Executive Summary / Key Takeaways

• Workhorse Group (WKHS) is undergoing a pivotal transformation, culminating in a definitive merger agreement with Motiv Power Systems, Inc., aiming to establish a leading North American medium-duty electric truck OEM.
• The strategic combination seeks to overcome historical liquidity challenges and slow market adoption by leveraging Workhorse's unique in-house manufacturing and proven W56 step van performance with Motiv's diverse product portfolio and fleet relationships.
• Recent financial performance highlights include a significant 2730% year-over-year revenue increase in Q2 2025 and substantial operating expense reductions, though the company continues to operate under a going concern warning and negative working capital.
• The merger is expected to bolster the combined entity's financial position with new debt financing and projected synergies of at least $20 million by the end of 2026, with a long-term goal of achieving total cost of ownership (TCO) parity with internal combustion engines.
• The investment thesis hinges on the combined company's ability to successfully integrate, expand its market reach, secure large fleet orders, and capitalize on its technological advantages within the evolving commercial EV landscape.

The Electrification Imperative: A New Chapter for Commercial Vehicles

Workhorse Group Inc. (NASDAQ: WKHS) stands at a critical juncture in its journey to pioneer the transition to zero-emission commercial vehicles. The company's core mission is to design, develop, manufacture, and sell fully electric trucks, primarily targeting the last-mile delivery market with robust, sustainable, and cost-effective solutions. This focus positions Workhorse within the burgeoning $23 billion medium-duty electric truck segment, a market ripe for electrification but one that has, to date, experienced slower-than-anticipated adoption rates due to a confluence of regulatory shifts, evolving government incentives, and persistent infrastructure challenges.

Workhorse's history reflects a journey of resilience and strategic adaptation. Prior to 2021, the company faced significant operational hurdles, including an outdated manufacturing facility and underperforming products. The arrival of CEO Rick Dauch in Q2 2021 marked a turning point, initiating a comprehensive rebuilding effort centered on transforming Workhorse into a streamlined, process-driven organization. This strategic pivot emphasized developing market-leading products known for reliability, durability, and a lower total cost of ownership.

Technological Edge and Operational Prowess

A cornerstone of Workhorse's strategy and a key differentiator in the competitive landscape is its unique manufacturing capability. Workhorse is the only North American OEM that produces complete electric step vans, including both the chassis and body, in-house at its Union City, Indiana facility. This vertical integration provides Workhorse with greater control over product quality, significantly shorter lead times, and enhanced customization flexibility, offering a notable 3-6 month advantage in delivery times from purchase order to customer compared to competitors who rely entirely on third-party body upfitters.

The company's flagship product, the W56 step van, has garnered strong positive feedback from early adopters, earning a reputation as a leading commercial EV step van on the market. Operational data from real-world deployments, including Workhorse's own "Stables by Workhorse" initiative (operating FedEx (FDX) Ground routes), demonstrates impressive performance. During the peak holiday season, W56 vehicles consistently achieved 93% to 97% uptime, a critical differentiator against both competitor EV products and older internal combustion engine (ICE) commercial vehicles.

The W56 also delivers compelling economic benefits. It achieves 27-31 miles per gallon equivalent at highway speeds, nearly three times the fuel efficiency of a typical ICE step van. This, combined with 53% lower fuel costs and 40% lower scheduled maintenance, translates to a total cost of ownership that can yield a payback in just four to five years, even without government subsidies. Workhorse continues to advance its product roadmap, with plans to launch a 140-kilowatt W56 variant in early 2026, specifically designed for fleets with lower daily mileage requirements, offering a more affordable upfront cost and further enhancing TCO. The integration of Geotab's advanced telematics into the W56 further empowers fleet managers with data-driven insights for optimizing routes, charging schedules, and battery usage.

Competitive Arena: Outperforming in a Challenging Market

The commercial EV landscape is dynamic, with a widening gap between "promise and production" among various manufacturers. Workhorse operates alongside a diverse set of competitors, including established automotive giants like Ford (F) and Tesla (TSLA), as well as other EV specialists such as Rivian (RIVN) and Nikola (NKLA).

Workhorse's in-house manufacturing capability provides a distinct advantage over rivals who are often reliant on external partners for critical components or body integration. While larger players like Ford and Tesla benefit from immense scale and broader brand recognition, Workhorse's focused approach on medium-duty commercial vehicles allows for specialized engineering and quicker adaptation to fleet-specific needs. Competitor vehicles have, in some instances, been observed sitting idle at customer terminals, awaiting parts or service, or exhibiting quality concerns, a stark contrast to the W56's demonstrated reliability and uptime.

Against other EV startups like Rivian and Nikola, Workhorse's proven field performance and established dealer and service network offer a more mature and dependable solution. While Rivian focuses on high-performance adventure and commercial vehicles and Nikola on hydrogen fuel cell technology, Workhorse's direct-to-fleet and dealer-supported model for last-mile delivery step vans provides a clear value proposition. The company's strategic decision to divest its Aero drone business in June 2024 further underscores its commitment to a singular focus on its core commercial EV truck business, aiming to streamline operations and enhance competitiveness.

A Pivotal Merger: Reshaping the Future

Recognizing the need for greater scale and financial stability in a capital-intensive industry, Workhorse announced a definitive merger agreement with Motiv Power Systems, Inc. on August 15, 2025. This strategic combination is designed to create a leading North American medium-duty electric truck OEM, leveraging Workhorse's proven vehicles, manufacturing capabilities, and national dealer network with Motiv's diverse product portfolio and established fleet relationships.

