Investors pummeled Workhorse Group (NASDAQ: WKHS) shares Wednesday after the U.S. Postal Service again delayed a multibillion-dollar contract for next-generation delivery vehicles.
“The COVID-19 pandemic previously resulted in the expected production award being pushed to the end of 2020,” Postal Service spokeswoman Kim Frum said Wednesday,
“However, amid continuing COVID-19 concerns, and in order to provide for capital investment activities and required approvals, the program decision is now planned for January to March 2021,” she said, confirming the latest delay first reported Tuesday by Trucks.com.
Workhorse shares closed down 19.02% at $20.43 on Wednesday.
The Postal Service began a multiyear research program for new delivery vehicles in 2016. Originally, seven suppliers created concepts to replace the aging fleet of right-hand drive Long Life Vehicles (LLV) made by Grumman. The contract originally was to be awarded in 2018.
Finalists for the 180,000-unit, five-year contract include Workhorse, a pairing of Ford Motor Co. (NYSE: F) with Oshkosh Truck Corp. (NYSE: OSK), and Turkish manufacturer Karsan working with bodybuilder Morgan Olson.
Contract manufacturing
Winning the Postal Service contract would be a big deal for Workhorse, which would subcontract production to Lordstown Motors Corp. (NASDAQ: RIDE). LMC is an electric pickup truck maker run by former Workhorse CEO Steve Burns. It licensed Workhorse technology in exchange for granting Workhorse 10% ownership and several types of royalties.
LMC shares closed 5.63% lower at $22.08 Wednesday.
“We are not surprised by the delay given the impending change in presidential administration; COVID-19’s impact on the USPS, and politicization of the USPS,” Cowen and Co. analyst Jeffrey Osborne wrote in an investor note.
“We also believe that President-Elect Biden will want to move forward with the USPS fleet replacement decision as it represents a good opportunity for his administration to showcase its favorable view on clean energy and sustainability,” Osborne wrote. Cowen maintains an overweight rating on Workhorse shares with a $23 target price.
Trump favorites
Workhorse and Lordstown Motors were considered favorites for the postal contract under President Donald Trump, who agitated for General Motors Co. (NYSE: GM) to find a buyer and retain jobs at its sprawling Lordstown manufacturing complex in northeast Ohio.
GM announced the closing of the plant in November 2018 and built the last Chevrolet Cruze compact sedan there in March 2019. Voters in the Mahoning Valley helped carry Ohio for Trump in the 2016 presidential election.
Burns approached GM about buying the plant to build an electric pickup based on a Workhorse design. GM mortgaged the plant and lent LMC initial operating money. LMC became a public company in October via a $780 million reverse merger with special purpose acquisition company (SPAC) Diamond Peak Holdings Corp.
Workhorse valuation analyzed
Workhorse and LMC shares are a favorite of retail traders like those on the Robinhood platform. They helped drive Workhorse shares up nearly 800% in the past 12 months from less than $3 a share to more than $30 at its peak.
In an analysis published Tuesday on the investor site Seeking Alpha, ValueStreet Research broke down Workhorse’s value streams. It determined the sum to be equivalent to 20% of the company’s $3.7 billion valuation. The rest, it said, is driven by speculation.
Workhorse has four product lines for which ValueStreet projected value:
- 6,000 vehicle orders for an electric pickup transferred to LMC. Those could earn a 4% gross sales royalty if fulfilled. Projected value: $12.6 million.
- A 1% royalty on the gross sales price of the first 200,000 LMC vehicles sold by Lordstown minus a $4.75 million royalty advance. Projected value: $100 million.
- The potential $6.8 billion Postal Service contract. Projected value: $535 million.
- A 1,700-unit order backlog for the C-Series trucks. Projected value: $7 million.
The 10% stake in LMC amounts to $470 million based on Lordtown’s $4.7 billion valuation.
“Even if Workhorse has best-case outcomes in its current business, the market capitalization is more than 4x the value received,” ValueStreet wrote, saying it might take a short position within 72 hours betting the shares would lose value.
COVID-impacted production
Workhorse is in early production of its composite-body electric C-Series vans at a plant in Union City, Indiana. An outbreak of COVID-19 infections and positive tests restricted third-quarter builds to fewer than a dozen trucks.
At the end of the third quarter, 36% of the workforce was sidelined by COVID. A spokesman did not return a call Wednesday seeking an update.
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