Workhorse Stock Still Looks Speculative After 45% Decline This Year

by Trefis Team
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Workhorse Group (NASDAQ: WKHS) – an electric vehicle player focused on delivery vehicles – has seen its stock price decline by about 8% over the last week (five trading days), compared to the S&P 500 which has remained roughly flat. While there hasn’t been too much news relating to the company in the last week, the stock has come under pressure since February, when Workhorse lost out on a lucrative U.S. Postal Service contract, for which it was seen as a front runner. Workhorse stock is also down by about 13% over the last month and by about 45% year-to-date. So is Workhorse stock poised to recover or will it decline further? Per our machine learning engine, which analyzes historical stock price data for Workhorse, the stock has a 52% chance of a decline over the next month, after falling 8% over the last five days. See our analysis on Workhorse Group Stock Chances Of Rise for more details.

So is what’s the longer-term outlook for Workhorse stock? Although the EV space in the U.S. is seeing significant regulatory tailwinds, with the Biden Administration indicating that it would invest $174 billion in developing the EV market, we think Workhorse stock remains a relatively speculative bet for a couple of reasons. Firstly, the demand and production picture for Workhorse looks mixed. While the company says that it has orders for over 8,000 vehicles, it’s not clear that these are binding. A bulk of Workhorse’s orders come from Pride Group, a commercial vehicle rental company, and sales are likely to be tied to the demand for delivery vehicles from Pride’s end customers. Workhorse’s plan to scale up production to around 1,800 vehicles this year also faces challenges due to component and battery supply constraints.

Moreover, the competitive landscape is also tough. The barriers to entry into the electric delivery vehicle space aren’t really high and  Workhorse’s vehicles don’t seem to have a clear competitive advantage. Larger players such as General Motors and Ford also have plans to make commercial EVs and they could have an edge over Workhorse, given their established brands and long-standing customer relationships. Even other upstarts, such as Rivan, appear to be poised to gain traction, driven by big partnerships. For example, Amazon has already started to use Rivan delivery vans in select locations and plans to have as many as 100k vehicles on the road via this partnership within the next decade.

Want to play growth in the EV market without betting on individual OEMs? Check out our indicative theme of Electric Vehicle Component Supplier Stocks for more details.

[2/24/2021] Pick Canoo Over Workhorse

Following Tesla’s big rally last year, investors are warming up to smaller electric vehicle (EV) stocks that recently went public via the SPAC route. Workhorse Group (NASDAQ: WKHS) – which is focusing on delivery vehicles, and Canoo (NASDAQ: GOEV), which is looking to cater to the commercial and consumer market, have received a lot of attention, with their stocks up by almost 45% and 20%, respectively, year-to-date. While both companies trade at market caps of around $3.5 to $4 billion and have yet to start commercial deliveries, making them potentially risky bets, we think that Canoo is likely to offer better long-term upside for investors. Here’s a bit more about the two companies.

Want to play growth in the EV market without betting on individual OEMs? Check out our indicative theme of Electric Vehicle Component Supplier Stocks for more details.

Canoo is looking to develop multiple consumer and commercial vehicles, based on its modular “skateboard” platform that integrates batteries into the EV’s chassis. This allows the company to build highly customized vehicles that can serve multiple applications. The company is looking to launch its first lifestyle vehicle in late 2022, following it up with a delivery vehicle in 2023 and a sports vehicle in 2025. Canoo is looking to make its first vehicle available via an all-inclusive subscription fee. The company is also likely to consider licensing its platform to other OEMs. In fact, there were reports that Apple and Canoo were in discussions relating to the rumored Apple car late last year. Canoo projects revenue of close to $330 million in 2022 and is targeting a revenue CAGR of 88% through 2026. [1]

Workhorse builds electrically powered delivery and utility vehicles, targeted at last-mile delivery – a segment that should be an ideal application for EVs, given the low maintenance costs and lower range related issues. Workhorse’s business appears to be more focused although its product doesn’t appear to be as innovative as Canoo. However, the company has been highlighting orders for its EVs from several customers, the largest of which is a 6,000 plus vehicle order from Pride Group, a company that specializes in commercial vehicle rentals and leasing. Workhorse is one of three finalists for a $6 billion-plus fleet upgrade contract to replace the U.S. Postal Service’s aging fleet of delivery trucks and anticipation surrounding a deal has been a big factor driving the stock this year.

Overall, we think that deciding between the two stocks comes down to choosing between Workhorse’s potential order backlog and Canoo’s interesting tech. Workhorse hasn’t manufactured or delivered trucks at scale yet and it’s not clear if all of its orders will translate into actual revenue. The deal with the Pride Group, for instance, is apparently tied to demand for delivery vehicles from Pride Group’s end customers and the final number of vehicles delivered could be smaller. It’s also probably far-fetched to expect a multi-billion contract from the USPS to be awarded to a company without much of a track record. On the other side, while Canoo also has a lot to prove, the company’s flexible technology platform, plans of offering subscription services, and licensing its platform to other EV makers could give it sizable upside in the long-term, if it executes well.

While Canoo might look like a better long-term bet compared to Workhorse, 2020 has also created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Apple vs. Logitech shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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  1. Canoo Investor Presentation []
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