Possible Deal for GM Plant Helps Workhorse Lure New Investors

June 13, 2019 by Alan Adler, @AlanAdler

The possible sale of an idled General Motors Co. plant in Ohio is having a positive spillover effect on startup electric truck maker Workhorse Group Inc.

Workhorse said this week it has raised $25 million from the sale of preferred shares to institutional investors. Dividends on the shares can be collected in common stock.

The money will help Workhorse meet its goal of producing lightweight electric step vans in the fourth quarter, said Duane Hughes, Workhorse chief executive.

“This funding provides Workhorse with sufficient capital to fully deliver on our existing backlog,” he said.

Before the sale of the preferred shares, Workhorse was running operations from a $35 million credit line from a hedge fund.

OUTSIZED BENEFIT

Workhorse has benefited from a May announcement that a group led by company founder Steve Burns was the preferred buyer for GM’s 6.4-million-square-foot Lordstown assembly complex. The purchase and makeover of the plant could cost $300 million.

Workhorse stock rose more than 200 percent May 8 when President Donald Trump announced the Lordstown discussions on Twitter. The stock went from 74 cents a share to $2.65. The shares slid to about $1.50 before roaring back. They closed Thursday at $2.40 on the NASDAQ.

It remains unclear where Burns would get the money for the plant or how many of its 1,500 jobs would be saved.

Workhorse-W-15-pickup

Workhorse plans to use the Lordstown plant to produce a commercial version of its indefinitely delayed W-15 pickup. (Photo: Ryan ZumMallen/Trucks.com)

If the sale goes through, Burns plans to produce a commercial version of the W-15 electric pickup truck designed by Workhorse but indefinitely delayed.

Workhorse would have only a minority interest in Lordstown. The company owns a plant in Union City, Ind., where it plans to build NGEN-1000 step vans in the fourth quarter. Customers waiting for the vans include United Parcel Service.

GM’S POSITIVE TAKE

GM executives are talking up Workhorse in public.

In a letter published June 3 in The New York Times, top GM spokesman Tony Cervone said Workhorse “is better positioned than most electric vehicle startups, with hundreds of battery electric trucks on the road, satisfied customers and a substantial order backlog.”

Workhorse posted the letter on its website. Also, it shared it on social media.

Two days later, GM Chief Executive Mary Barra told Reuters that Workhorse “was thoroughly vetted and had a chance of success.”

The supportive messages create confidence in Workhorse’s ability to execute and win investors, said Mike Ramsey, an analyst with Gartner Inc.

“If GM is publicly pumping up a transaction, it gives encouragement to others beyond what might be obvious,”  Ramsey said. “I’m not sure it’s intentional, but it’s having an impact.”

Workhorse NGEN-1000

A Workhorse NGEN-1000 (Photo: Workhorse)

LABOR TALKS

GM begins talks on a new national contract with the UAW in July. Its current contract prohibits selling any plants. But the UAW could agree to support the Lordstown sale as part of negotiations, said Art Schwartz, president of Labor and Economic Associates Inc. in Ann Arbor, Mich.

“The UAW is going to want something for Lordstown,” he said.

The union wants another GM product assigned to the 53-year-old plant.GM said it does not have a product for Lordstown, where it built the Chevrolet Cruze compact sedan from 2010 until this March.

GM is closing up to four plants because the market has shifted from cars to crossovers and SUVs.

The UAW workforce would come with the plant to a new owner, which “is usually a deterrent,” Schwartz said. “The UAW is not going to be happy with a plant that employs a few hundred people.”

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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