Since late June shares in the operator of this former General Motors (NYSE:GM) van plant, with 118 employees, have skyrocketed. Now trading for about $27, the company has market cap of $3 billion after posting $376 million in business during 2019.
The catalyst is a U.S. Postal Service contract, which Workhorse has yet to win, for 140,000 electric mail trucks. Workhorse is one of three finalists. Its C1000 design features a light body with 1,000 cubic feet of storage, and a short range that recharges overnight.
But the company is already valued at half the price of the contract before the contract is won.
The Proto-Tesla Bubble
The market over the last few years has been marked by bubble after bubble. There was the bitcoin bubble. There was the marijuana bubble. There was the Covid-19 vaccine bubble.
Now there’s the electric vehicle bubble.
Tesla has convinced investors that every vehicle will be electric before too long. That’s not a bad assumption, given the reality of global warming. Utilities need demand from transport to justify their capital requirements. While electric car boosters like to sell wind turbines and solar panels, base electric loads remain one of the last strongholds of coal.
There is some reality to Workhorse’ business. Its first vans have traveled 8.5 million miles. It’s been in this niche for a decade. It’s even planning to build delivery drones. The argument is that the cost of batteries is dropping so fast it will all be affordable.
Trouble is, it isn’t now. At $1,000 per kwh, a van like the C1000 would cost $100,000. At the present price of $300 per kwh, it’s still $30,000. At $100, the thinking goes, you’re talking $10,000. But we’re not there yet. The Workhorse drone, called the Horsefly, is still a year or two from Federal Aviation Administration approval.
But that’s a lot of ifs.
Our Thomas Yeung is focused on a second possible catalyst, a 10% stake WKHS holds in Lordstown Motors. This is an electric pick-up company going public through a so-called Special Purpose Acquisition Vehicle (SPAC). SPACs are all the rage because they’re a shortcut on the costs of going public. President Donald Trump is personally boosting Lordstown.
Trouble is SPACs are also a shortcut on the costs of going public. Yeung doesn’t trust WKHS’ management. I don’t trust SPACs.
Remember Nikola (NASDAQ:NKLA)? Shares rose to $94 in June on its semi-truck design. General Motors signed off on a production contract, sealed with a $2 billion equity stake. Then, the aptly named Hindenburg Research called the whole thing a fraud. Nikola’s founder resigned.
The Bottom Line
There’s a word for what’s happening in WKHS stock, and in electric vehicles generally.
The word is not investing, which is putting money into going concerns with high expectation of profit.
The word is speculating, which is going to the dog track. As the man said, a fool and his money were lucky to get together in the first place.
It’s probable that, over the next decade, electric vehicles will take over the market. It’s likely that, in last-mile delivery, with a limited number of players, this can happen quickly. Contracts offered at scale are always valuable, and often profitable.
But there is a lot of wishful thinking going on here. There is also some politics. If you want to speculate on that with WKHS stock, go ahead.
Just don’t call it investing.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.