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Analysts’ patience wearing thin with Workhorse delays

Battery supply issue and lack of deliveries lead to tough questions

Analysts asked hard questions of Workhorse Group executives about third-quarter production delays. (Photo: Workhorse)

Were it not for a nearly 700% increase in its share price this year, electric delivery van maker Workhorse Group (NASDAQ: WKHS) might not have five analysts covering the 13-year-old company still mostly regarded as a startup.

After a sometimes contentious call with analysts following an underwhelming third-quarter earnings report Monday, Workhorse may wish for the days when it mostly operated under the radar. Investors didn’t seem to care. On a day of huge gains for markets, Workhorse shares closed 9.66% higher at $18.96.

The attention of day traders, the possibility of a huge U.S. Postal Service contract for next-generation delivery vehicles and excitement over electric truck startups make Workhorse a name to watch. Even short sellers hoping to make money on a fall in the company stock price are taking shots.

Workhorse has several positives going for it — a backlog of 1,700 orders, 50-state certification to sell its composite-body battery-powered delivery van and an impressive 40 miles of driving on a gasoline-equivalent (MPGe) basis.

Except it keeps running into production delays.

Analysts fire tough questions

Analysts peppered company executives on Workhorse’s third-quarter earnings call. The Loveland, Ohio-based company said a battery shortage limited production to just seven trucks in the July-September period. 

More recently, an outbreak of COVID-19 idled more than 36% of the company’s production workers as of last Friday. That, in turn, is stalling the hiring of 200 new workers to increase the build rate of the C-1000 model vans.

Those factors and higher across-the-board expenses led to sales of $565,000 in the period. That compared favorably to just $4,000 in the same quarter of 2019. But the revenue underperformed Wall Street expectations by $1.25 million. Workhorse’s quarterly loss swelled to $84.1 million from $11.5 million a year ago.

Product delays strain patience

Product delays brought the toughest queries.

“We’ve had several conversations offline about your battery supplier, one that you had prepaid for a few thousand units,” Craig Irwin, managing director and senior research analyst at ROTH Capital Partners, said on the call. “I expressed significant reservations with you about that supplier. 

“What did it take in the last three months to discover all of a sudden that you have an issue with your battery supplier when this has been common knowledge in the market?”

Workhorse CEO Duane Hughes paused before answering. 

“We’ve been working with other battery suppliers. While we had a primary supplier that had a little bit of a hiccup, they are quickly reacting,” he said. “This has been a work in progress. We’re well into it and will have solutions in the first quarter of 2021. We have identified multiple battery suppliers and have prioritized them in terms of integrating.”  

Workhorse also was caught short because its few customers wanted six battery packs capable of 160 miles of travel on a single charge versus the four packs and 105 miles of range that is the standard offering.

What about UPS?

The delay raised a question from Cowen & Co. analyst Jeffrey Osborne about Workhorse’s relationship with United Parcel Service (NYSE: UPS). UPS has a standing order for 950 C-Series vans, which it helped develop with Workhorse. 

“We’ve got a great relationship with UPS,” Hughes said. “Part of the fourth-quarter deliveries were to go to UPS in the San Diego area. We notified UPS of our COVID issue and so on in advance so they would have an understanding of what we’re doing.”

So far, Workhorse has provided two C-1000 vans to Ryder System and five to Pritchard Cos., a network of medium-duty truck dealerships. Workhorse announced an order of 500 vans from Pritchard ahead of its earnings report on Monday.

Workhorse won’t say how many C-1000 and C-650 vans it will build the rest of the year. The most recent plan called for 300-400.

“UPS remains our premiere customer because they’ve been with us for the longest time,” Hughes said. “We will be delivering them vehicles. The first vehicle we deliver to them, we want to hit it out of the park and make sure it’s right.”

Carlton Rose, UPS president of global fleet maintenance, agreed the relationship remains positive.

“They have been talking to us routinely about their plans,” Rose told FreightWaves. “UPS understands the challenges the pandemic is causing as we’re all in this together. Workhorse has been keeping UPS apprised on the status of our vehicles.”

Workhorse plant a COVID-19 hot spot

Workhorse encountered its first COVID case following the hiring of 45 new production workers at its plant in Union City, Indiana. 

“Since the first positive test result, we have experienced a severe uptick in COVID-related absences,” Hughes said. “We’ve had a major impact to our manufacturing efforts.”

While unable to build vans, Workhorse is implementing Hitachi-recommended systems and processes to improve production. 

“We can’t predict the COVID situation now, let alone in 2021,” Hughes said. “However if conditions improve and the virus is not a business issue for us or our suppliers going forward, then we anticipate 1,800 units in 2021.”

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Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.