It’s Time To Add Some More Workhorse Group To The EV Portfolio
EV stocks have been among the best-performing consumer stocks this year. Many are up several hundreds of percentage points since the beginning of the year and the gains have only just begun. With EV accounting for only 2.6% of global sales this is more than just a consumer trend we are talking about. In terms of technology and its impact on society, this is a secular change. Eventually, most cars and trucks will be EV and, to some extent, autonomous. What this means for investors is a multi-billion multi-decade growth opportunity.
Nikola (NASDAQ:NKLA) and Workhorse (NASDAQ:WKHS) made big headlines earlier this year when they went public. The difference, and this can be clearly seen in the price action, is that Nikola appears to be more smoke and mirror than reality while Workhorse Group’s flagship line is in production with new models on the way.
An Opportunity And A Stumbling Block For Workhorse Group
Workhorse Group’s flagship line is the C-Series of last-mile delivery trucks. The company is manufacturing both the 650 and 1000 models, named for the carrying capacity, and expected to dominate the industry. Over the past year, the company has garnered approvals from all 50 states making it the only EV delivery vehicle licenses for operation nationwide. That’s important for any EV fleet with a nationwide presence.
Earlier this year, late summer to be exact, whispers that Workhorse Group could receive a big contract from the USPS began to circulate. Worth upwards of $6.3 billion dollars the chances the company will actually get the contract are still up in the air. If it does it will be immediately catapulted into full-scal mass production. As of last report, there were three bidders still in the running to replace USPS 165,000 aging delivery vehicles. Based on what the analysts are saying it really could go either way for Workhorse Group.
According to Fuzzy Panda Research, there is no way that Workhorse Group will get the contract. Their report lays out in impressive detail how ill-equipped the company is to deal with an order of this size. The bottom line for them, Workhorse Group doesn’t meet the internal requirements of the USPS which is a legitimate hurdle. The caveat, for me anyway, is that Workhorse Group is operating out of GM’s (NYSE:GM) Lordstown facility as part of a partnership deal. The contract with USPS could be what GM CEO Mary Barra has been waiting for. With them on Workhorse’s side, the USPS contract seems more likely.
Analysts at Roth Capital Partners see the company getting the contract but have lowered their rating on the stock all the same. In their view, the contract could be worth upwards of $8 billion or roughly 5,800X next year’s earnings. The catch is that USPS is holding off on the decision until later in the year due to its hassles with budgeting and Congress.
The USPS Contract Is Already A Win For Workhorse Group
Even if Workhorse Group fails to secure this very lucrative contract it is a win for them. The company has been launched into the spotlight and its vehicles confirmed as a viable choice for EV fleets. But it would still be better if the company got the contract.
Technically speaking, the stock is at a potential inflection point. The price action has retreat from the recent high to test support at a previous high where buyers should be waiting. If price action falls below this level, specifically on negative news pertaining to USPS, the stock could be in for a much bigger fall. If, however, support confirms at this level as it has done once before we can expect price action to at least move upward within the range if not begin a new rally. The range is worth nearly $10 or about 50% upside from current levels. Longer-term, when Workhorse gets this contract or another one, the stock is going to skyrocket. It’s only a matter of time.
