Workhorse Group Inc. (WKHS) is an American technology company focused on pioneering the transition to zero-emission commercial vehicles. The company has faced its share of challenges in recent years, but remains committed to delivering innovative electric truck solutions to the last-mile delivery market.
Business Overview and History
Workhorse was founded in 2007 and is headquartered in Cincinnati, Ohio. The company initially focused on the development of hybrid and electric trucks, vans, and all-terrain vehicles. In the early years, Workhorse faced challenges in securing funding and gaining traction in the market as it worked to establish its technology and products.
In 2017, Workhorse shifted its primary focus to commercializing its line of all-electric delivery trucks and vans. The company introduced its first electric step van, the Workhorse E-Gen, which featured an extended-range electric vehicle drivetrain. Over the next few years, Workhorse continued to develop and refine its electric truck technology, facing ongoing challenges in scaling up production and meeting customer demand.
In 2020, Workhorse made progress in expanding its product portfolio, unveiling new electric delivery van models like the W-15 and W-45. The company also began deploying its trucks with select customers, including partnerships with major delivery fleets. However, Workhorse continued to face supply chain issues, production delays, and financial constraints that hampered its ability to ramp up operations.
Despite the challenges, Workhorse has managed to establish itself as a player in the emerging commercial electric vehicle market. In 2023, the company recorded its first meaningful revenue from truck sales, although it continued to report net losses as it invested heavily in R&D and production capacity. Key milestones for Workhorse included securing a partnership with FedEx to supply electric step vans and receiving certification for its vehicles from regulatory bodies like the EPA and CARB.
Product Portfolio
Workhorse's core business is the design and production of all-electric truck platforms, which include the W4 CC, W56, and W750 models. These electric trucks are targeted at the last-mile delivery market, aiming to capitalize on the increasing demand for zero-emission commercial vehicles.
The W4 CC is a compact, purpose-built electric delivery truck designed for urban and suburban environments. The W56 is a larger step van platform, available in both a standard and an extended 208-inch wheelbase version, catering to a variety of last-mile delivery applications. The W750 is a heavier-duty electric truck platform designed for broader commercial use cases.
During the first nine months of 2024, Workhorse continued to execute on its strategic product roadmap, focusing on product quality, manufacturing capacity, and operational planning to enable increased deliveries and deployments of its electric truck offerings. The company received a purchase order from FedEx Corporation for 15 W56 step vans to be delivered in 2024.
Financial Performance and Liquidity
Financials
Workhorse's financial performance has been mixed in recent years. In 2023, the company reported net revenues of $13.09 million, a significant decline from the $5.02 million recorded in 2022. This decrease was largely attributed to slower-than-anticipated industry-wide electric truck adoption rates and a lack of government subsidies and incentives available to Workhorse's dealers.
The company's net loss for 2023 stood at $123.92 million, compared to a net loss of $117.27 million in 2022. Workhorse's negative cash flow from operating activities was $123.02 million in 2023 and $93.82 million in 2022, reflecting the company's ongoing challenges in generating positive cash flow. The annual free cash flow for 2023 was negative $141.71 million.
For the first nine months of 2024, Workhorse's sales, net of returns and allowances, were $4.69 million, down from $8.69 million in the same period the prior year. The decrease in sales was primarily due to lower W4 CC truck sales, which was partially offset by an increase in W56 truck sales and other service revenue.
In the most recent quarter (Q3 2024), Workhorse reported quarterly revenue of $2.51 million and a quarterly net loss of $25.14 million. Year-over-year revenue decreased 17.2% primarily due to the non-recurrence of a $2.3 million sales allowance reversal in the prior year period. The decrease in revenue was partially offset by an increase in W4 CC and W56 truck sales.
Cost of sales for the nine-month period ending September 30, 2024, was $21.39 million, up from $20.31 million in the prior-year period. The increase was primarily driven by a $3.50 million increase in inventory reserves and a $2.80 million increase in depreciation expense, partially offset by lower direct material costs and a reversal of warranty expenses.
Selling, general, and administrative (SG&A) expenses decreased to $33.88 million in the first nine months of 2024, compared to $40.45 million in the same period of 2023. The decrease was mainly attributable to lower employee compensation and related expenses, consulting expenses, and marketing expenses.
Research and development (R&D) expenses also decreased to $7.83 million in the first nine months of 2024, down from $18.06 million in the prior-year period. The decline was driven by lower employee compensation, prototype expenses, and consulting expenses related to the company's product development efforts.
