When it comes to investing, we recommend starting with the macro picture before zeroing in on individual stocks. In other words, start with the big picture. Right now, that picture is telling us that electric vehicles are the future. We at Insider Financial have covered this sector in-depth starting with Tesla in 2018, Ballard Power in 2016, Plug Power in 2017, FuelCell Energy in 2017, and most recently NIO, Ideanomics, and Nikola.
A company that we covered last year, Workhorse Group, has turned into a big winner just this month after a long period of consolidation. Workhorse stock was trading at $1.80 at the time and we said a big move was coming. We just didn’t think it would take 13 months for that move to happen. However, after seeing what has happened with Nikola stock and the macro factors going on, the big move in Workhorse might just be getting started.
About Workhorse Group
First up, here’s a little background info for those that aren’t familiar with the company. Workhorse is a technology company focused on providing electric vehicles to the last-mile delivery sector. As an American original equipment manufacturer, the company designs and builds high performance, battery-electric vehicles including trucks and aircraft. Workhorse also develops cloud-based, real-time telematics performance monitoring systems that are fully integrated with its vehicles and enable fleet operators to optimize energy and route efficiency. All Workhorse vehicles are designed to make the movement of people and goods more efficient and less harmful to the environment. Workhorse has seven patents already granted and four pending.
Workhorse Group Delivery Vans
Workhorse is focused solely on last-mile delivery, a niche the company calls an $18 billion market opportunity and where it has first-mover advantage. The company just successfully completed the Federal Motor Vehicle Safety Standards (FMVSS) testing for its C650 and C1000 all-electric delivery vans. CEO Duane Hughes said:
“The successful completion of our FMVSS testing confirms that the design, construction, performance, and durability of our all-electric 650 and 1000 cubic foot C-Series delivery vans meet federal requirements, making Workhorse the only American all-electric OEM designing and manufacturing last-mile delivery vehicles to complete this testing. With this late-stage milestone certification now behind us, we remain well-positioned to execute on our production timeline for the remainder of the year.”
Huge Addressable Market
Workhorse can now commence production of the C-Series trucks, which should increase visibility for executing the backlog of orders from United Parcel Service, Inc. (NYSE: UPS) of 1,060 units. Workhorse Group could achieve C-Series production of 150 units in 2020 and 2,000 units in 2021, with EBITDA profitability by the end of 2021. Workhorse is also well-positioned for the potential contract from the U.S. Postal Service for its Next Generation Delivery Vehicle, which could be for as many as 180,000 vehicles.
Driving a large part of the excitement surrounding Workhorse Group this week is its 10% stake in Lordstown Motors. Vice President Mike Pence will be attending the June 25th unveiling of the all-new Lordstown Endurance pick-up truck, which will compete with Telsa’s Cybertruck and Nikola’s Badger. The Lordstown Endurance is expected to be delivered to fleet customers at the beginning of 2021, with the first consumers getting their trucks in late 2021. Workhorse will receive a royalty on all of the electric pickups delivered by Lordstown.
Horsefly Drone Division
Besides the electric delivery vans, Workhorse Group has its Horsefly Drone program. The HorseFly was designed to deliver what represents approximately 80% of most commercial package sizes, shapes, and weights while safely carrying a five-pound payload up to 10 miles. The HorseFly system’s success has been demonstrated through real-world commercial deliveries, flying autonomously from truck-top operations in U.S. airspace, in a process that meets all FAA flight standards. Workhorse CEO Duane Hughes said:
“In the last several months we have seen significant and growing interest in our vehicle-launched HorseFly delivery drone, making the need to expand the HorseFly patent portfolio even more critical. We believe this increased consideration is a direct result of the COVID-19 global pandemic and the recognition that new methods of delivery are quickly becoming essential. Additionally, we are hearing from many businesses that this transition is not a temporary one and that we need to adapt to a new normal. We feel strongly that all Workhorse electric delivery vehicles, with their integrated drone capabilities, are the most economical and efficient last-mile option currently available, making our solutions a necessity now and for future critical applications.”
Workhorse Group vs Nikola
Workhorse Group remains significantly undervalued when you compare it to Nikola. Nikola has a current market cap of over $27 billion compared to Workhorse’s current market cap of $559 million. The value of Workhorse’s 10% stake in Lordstown Motors is easily worth $1 billion alone. Without even factoring in its electric delivery vehicle business and intellectual property, Workhorse Group shares should command a $16 share price.
We are not alone in this assessment. Hedge fund Formidable Asset Management LLC said:
The stock of the Ohio-based company, which designs and builds electric vehicles and aircraft, trades at “a significant discount to our estimate of its intrinsic value. The stock is undervalued despite its presence in this attractive niche, valuable intellectual property, and potentially transformative strategic partnerships.
Workhorse Group has now entered into the commercialization phase but has a market cap of just $559 million. Nikola is still in the start-up phase, yet has a market 48x greater. Either Nikola is grossly overvalued or Workhorse Group is significantly undervalued. Going off the macro picture and looking at the electric vehicle market, we go with Workhorse Group being mispriced by the market and a discount entry opportunity at current levels. With 18% of the float short, this mispricing might be corrected much sooner than many expect.
As always, good luck to all (except the shorts)!
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Disclosure: We have NO position in NASDAQ:WKHS or any of the stocks mentioned and have NOT been compensated for this article.
Image courtesy of Lordstown Motors