Workhorse Group Takes Paper Hit Because Of Politically Fueled Share Run-Up

Electric van maker Workhorse Group Inc. WKHS  reported a huge second quarter paper loss on Tuesday, August 6, because of a run-up in its share price that followed a tweet by President Trump in May.

But for the first time, the company said that acquiring a closed General Motors assembly plant in Ohio could be a strategic advantage in winning a $6.3 billion U.S. Postal Service (USPS) contract to build next-generation delivery vehicles.

Workhorse lost $36.9 million in the quarter compared with a net loss of $6.9 million in the second quarter of 2018. Without a non-cash charge of $31.1 million for interest expense for stock warrants, the loss would have been $5.8 million. Shares during the quarter ranged from 62 cents to $2.92 a share.

The Cincinnati-based company raised $25 million in financing from a private group of institutional investors in June. It is using the money for working capital and final research and development focused on the lightweight electric NGEN=1000 van it plans to produce beginning in the fourth quarter.

It had $23.5 million in cash and securities on hand as of June 30 compared with $1.5 million a year earlier. In addition to the new class of shares sold to institutions in June, Workhorse sold existing investors 3.9 million common shares in April that resulted in proceeds of $2.9 million. 

"With the funds raised from our recent financing, we now have a capital structure that is aligned with our large-scale manufacturing goals," Workhorse CEO Duane Hughes said in a statement.

"Going forward, we remain on track in our testing and production timeline, which has us positioned to deliver on our existing backlog in the coming year," he said.

Tale of two Workhorses

There are two Workhorse stories. 

The first is the company whose finances were so shaky earlier this year that investors questioned its ability to survive. It had a $35 million hedge fund loan but needed to raise money to meet liquidity terms of the deal.

Workhorse shares traded at $0.74 as recently as May 8. That was the day President Trump announced that Workhorse was in discussions to buy the closed General Motors assembly complex in Lordstown, Ohio. 

GM confirmed the discussions but not with Workhorse itself. The talks, which are now formal negotiations, are with Workhorse founder and former CEO Steve Burns. Workhorse would be a minor investor if a deal is reached. 

The company also would license technology for an electric pickup truck to the Burns-led entity called Lordstown Motors Corp. Burns has said he wants to produce a commercial version of the W-15 pickup. Workhorse has put the pickup truck on hold while focusing on getting about 1,100 NGEN vans built and delivered from a plant it owns in Union City, Indiana. Customers include United Parcel Service UPS and DHL DPSGY.

Workhorse shares hit $5.19 last week after Vice President Mike Pence said during an appearance in Ohio that Workhorse had secured funding for the Lordstown purchase. He was referring to the capital infusion for the NGEN vans. GM scrambled to correct the impression that Workhorse was buying the plant.

Postal contract

The political interest in a deal surrounds job retention in northeast Ohio, an area that helped Trump win the state in the 2016 presidential election. The president has urged GM CEO Mary Barra to find another product for Lordstown, which until March built the Chevrolet Cruze compact sedan.

President Trump could affect the outcome of a deal for Lordstown if he orders the USPS to award a $6.3 billion contract for the next-generation postal delivery vehicle to Workhorse. The company is a finalist for the work along with partner VT Hackney, a specialty vehicle maker.

Hughes said on an earnings call with analysts that GM indicated the postal service contract presented the best hope for keeping Lordstown viable. Workhorse sees the prospect of the W-15, which came from its postal vehicle prototype development, as a strategic advantage for Workhorse in the USPS competition.

Image sourced from Pixabay