Workhorse Group: Consider Getting Back on the Horse

Key Points

• Workhorse Group Inc. had a tepid quarter, but production is back on track and ramping. 
• The company reaffirmed the year's guidance and expects to generate at least $75 million. 
• Cash burn is under control and positive cash flow may be reached in the next few quarters. 

One lesson of investing is if you get washed out of a position, it’s time to rethink the position, not abandon it entirely, and that is the case with Workhorse Group Inc. NASDAQ: WKHS. The initial thesis didn’t pan out; the company recalled its first fleet of electric vehicles and threw them away, but it is back on its feet.

After more than a year of struggle and efforts to get back on track, the company delivers vans and ramped up production. The first quarter results were a bit tepid due to unsurprising component delays but production targets were maintained. Revenue is back on the books. This means for investors that, after three years of waiting, this EV startup is producing cars, which is the catalyst for Workhorse stock prices the market has wanted. 

Workhorse Group Delivers 10 Vehicles 

Workhorse Group did not have a robust quarter delivering 10 vehicles, but it is a start and should lead to better results in the current quarter. The deliveries brought in only $1.7 million in revenue. The company expects to ramp deliveries as soon as the current quarter and bring in at least $75 million in revenue for the year. This is below the $90 million consensus figure, but the range provided ample room for outperformance, and the analysts aren’t exactly up to date with their estimates.  

The best news in the report is the production and cash burn update. The company produced a loss for the quarter due to the shortfall in deliveries, but the $25 million is far less than analysts expected. The company was able to control spending and appears to be on track for positive cash flow, if not profitability. The company has only $79 million in cash on the books, which may not be enough to see it past that milestone. At the current pace of use, it will be gone before next spring, assuming no unseen expenses occur as production ramps for other models. 

The production update is favorable and includes ramping production for the W4 chassis-cab combination and the onset of production for the W-750 class four delivery van. The W4 CC is in regular production, while the pilot models for the W-750 are expected to roll off the line at any time. The W56 is expected to go into production in the third quarter. 

Workhorse Group Diversification in Play

Workhorse Group is a diversification play in EV that includes fleet management and drones. Fleet management includes operating and managing EV fleets, while drones are intended to enhance delivery capabilities. The drones deliver packages from a delivery vehicle positioned centrally within a neighborhood or urban area. The drones increase efficiency because the operator can make multiple deliveries without leaving the vehicle. The drones are also being shown to the military and government agencies for applications in those venues. 

The chart isn’t promising. The stock is in a clear downtrend and has not shown true support. The post-release action has the market at the lowest levels since the IPO, but this may be as low as it gets. The action is without strength, and the indicators show extreme oversold conditions. At best, a relief rally might be expected now; the opportunity is that price action will rebound smartly later in the year when deliveries and cash flow begin to improve. Stocks like Rivian Automotive Inc. NASDAQ: RIVN,  Lucid Group Inc. NASDAQ: LCID and Fisker Inc. NYSE: FSR are in similar positions regarding production, and their stocks have begun to bottom.