For investors considering EV options, Workhorse (WKHS) is one company that may be on the periphery of most investors’ radar. Indeed, this clean energy and EV player was red-hot earlier this year. Since peaking at nearly $43 per share earlier this year, shares of WKHS stock declined to lows of nearly $7 per share in mid-May. Currently trading at around $13 per share, this stock has been a near-double from the bottom, but has also declined approximately 70% from its peak. (See Workhorse stock charts on TipRanks)

Accordingly, investors seriously considering WKHS stock are betting that this maker of last mile EV vans can find demand for its vehicles, which has been slow to materialize of late.

Let’s dive into what’s been driving shares of this EV maker on such a volatile ride recently.

Slower Production Outlook Bearish for Workhorse Investors

This year was supposed to be the year Workhorse took off, from a production standpoint. The company had initially targeted production of 1,800 units in 2021, given relatively strong preorder demand for approximately 8,000 of its vehicles. However, during the company’s recent Q1 earnings report, it was announced that Workhorse would be reducing its year-end target to only 1,000 units.

Given the first quarter delivery numbers of only six trucks and 38 C-series vehicles (last mile delivery vans), it appears investors and the broader market have become concerned that even these targets may be unrealistic.

Total revenue for this EV maker with a $1.6 billion market capitalization came in at only $521,000. Sure, this number was up more than 600% over last year’s $84,000 revenue number. However, investors were certainly pricing in a lot more in terms of deliveries with this stock.

The company blamed these dismal production numbers on ensuring quality was top-notch for its first few vehicles. Additionally, supplies of key components were constrained this past quarter, and limited production capacity appears to be creating bottlenecks for the company.

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As an early-stage EV maker in a relatively niche segment of this market, Workhorse remains a highly speculative play. Investors betting on WKHS stock are making an implicit bet on the company’s management team's ability to hit its pre-ordained targets. Given the recent massive earnings miss, it’s likely investors have lost some faith in the company in this regard.

Loss of Essential USPS Contract Still Weighing on WKHS Stock

Workhorse’s C-Series last mile delivery vans are the focal point of investors right now. Indeed, production of these vans has become the primary focus of Workhorse, as they have identified this as a profitable growth niche in the EV sector.

Accordingly, this stock’s recent run to more than $40 per share was based mainly on expectations that Workhorse would win a $482 million USPS contract to upgrade the postal service’s fleet of delivery vans. Workhorse lost out on this contract in February, despite being one of three finalists for the deal.

Since losing this deal, Workhorse has lost approximately 70% of its market capitalization, as investors ponder where demand for its electrified last mile vehicles will come from. Interestingly, and probably unsurprisingly, Workhorse recently sued USPS, asserting the company essentially failed to seriously consider the Workhorse bid. The company also questioned the intention of the USPS in regards to its plan to electrify its fleet, due to the fact that approximately only 10% of the vehicles purchased by USPS from the winning contract will be electrified.

The outcome of this lawsuit remains to be seen. However, some investors may have bid up WKHS stock in the hopes this lawsuit will prove fruitful. After all, there is some chance a judge could throw out this purchase order and demand a more transparent bidding process.

However, investors in WKHS stock seem to be forced to consider a road to growth that doesn’t include this USPS order. Right now, that outlook appears rather bleak.

What Analysts are Saying about WKHS Stock

According to TipRanks’ analyst rating consensus, WKHS stock comes in as a Moderate Buy. Out of 6 analyst ratings, there are 2 Buy recommendations and 4 Hold recommendations.

As for price targets, the average analyst price target is $15.38. Workhorse price targets range from a low of $8.50 per share to a high of $20.00 per share.

Bottom Line

Investors certainly have reason to be bearish on WKHS stock. This company has clear production issues, and concerns around the ability of Workhorse to ramp up its production and deliveries to meaningful levels in the short-term are warranted.

Additionally, the company’s ties to Lordstown Motors (RIDE) have resulted in a serious loss of faith among investors in the company’s previously-reported preorder numbers. The company’s massive $137 million reduction in fair value of its investment in Lordstown provided a major reason for this stock’s recent decline.

Investors seeking long-term EV holdings may be better off looking elsewhere. Workhorse is still working out the kinks with its business model. Until a growth trajectory toward profitability surfaces, this is a stock with downside potential that likely outweighs its upside.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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