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Workhorse Group takes paper hit because of politically fueled share run-up

GM Lordstown plant would be an advantage in winning USPS contract, CEO says

Electric van maker Workhorse Group Inc. (NASDAQ: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 the closed General Motors (NYSE:GM) assembly plant in Lordstown, 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 is a finalist with partner VT Hackney for the contract.

Because an electric pickup truck proposed for the plant is based on the same parts and infrastructure, “it would easily allow for the post office vehicles to also be built in Lordstown,” Workhorse CEO Duane Hughes told analysts on a conference call Tuesday.

Second quarter performance

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. Share prices during the quarter ranged from 62 cents to $2.94 a share.

Shares hit $5.19 last week after Vice President Mike Pence erroneously said during an appearance in Ohio that Workhorse had secured funding for the Lordstown purchase.

Workhorse shares closed Tuesday at $3.17, down 82 cents or 20.55 percent.

Pence’s comment referred to $25 million that Workhorse raised from a private group of institutional investors in June. That money will be used to begin building 1,000 cubic-foot NGEN vans in the fourth quarter at a plant Workhorse owns in Union City, Indiana.

Workhorse 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,” Hughes said.

Workhorse is in final negotiations to sell the technology for its Surefly two-man vertical lift helicopter. It expects a deal, if it occurs, to close this year. The cash from the sale also would go to operating expenses to build the NGEN vans, Hughes said.

Tale of two Workhorses

Workhorse is a tale of two companies. The first is one 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 allowing it to borrow the money.

The second is the political football passed by President Trump and Vice President Pence in the name of preserving jobs in northeast Ohio

Workhorse shares traded at $0.74 on May 8 when President Trump announced the Cincinnati-based company was in discussions to buy Lordstown. 

GM confirmed the discussions but not with Workhorse itself. The talks with Burns have advanced to formal negotiations for the estimated at $300 million purchase. Workhorse would be a minor investor if a deal is reached. 

Workhorse also would license intellectual property and engineering technology for the W-15 electric pickup truck to the Burns-led entity called Lordstown Motors Corp. Burns has said he wants to produce a commercial version of the pickup.

Workhorse put the pickup truck on hold while focusing on building and delivering a backlog of about 1,100 NGEN vans. Customers include United Parcel Service (NYSE:UPS). The orders are worth about $70 million.

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.

A Lordstown deal would depend on input from the UAW, which began national contract talks with GM in July. The union is urging GM to allocate a new vehicle to the 53-year-old plant.

Trump could steer the USPS contract to Lordstown Motors Corp. based on the long manufacturing history and experienced workforce that was laid off in March.

“GM’s position is this relationship is by far the best opportunity they have found to keep vehicle production in Lordstown,” Hughes said.

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Alan Adler

Alan Adler is a Detroit-based award-winning journalist who worked for The Associated Press, the Detroit Free Press and most recently as Detroit Bureau Chief for Trucks.com. He also spent two decades in domestic and international media relations and executive communications with General Motors.

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