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Workhorse Electric Delivery Van Builds Lag As Backlog Swells

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Workhorse Group (NASDAQ: WKHS) built just seven trucks in the fourth quarter as its underdeveloped production systems and supply chain issues continued to hold down the electric maker's progress even as orders have grown sevenfold compared with a year ago.

"We are facing various supply chain challenges, both internal and external," CEO Duane Hughes said on the company's Q4 earnings call Monday. "Given our backlog, we cannot sacrifice future build volume for current-year production. Scaling up manufacturing properly has to take precedence."

So, Workhorse will continue to take it slow, striving to build three of its composite-body battery-electric trucks a day in March with a plan to reach 10 trucks a day by the end of June. The full-year goal of producing 1,800 trucks is a stretch, Hughes said.

The negligible volume also means Workhorse is paying more for parts and for delivery to the plant.

"We have completed the setup of the initial assembly operation and are using roughly 33% of the plant capacity," he said. "We have new hires in place to support the growing volume of daily vehicle production. And we have upgraded the assembly equipment on the line to make the manufacturing process even more efficient."

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Investors bid up Workhorse shares 7.24% to $17.34 Monday. The company lost more than half its value after OshKosh Truck Co. (NYSE: OSK) won a 10-year contract to build the next-generation mail trucks for the U.S. Postal Service

Supply chain and COVID setbacks

Shortages persist for battery packs and microchips for steering racks and body control modules. Workhorse has added a second supplier for battery packs and expects those to be validated this quarter.

"The real key here is making sure that we have all the appropriate production systems in place as well as equipment, that allow us to make jumps from three to 10 [trucks a day] and 10 and more going into the future," Hughes said.

After a November COVID outbreak that further slowed progress at its plant in Union City, Indiana, Workhorse accelerated installation of production systems following an efficiency assessment by Hitachi. Those systems replace the "brute force method of getting trucks out the door," Hughes said.

Timing breaks on growing backlog

Workhorse has more than doubled its headcount from 90 last November to more than 200, including contractors. The order book of 8,000 trucks compares to 1,100 a year ago. Commercial vehicle distributor Pritchard Cos. is leading a 20-city tour with two C-1000 vans to gain exposure and more orders.

A 6,320-unit order from Canada's Pride Group in January is structured so Workhorse only needs to deliver 20 trucks in the second half of the year followed by 600 each in 2022 and 2023 and 5,000 in the last three years of the contract.

View more earnings on WKHS

Hughes declined specifics on when United Parcel Service (NYSE: UPS) would receive the 900 vans it ordered in 2018. UPS has charging infrastructure in San Diego to handle electric trucks, he said.

UPS is waiting for California incentives. The state Air Resources Board set aside $25 million under its HVIP program for 2021. But the program is not expected to be funded until the second half of the year. Workhorse vans qualify for a $45,000 voucher off the sale price.

Workhorse wants non-incentive-dependent customers, which it hopes to identify through the roadshow, Hughes said.

By the numbers

Mostly due to a $320 million valuation of its 10% stake in startup electric pickup truck maker Lordstown Motors Corp. (LMC) (NASDAQ: RIDE), Workhorse posted a Q4 profit of $322 million compared with $15.8 million in the fourth quarter of 2019. Workhorse licensed to LMC the technology that underpins its Class 1 battery-electric vehicle.

Workhorse sales were $652,000 compared to $3,000 in the fourth quarter of 2019. The increase resulted from building and delivering more trucks.

Expenses are rising as production ramps up. Workhorse will have negative gross margins this year and for the foreseeable future, Chief Financial Officer Steve Schrader said. Break-even is 200 trucks a month. Its profitability target will be met at 300-400 trucks monthly.

Related articles:

Workhorse may fight mail truck order awarded to Oshkosh

Workhorse share collapse raises pressure on debt repayment

Oshkosh beats Workhorse for Postal Service delivery vehicle contract

Click for more FreightWaves articles by Alan Adler.

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