal with GM. (Photo: Brian Williams/Trucks.com)

MUCH-NEEDED COLLATERAL

Such a contract would provide collateral to borrow money to build the trucks, Ramsey said.

GM, Workhorse and Burns said last month they were negotiating a complex transaction where a yet-to-be disclosed company led by Burns would acquire the Ohio facility. Burns would restart production at the plant by assembling a commercial electric pickup truck based on the Workhorse W-15. Workhorse would hold a minority interest in the new entity.

Workhorse CEO Duane Hughes

Duane Hughes

Workhorse’s board of directors replaced Burns as chief executive in February, elevating Chief Operating Officer Duane Hughes to the role. Neither Burns nor Hughes would comment for this story.

GM is confident in Burns, who approached the automaker in January about purchasing the idled assembly plant.

“They have a sound technological base and a clear plan to raise the money required to purchase and retool and launch production of their electric pickup. The truck has a new and potentially good growth market precisely because it is a commercial vehicle,” said Jim Cain, a GM spokesman.

SATISFIED CUSTOMERS

Another key selling point for GM is that Workhorse has satisfied customers, even though it has sold very few electric trucks in the four years since its founding. Workhorse has built dozens of trucks for testing by United Parcel Service and office products provider W.B. Mason. It has a contract to make 63 trucks for DHL.

“We received many solicitations from prospective buyers. We vetted all of them on their merits before presenting the Workhorse-affiliated proposal for consideration,” Cain said.

Sources familiar with the Burns plan said he will need to raise about $300 million to purchase and retool the 6.2-million square-foot plant that built Chevrolet Cruze compact sedans from 2010 until this March. GM scuttled Cruze production as consumer preferences shifted from small sedans to crossovers and SUVs.

Workhorse founder Steve Burns

Steve Burns

With the backing of Workhorse and financial and legal advisers, Burns will begin investor outreach and talks with the United Auto Workers this summer, Cain said. The UAW has to agree to any plan to restart the factory.

Other electric vehicle companies have successfully acquired shuttered auto factories. Tesla Inc. paid $42 million to purchase a shuttered Toyota factory in Fremont, Calif., in 2010. And electric pickup truck developer Rivian paid just $16 million in 2017 for a 2.6-million-square-foot former Mitsubishi plant in Illinois. Neither deal includes retooling costs to relaunch vehicle production.

ENVIRONMENTAL ISSUES?

Lordstown, which opened in 1966, theoretically has environmental issues for which a buyer would be liable, Ramsey said.

“Why would Toyota sell a 300-acre property in the Bay Area (to Tesla) for next to nothing?” he asked. “It probably cost them $40 million a year to keep it.”

Lordstown’s size makes it less than ideal for what would at least initially be small-volume production. At its peak three-shift operation, Lordstown turned out 450,000 cars a year.

“Why buy a whole mall to open a single store?” Gartner’s Ramsey asked, adding that he puts the chance of successfully completing the deal at “less than 30 percent but not impossible.”

Workhorse owns a 60,000-square-foot plant in Union City, Ind. It plans to build the NGEN-1000 electric step vans there beginning in the fourth quarter. But Workhorse has very little money. It is using a credit line from a hedge fund to pay for parts.

PUBLIC COMPANY

Unlike private electric truck startups like Rivian, Workhorse is publicly traded. It is required to reveal its sales and earnings quarterly. It also must tell the U.S. Securities and Exchange Commission when something big happens that affects its business. For example, Workhorse recently had to announce it was seeking an extension to meet the terms of its latest hedge fund loan.

“As a public company, we don’t get the credit for the values we have inside our organization that a private company would,” Hughes told Trucks.com in March.

GM Chevy Cruze assembly line Lordstown, Ohio, complex

GM built the Chevrolet Cruze at the Lordstown plant until this past March. (Photo: GM)

But it got a huge boost May 8 when GM announced the possible Lordstown deal. The stock jumped from 74 cents a share to $2.65 in a single day. It was trading at $1.70 a share Wednesday.

If Workhorse runs out of money or files for bankruptcy, the Burns-led group could be at the head of the line to snap up its assets.

“That’s the distressed investor way of doing things,” Ramsey said.

OTHER EV STARTUPS

Other electric vehicle startups have tried, failed and been resurrected.

Chanje, which makes medium-duty electric trucks, was born as a joint venture between Hong Kong-based FDG Electric Vehicles Ltd. and the former Smith Electric Vehicles Corp. of Kansas City, Mo. Even though Smith had contracts with Frito-Lay and PepsiCo., it ran out of cash.

Rivian has attracted $1.2 billion from Amazon and Ford Motor Co., so that suggests investor interest in electric trucks, said Antti Lindstrom, an analyst with IHS Markit. He thinks Burns “must know somebody with deep pockets.”

Alan Adler May 9, 2019
Remaking the shuttered General Motors Lordstown Complex into an electric truck plant requires serial entrepreneur Steve Burns to find investors and land a big contract.

One Response

  1. larry4pyro

    Workhorse is struggling because they literally bet everything on winning the USPS program. The problem is the USPS has dragged out this program which should have been awarded in 2017. From what little information available, they may have good reason to be optimistic as their electric drive train could be a perfect match for the USPS.

    Even if they were to win this $6.3 billion program i don’t see how they could use anything more than a small fraction of the Lordstown plant. I think the USPS only wants an average of 30,000 vans a year, For 6 years. There must be something else. Perhaps GM could partner with Workhorse to build electrified commercial vans and trucks at Lordstown. The Workhorse design for the USPS fits the needs for “last mile delivery” commercial sector, could GM be thinking they could tap this market with an electrified van built jointly with Workhorse?

    Another possibility is a Workhorse based replacement for the ancient GM Express/Savanna van. Once stalwarts of the market these old designs are now looking market share to their competitors.

    One correction, it has been widely believed that the Workhorse W-15 is based on the van they proposed to the USPS. But the photos of the Workhorse mail van seem to show electric hub motors on each wheel. The W-15 used dual axles each with an electric motor, so despite what Workhorse says, they are quite different.

    Reply

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