Workhorse Stock Climbs on Plan to Challenge USPS Loss
Shares of electric vehicle (EV) startup Workhorse Group (NASDAQ: WKHS) were decimated earlier this year after the United States Postal Service awarded a massive contract worth billions of dollars to Oshkosh Corporation (NYSE: OSK). Workhorse shares lost nearly half of their value in February, as investors had high hopes that the company would clinch the deal to provide electric delivery vehicles.
In the months since, Workhorse has been requesting additional information around the decision in order to mount a legal challenge. The company is now reportedly preparing to move forward. The stock rallied as much as 13% on Wednesday, but pared some of those gains down and was up just 5% as of 1 p.m. EDT.
Turning to the courts
Reuters reports that Workhorse is about to formally file a legal challenge contesting the decision. The contract that was awarded to Oshkosh is estimated to be worth around $6 billion, with Oshkosh providing 50,000 to 165,000 vehicles to the USPS over the course of 10 years. Not all of those delivery vans will be EVs, with some being traditional internal combustion vehicles.
The deal is part of the Biden administration’s efforts to modernize the federal government’s vehicle fleet while incorporating more EVs to reduce greenhouse gas emissions and combat climate change. The contract includes an initial investment of $482 million for Oshkosh to develop and design a Next Generation Delivery Vehicle (NGDV). That money will help fund the capital expenditures necessary to retool manufacturing facilities.
The USPS operates a national fleet of over 230,000 vehicles across several vehicle classes. The agency hopes to deploy NGDVs as soon as 2023.
Workhorse provided investors with an update in March, saying it had requested additional information around the bidding process while meeting with USPS representatives to discuss confidential details.
“Yesterday’s meeting with the USPS marked the first step in what we expect may be a prolonged process to explore our options and possibly pursue further action related to our NGDV bid,” Workhorse CEO Duane Hughes said in a statement at the time. “We will continue to follow the proper due course procedures as defined by the USPS and will also look to other options available to us.”
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The contract would be a game-changer for Workhorse
Workhorse went public over a decade ago, well before the recent boom of EV startups going public by merging with special purpose acquisition companies (SPACs).
Expectations that Workhorse would secure the USPS deal started ratcheting up in 2020, including among Wall Street analysts. Roth Capital Partners predicted last October that the company would win the contract, arguing that the company was the “best fit.” In December, the USPS had delayed making a decision due to the COVID-19 pandemic before eventually announcing that Oshkosh won the award.
Successfully overturning the decision through the courts would represent a massive windfall for Workhorse. The company reported approximately $520,000 in revenue for the first quarter after delivering six trucks, but net losses ballooned to $120.5 million.
Total revenue for all of 2020 was $1.4 million. The company reported a net profit of nearly $70 million last year but the black ink was primarily attributable to owning a 10% stake in Lordstown Motors (NASDAQ: RIDE), which merged with a SPAC and saw its shares soar in 2020.
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