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.
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’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.
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.
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.
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.
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.
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.”