Liquidity
Workhorse's liquidity position has been a concern, with the company reporting $35.85 million in cash and cash equivalents as of the end of 2023. As of Q3 2024, the company's cash position had decreased to $3.24 million. The company's working capital stood at $40.54 million at the end of 2023, down from $76.05 million in 2022, indicating the need for additional financing to support its operations and growth plans.
The company's debt-to-equity ratio was 0.35 as of Q3 2024. Workhorse has a $175 million at-the-market equity program, of which $95.6 million remained available as of Q3 2024. It also has access to additional financing through its 2024 Securities Purchase Agreement. The company's current ratio stood at 1.16 and its quick ratio at 0.28 as of Q3 2024.
Workhorse's ability to continue as a going concern is contingent upon the successful execution of management's plan to improve the company's liquidity and working capital through measures such as generating revenue, reducing expenses, and raising additional capital.
Operational Highlights and Challenges
One of Workhorse's key operational highlights in recent years was the securing of a three-year master framework agreement with FedEx in 2024. This milestone agreement, which included an initial purchase order for 15 W56 step vans, represents a significant validation of Workhorse's products and capabilities within the commercial EV market.
However, the company has also faced several operational challenges. Workhorse has struggled with slower-than-expected market adoption of its electric trucks, which has contributed to its financial difficulties. Additionally, the company has grappled with supply chain disruptions, commodity price volatility, and the impact of inflationary pressures on its operations.
In response to these challenges, Workhorse has implemented a series of cost-saving measures, including a 20% reduction in its workforce, furloughs, voluntary attrition, and the divestiture of its Aero drone business. These actions are aimed at improving the company's financial position and extending its operational runway as it continues to navigate the complex commercial EV landscape.
Regulatory and Political Landscape
The commercial EV sector, including Workhorse's operations, is heavily influenced by regulatory and political factors. The company has benefited from various government incentives and subsidies, such as the California Air Resource Board's Advanced Clean Fleet regulation and the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP) program.
However, the political landscape surrounding energy policy and fleet electrification remains uncertain, with the potential for changes in administration and policy priorities. Workhorse has stated that it will closely monitor these developments and adjust its business and operating plans accordingly.
Industry Trends and Market Outlook
The commercial electric vehicle market is expected to see strong growth, with a compound annual growth rate (CAGR) of over 30% from 2023 to 2030. Factors driving this growth include increasing government regulations and incentives, as well as growing corporate sustainability initiatives.
Workhorse believes that at least one or two larger national last-mile fleets are committed to EV transition plans, particularly in California and the Pacific Northwest, and they intend to earn that business. The company also expects government-funded fleets in California, the Pacific Northwest, and the Northeast to place orders for Class 4-6 commercial EVs in late 2024 or early 2025.
Additionally, Workhorse continues to have discussions with federal government agencies on product demos and potential pilot purchase orders, which could lead to orders following their recent GSA contract award.
Risks and Uncertainties
Workhorse faces a number of risks and uncertainties that could impact its future performance. These include:
1. Ongoing liquidity and capital constraints: The company's negative cash flow and limited access to additional financing could hinder its ability to meet customer demand and execute its growth strategy.
2. Increased competition: The commercial EV market is becoming increasingly crowded, with established OEMs and new entrants vying for market share.
3. Technological and regulatory changes: Rapid advancements in battery technology and evolving regulatory requirements could require Workhorse to continually adapt its product offerings.
4. Supply chain disruptions and cost pressures: Volatility in commodity prices and ongoing supply chain challenges could impact the company's ability to produce and deliver its vehicles on time and at cost-effective prices.
5. Regulatory and political uncertainties: Changes in government policies, incentives, and mandates related to commercial EV adoption could significantly affect Workhorse's business.
Outlook and Conclusion
Despite the challenges it has faced, Workhorse remains committed to its vision of pioneering the transition to zero-emission commercial vehicles. The company's recent successes, such as the FedEx agreement and government contract wins, demonstrate its ability to deliver innovative and reliable electric truck solutions to the market.
Workhorse is focused on securing new orders, delivering products to customers, and advancing its product roadmap. The company's near-term priorities include capitalizing on opportunities with large national last-mile fleets, government-funded fleets, and potential federal government contracts.
However, Workhorse's long-term success will depend on its ability to navigate the complex and rapidly evolving commercial EV landscape. Securing additional financing, managing supply chain and cost pressures, and adapting to changing regulatory and political dynamics will be critical for the company as it strives to capitalize on the growing demand for sustainable last-mile delivery solutions.
As Workhorse continues to execute its strategic plan and work to address its operational and financial challenges, investors will be closely watching the company's progress and its ability to deliver on its long-term growth potential in the promising commercial EV market.