Workhorse narrows focus to electric last-mile vans

Workhorse electric vans

Workhorse Group Inc. (NASDAQ: WKHS) generated just $3,000 in revenue in the fourth quarter on income of $655,000 as it inched toward production of its lightweight electric last-mile delivery vans.

The Loveland, Ohio-based company expects to produce 300-400 vans this year at its plant in Union City, Indiana, moving from two vehicles a day in the second quarter to about 10 per day by the end of the year, CEO Duane Hughes told analysts on the company’s earnings call Tuesday.

Parts costs remain high because of low volume. The company so far has built three vans – two C-1000 and one C-650 cubic-foot cargo vans. They are being used primarily for customer demonstrations and testing.

Workhorse has received all but one federal certification it needs to begin production. The last approval is expected to be completed by the end of March, allowing a limited build of two vans per day in April, chief operating officer Robert Willison said.

Workhorse will reach its gross margin goal of 15-20% and be profitable when it can build 200 vans a month, Hughes said.

Booked orders

United Parcel Service (NYSE: UPS) has a pending order for 1,060 vans. UPS should begin receiving vans by late in the second quarter, Hughes said. Other customers with pending orders include Deutsche Post’s DHL International and Ryder System Inc. (NYSE: R)

The recent NTEA Work Truck Show, where the C-Series won the 2020 Innovation Award in the green category, generated many expressions of interest that could be converted to future orders, Hughes said.  

Financial engineering

Workhorse has moved beyond its first-generation E-Series electric vans, beset by high warranty expenses that drained company coffers of money needed to begin production of the new vans. The company borrowed $41 million in November 2019 to pay off a hedge fund loan early while retaining $16 million in cash for operations.

The convertible debt required payment of 5 million of the company’s 71 million outstanding shares, Interest expense in the fourth quarter increased to $5.6 million compared to $2.2 million in the same period last year due to prepayment of Marathon Asset Management.   

Workhorse is exploring how much a $40 million revolving credit facility would cost the company in interest, chief financial officer Steve Schrader said,

Workhorse has enough cash for the limited production planned this year, Hughes said.

By the numbers

The $3,000 revenue in the quarter compared with $21,000 in the fourth quarter of 2018. The cost of goods sold was $2.1 million, down from $11.1 million in the fourth quarter of 2018, primarily due to lower warranty expense and inventory write-downs a year ago.

Net income was $655,000, compared with a net loss of $17.7 million in the fourth quarter of 2018.

Research and development expenses increased to $4.0 million from $1.7 million in the fourth quarter of 2018 because of C-Series startup costs.

“We have incurred a substantial non-recurring engineering charges that are required as part of the tooling, fixtures and supply chain setup that has cost millions of dollars since March 2019,” Hughes said,

Workhorse booked income of $15.8 million compared to $0 in 2018 with $12.2 million non-cash from its technology licensing agreement with Lordstown Motor Corp. that includes 10% ownership in the entity led by former Workhorse CEO Steve Burns.

Lordstown Motors’ took over the order book for Workhorse’s W-15 electric pickups. Workhorse will receive a 1% royalty for each of the orders converted to a sale. 

Workhorse also realized $3.6 million from the net gain on the sale of Burns’ Surefly manned octocopter to Moog Inc. Workhorse and Moog entered a joint venture for further development of the Horsefly truck-mounted delivery drone that is being tested by two potential customers.

“In 2019, we cleared the clutter that so many people felt distracted our operational capability,” Hughes said.