The merger is expected to yield significant operational and financial synergies, projected to reach at least $20 million by the end of 2026. On a pro forma, fully-diluted basis (prior to additional equity/convertible financing), Motiv's controlling investor will initially own approximately 62.5% of the combined company, Workhorse stockholders approximately 26.5%, and the 2024 Note Holder approximately 11%. This new capital structure is intended to provide a stronger financial foundation, addressing previous concerns from large fleets regarding Workhorse's standalone viability.

In conjunction with the merger agreement, Workhorse secured crucial near-term liquidity through a $20 million sale leaseback of its Union City manufacturing facility and a $5 million subordinated secured convertible note. These funds, along with a conditional $20 million debt financing commitment from Motiv's investor at closing, will facilitate the repayment of approximately $30.9 million in outstanding 2024 Notes and provide working capital. The combined entity plans to integrate product roadmaps, including the joint development of a Class 5/6 cab chassis, and will adopt a "team sell" go-to-market strategy, blending Motiv's direct sales approach with Workhorse's dealer network to better serve customers through the complex EV transition.

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Financial Performance: A Glimmer of Progress Amidst Headwinds

In Q2 2025, the company reported sales of $5.67 million, a substantial increase of approximately 2730% compared to $0.19 million in Q2 2024. For the first half of 2025, total sales reached $6.31 million, marking a 653% increase from $0.76 million in the prior-year period, primarily driven by increased W56 truck deliveries. Notably, Workhorse shipped 32 trucks in Q2 2025, contributing to a total of 35 trucks in the first half of 2025, surpassing the 29 trucks shipped in all of 2024.

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Despite this revenue growth, the company continues to operate at a gross loss, which was $7.38 million in Q2 2025. However, operating expenses have seen significant reductions. In Q2 2025, operating expenses decreased by $7.0 million year-over-year to $7.09 million, and for the first half of 2025, they were down $16.3 million year-over-year to $15.40 million. These reductions stem from lower headcount, reduced consulting, legal, professional, IT, and insurance expenses, and the divestiture of the Aero business. The net loss for Q2 2025 improved to $14.78 million from $26.32 million in Q2 2024.

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Workhorse's liquidity remains a critical area of focus. As of June 30, 2025, the company reported cash and cash equivalents of $2.19 million and restricted cash of $22.53 million, alongside a negative working capital of $9.8 million and an accumulated deficit of $888.78 million. These conditions raise substantial doubt about the company's ability to continue as a going concern, making the successful execution of the Motiv merger and its associated financing crucial. The company has also faced challenges with supplier payments and has increased inventory reserves due to slower-than-anticipated sales.

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Outlook and Strategic Imperatives

The outlook for Workhorse is now inextricably linked to the successful integration with Motiv Power Systems. The merger, expected to close in Q4 2025, is strategically timed to align with large fleets' budgeting and planning cycles for 2026. Management anticipates that the combined entity's strengthened balance sheet and expanded product portfolio will unlock significant new orders, particularly from national fleets and government entities that have publicly committed to EV transitions.

The combined company will offer a full range of Class 4 through 6 trucks, including the W56 140-kilowatt variant slated for early 2026 production, and will jointly develop a Class 5/6 cab chassis. Motiv's expertise in the bus and shuttle business also presents a new growth avenue. While specific annual revenue guidance is not being provided due to market uncertainties, management expresses optimism about increasing sales momentum. The long-term vision is to achieve cost parity with internal combustion engines, making electric trucks a compelling economic choice even without government incentives.

Risks on the Horizon

Despite the strategic promise of the merger, significant risks persist. The "going concern" warning highlights the company's precarious financial position, contingent on successful execution of its liquidity plans and the timely receipt of financing. The broader commercial EV market continues to face headwinds from slower-than-anticipated adoption rates, regulatory uncertainty, and the slow rollout of charging infrastructure.

The merger itself carries execution risks, including the possibility that closing conditions or regulatory approvals may not be met, or that integration challenges could disrupt operations. A potential termination fee of $1.05 million is stipulated if the merger agreement is terminated under certain circumstances. Furthermore, Workhorse has identified material weaknesses in its internal controls over financial reporting, related to third-party valuation and accounting personnel turnover, which require ongoing remediation. Supply chain disruptions, commodity price volatility, and broader macroeconomic factors like inflation and geopolitical tensions also pose ongoing threats to the company's operational and financial stability.

Conclusion

Workhorse Group stands at a transformative crossroads, seeking to redefine its trajectory within the burgeoning yet challenging commercial EV market. The strategic merger with Motiv Power Systems represents a bold move to consolidate strengths, enhance scale, and fortify its financial foundation. The investment thesis for Workhorse now hinges on the combined entity's ability to leverage its unique in-house manufacturing capabilities, the proven performance and TCO advantages of its W56 platform, and an expanded product portfolio to capture a larger share of the medium-duty electric truck market.

While significant financial and operational hurdles remain, including the "going concern" warning and the inherent volatility of the EV sector, the strategic consolidation offers a clear path toward greater competitiveness and long-term viability. Investors will closely monitor the successful integration of Workhorse and Motiv, the realization of projected synergies, and the conversion of strong customer interest into substantial, high-volume orders, particularly from large national fleets. The ability of the combined company to achieve cost parity with traditional ICE vehicles, driven by technological leadership and operational efficiencies, will be paramount in securing its position as a leader in the inevitable transition to zero-emission commercial transportation.