As the market focuses on some of the major electric vehicle companies, Workhorse (WKHS) is slowly building an order book in the last-mile delivery van sector. The stock originally surged on the massive U.S. Postal Service contract potential, but the company is slowly building a solid backlog outside of the government service.
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Investors still have a lot of questions regarding the company’s business capabilities after not even delivering $1 million in Q3 sales, but Workhorse continues to lineup potential business in future years. The USPS contract remains a wildcard and the company would best serve shareholders by not relying on this deal.
More Contracts
Workhorse entered 2021 with a meager goal of delivering 1,800 vehicles this year. The company had COVID-19 issues impacting production and capacity goals for 2020, but the market probably expected a far larger goal for a company trying to obtain part of a contract with the USPS for 165,000 EV delivery trucks.
While the government continues to delay the awarding of the estimated $6.3 billion contract, Workhorse signed a deal with Pride Group Enterprises for 6,320 C-Series all-electric delivery vehicles. The deal starts in July and runs through 2026 and would have a value of over $300 million based on a truck ASP of $50,000.
The order follows an initial 500 C-1000 delivery vehicle order from Pritchard Companies, which has developed a distribution network of commercial vehicles with sales topping 30,000 units annually. Combined with the recent rollout of the Ryder contract, Workhorse is far less reliant on the USPS contract.
Unproven Story
Despite the work with the USPS for years now, Workhorse is still very unproven as far as an EV manufacturer. The company doesn’t even expect to deliver 450 vehicles per quarter in 2021 after failing to reach an original meager goal of 300 to 400 vehicles in 2020.
Analysts have aggressive 2021 targets with revenue estimates of $139 million. To reach these estimates, Workhorse would either have to hit a higher ASP (average selling price) or to actually deliver up to 2,800 vehicles. Investors should expect the EV delivery truck company to fail to reach these analyst revenue estimates, while the stock could still rally.
As investors have seen with Tesla over the years, the stock will trade based on the company making progress towards the growth story. More contracts and even winning a portion of the USPS deal will set up Workhorse for a bright future in the EV delivery truck sector without needing to hit these initial financial targets.
The company currently has a cash balance of only $260 million, so Workhorse is going to need to grow manufacturing capacity and possibly work with Lordstown Motors to build out capacity. In addition, supply chain issues with a battery supplier isn’t helping the recent slow production ramp.
Takeaway
The key investor takeaway is that Workhorse will remain a highly volatile stock in the EV space. As long as the company continues to make progress in attracting orders outside of the USPS contract and expanding capacity, the stock will remain a strong growth story.
With the large USPS contract seen as just a bonus, investors will do well in this stock with a market cap at only $3 billion and an annual market opportunity topping $18 billion. (See WKHS stock analysis on TipRanks)
Disclosure: No position.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
