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Workhorse losses grow as stock surges, production ramps up

Stock-linked loan leads to whopping paper loss, but company has money to build trucks

Workhorse Group reported a wider second-quarter loss on Monday, Aug. 10. because of increased costs of borrowing. (Photo: Workhorse)

Electric delivery van and drone maker Workhorse Group Inc. (NASDAQ: WKHS) reported a dramatically wider second-quarter loss because of interest paid on borrowed money linked to its stock, the value of which grew explosively during the quarter.

Two senior secured convertible notes with HT Investments MA LLC raised $95 million in cash in December 2019 and in June this year. Workhorse paid net interest of $124.3 million because it is paying principal and interest on the loan in company stock. Net interest paid on a different loan in the same period last year was $15.9 million. 

“It should be noted that this significant increase of $108.4 million in interest expense was almost exclusively due to the change in fair value of our convertible note and the mark-to-market adjustment for some non-dilutive warrants issued to a lender,” Workhorse CFO Steve Schrader said in a press release.

Workhorse shares rose from $1.81 a share on March 31 to $17.39 on June 30. They closed Monday at $15.48, down 6.3%.


Workhorse reported a net loss of $131.3 million compared to a net loss of $20.1 million in the second quarter of 2019. Its operating loss was $7 million compared to $4.1 million in the same period of 2019.

Second-quarter sales were $92,000 compared to $5,500 a year ago.

The company has approximately $105 million of cash available, including $70 million in borrowing.

“We’re pretty well set into the 2022 time period,” Schrader said on the company’s conference call with analysts Monday.


Building and delivering trucks at last

Workhorse delivered three of its C-Series composite body battery-electric vans assembled in Union City, Indiana, during the quarter. Ryder System Inc. (NYSE: R) is deploying two trucks for its ChoiceLease and SelectCare product lines and for short-term rentals on its COOP by Ryder peer-to-peer truck sharing platform.

The third truck went to Electric Vehicle Fleet Solutions to help bring in more orders.

A backlog of about 1,200 trucks remains. Most of those are pledged to United Parcel Service (NYSE: UPS), which ordered 950 trucks. UPS is building out its electric infrastructure for charging the trucks. 

UPS is being patient so any bugs can be worked out before it takes delivery of C-Series vans, Workhorse CEO Duane Hughes said on the analyst call.

Plans to increase production to 100 trucks a month in the fourth quarter are still in place. It is unclear when production can reach 200 trucks a month. That would put Workhorse on a financial break-even footing, Chief Operating Officer Robert Willison said on the call.

“We have to do 100 a month first, and we have to kind of see where that goes,” Schrader said. “So you don’t get credit until you do it.”

Lordstown Motors windfall

Having effectively spun off its battery-electric pickup truck known as the W-15 to startup Lordstown Motors Corp. (LMC), Workhorse stands to reap a financial windfall.

LMC under the leadership of former Workhorse CEO Steve Burns, is expected to go public before the end of the year in a reverse merger with DiamondPeak Holdings Corp., a blank-check company. Based on $675 million that LMC would receive when the merger closes, LMC is valued at $1.6 billion.


Workhorse licensed the intellectual property to the W-15 to LMC in exchange for a nondilutive 10% ownership in the startup. Workhorse’s stake is worth $160 million based on the $1.6 billion valuation. It can sell its stake six months after the LMC merger closes, Schrader said.

Workhorse also gets a 1% royalty on each of the first 200,000 Endurance pickup trucks that LMC sells. The Endurance price is $52,500 before any tax credits.

Workhorse also is likely to use the former 6.2 million-square-foot General Motors (NYSE: GM) plant LMC purchased in northeast Ohio to build next-generation delivery trucks for the U.S. Postal Service (USPS). That’s if Workhorse wins some or all of the $6 billion USPS contract for which it is one of two remaining contenders.

The W-15 technology, which includes electric hub motors on each wheel instead of an electric drivetrain, is common between the W-15/Endurance and the six prototypes Workhorse built for USPS evaluation.

Making nice with California

Also during the second quarter, Workhorse received California Air Resources Board (CARB) certification to sell the C-Series vans in the state. It joined the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP) as well.

If HVIP is funded in the fourth quarter as expected, Workhorse truck purchasers could get $50,000 incentives on each of up to 200 C-Series vans. Workhorse is the first and so far only medium-duty battery-electric truck manufacturer approved by CARB and the U.S. Environmental Protection Agency (EPA) to sell vehicles in all 50 states.

Workhorse can earn 1.5 emission offset credits on each electric truck in sells in California. Those credits are worth about $300 each. They can be held or sold to other truck makers, much the way Tesla (NASDAQ: TSLA) has booked profits through the sale of credits earned for its electric passenger vehicles.

“For us, it’s a matter of creating our own process to use those carbon offset credits,” Hughes said. “It’s our responsibility to create our own marketplace with the other [manufacturers].

“Widening our sales funnel through tax incentives, government programs and strategic partnerships, all of which we now have, will allow us greater opportunities to build on our growing backlog.”

Related articles:

Ryder gets first two Workhorse electric vans

Workhorse gets jolt for zero-emissions electric vans

$70 million financing keeps Workhorse’s share surge humming

Click for more FreightWaves articles by Alan Adler.

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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.