Workhorse Electric Vans and Pickups Delayed by Financial Setbacks

Electric truck and drone developer Workhorse Group Inc. is postponing plans for an electric pickup and aircraft to focus on battery-powered lightweight vans. The change is needed to generate revenue to keep the company afloat.

The refocusing of the Loveland, Ohio-based startup has included changing chief executives, borrowing $35 million from a hedge fund and absorbing $8 million in warranty expense for defective battery packs in older electric vans. Workhorse also is trying to sell its hybrid “Surefly” octocopter design.

The board of directors has replaced founder Steve Burns as chief executive, elevating Chief Operating Officer Duane Hughes to the role. Burns remains a consultant. But his main role is leading the effort to sell the Surefly, the vertical takeoff and landing two-seat drone he invented.

“It’s time to focus on the things at our core, such as last-mile delivery vans, and really get down to turning Workhorse into a production-oriented company that’s going to make money,” Hughes told Trucks.com.

Workhorse has 1,100 orders for its NGEN-1000 electric vans. It also has 6,000 orders for the electric pickup truck it is delaying.

Workhorse teased the W15 pickup with media drives in 2017. Since then, startup Rivian has launched development of a battery-electric pickup and an SUV. With a recent $700 million investment by Amazon, Rivian is much better capitalized than Workhorse.

Without an estimated $40 million to $60 million from the sale of Surefly, Workhorse has just “one or two quarters of runway” to avoid a bankruptcy filing, said Carter Driscoll, a former stock analyst at MLV & Co. and Workhorse investor.

Patience and Optimism

Truck rental firm Ryder System Inc. is optimistic about Workhorse’s entries in the emerging alternative energy market.

“With the NGEN, Workhorse has reinvented the step van,” said Chris Nordh, Ryder’s senior director of advanced vehicle technology and energy products. “It is half as much weight with the same capacity.”

For now, NGEN van customers are waiting for production at a 50-acre former Navistar International Corp. plant Workhorse owns in Union City, Ind.

United Parcel Service, by far Workhorse’s biggest customer, ordered 950 NGEN-1000 vans in June 2018. Global logistics giant DHL GmbH ordered 63 of the

vans in February.

“We’re still working with them, and we’re making progress,” Carlton Rose, UPS president of Global Fleet Maintenance and Engineering, told Trucks.com. “I had personally expected to be further along. I know with new technologies come new challenges and delays.”

Cowen Inc. analyst Jeff Osborne has a $2 target price on Workhorse stock, about twice where it trades now. Osborne cut his target from $2.50 after fourth quarter and full year 2018 losses were deeper than expected.

Workhorse’s stock closed at .77 cents on Friday, March 25.

Financial Stress

Workhorse has almost no revenue, posting just $21,000 for the last three months of 2018, down from $5.2 million in the fourth quarter of 2017. The quarterly loss was $17.7 million, compared to a loss of $11.7 million a year earlier.

For all of 2018, sales were $763,000, compared to $10 million in 2017. The company lost $36.5 million last year, compared with a $41.2 million loss in 2017.

Workhorse reduced its loss by spending less on research and development for Surefly and an electric mail delivery van that it would build in partnership with V.T. Hackney. The two companies are one of five teams competing to build the next-generation delivery truck for the U.S. Postal Service.

Workhorse ended 2018 with $1.5 million in cash and short-term investments, compared to $4.1 million at the end of 2017.

Hedge Fund Lifeline

With practically no cash to buy parts, Workhorse pledged all of its assets at the end of the year to get a $35 million loan from Marathon Asset Management, a New York-based hedge fund. Workhorse spent most of the first $10 million to unwind a loan deal it signed last July with Arosa Capital. The remaining $25 million can be drawn down as needed, but not for everything.

The Marathon loan contract “doesn’t allow me to pay employees and keep the lights on, but for the first time ever, I can buy parts without using the precious equity that we raised,” Hughes said.

Charging Infrastructure

Workhorse also faces more hurdles such as whether commercial fleets are ready to switch to electric vehicles and a lack of charging infrastructure.

Workhorse is addressing those issues by working with Duke Energy Inc. The utility holding company is creating an E-Fleet Services business to finance infrastructure for businesses where electric trucks would charge at night.

Duke also recently purchased 615,000 Panasonic battery cells from Workhorse for $1.3 million, the first step in helping Workhorse get out of the battery supply business.

Duke plans to lease the batteries to Workhorse customers. It will then repurpose the batteries at the end of their eight-year warranty.

“Duke understands the hurdle here,” Hughes said. “It has always been a chicken and the egg. The fleet says ‘I need to put the infrastructure in and then I’ll buy the trucks.’ Then the utility says ‘Well, you buy the trucks, we’ll put in the infrastructure. You go first.’”

Pickup Plans

Duke also expressed interest a few years ago in ordering up to 500 of Workhorse’s W-15 extended-range electric pickup truck.

The pickup, delayed about two years so far, will be built if Workhorse successfully ramps up production and starts delivering the NGEN-1000 vans, Hughes said. The company said it expects van parts deliveries in 60 to 90 days, with assembly to start shortly thereafter.

Unlike the vans, the pickups will saddle Workhorse with the added expense of federal crash testing and buying and installing the federal requirement to be equipped with air bags.

The W-15 features an 80-mile electric range and has a gasoline generator that kicks in to keep the truck operating when its charge is depleted. It comes with advanced safety features like automatic emergency braking and lane centering.

If Workhorse can get to the W-15, it plans to repurpose as many components from the NGEN-1000 as possible. It will target commercial vehicle users.

Selling commercial electric pickups might not give Workhorse the kind of “sex appeal” other EV companies – such as Rivian – might have, Hughes said. But for now, businesses are a lot more likely than general consumers to buy electric vehicles at scale, he said.

The Horsefly delivery drone also is delayed. It was integrated with Workhorse’s E-15 electric truck and tested by UPS. But drones are not presently in UPS’s plans for domestic use, Rose said. The Horsefly showed it was capable of lifting off from the truck with a 10-pound package, delivering the package, and returning to the truck.

Workhorse conducted a recent drone delivery test, delivering several boxes of shoes sold by StockX, the startup company that created a market for vintage sneakers.

“It is not about being a flying machine,” Hughes said. “It’s about a last-mile delivery system solution.”