Lordstown Motors’s destiny is predicated upon increased production of its Endurance EV pickup truck in late 2021, supplemented by possible manufacturing for Workhorse’s EV delivery vans.
Lordstown Motors (Nasdaq: $RIDE) is one of the latest electric vehicle (EV) manufacturers to utilize a special-purpose acquisition company (SPAC) to go public.
In mid-November 2020, $RIDE secured more than 50,000 pre-orders for its pickup truck, costing more than $52,500 each, ensuring a more than $2.5 billion revenue stream commencing in fall 2021 when the company rolls out its first deliveries.
Initially, the Endurance will be sold to fleet purchasers rather than to individual consumers.
If awarded a portion or the entire USPS contract valued in excess of $8 billion, $WKHS will provide additional revenue to $RIDE’s bottom line.
Despite a series of contract tenders won (UPS, Ryder, and Prichard Companies, to name a few), $WKHS’s delivery of its C-650 and C-1000 delivery vans has been less than impressive due to manufacturing constraints at its Loveland, Ohio headquarters and manufacturing plant in Union City, Indiana, even prior to the semi-lockdown scenarios caused by the ongoing Covid-19 pandemic.
During its Q3 earnings call in early November, Workhorse Group reported only seven deliveries during that quarter.
With a 10% stake in Lordstown Motors, Workhorse Group would turn to its affiliate to manufacture the last-mile delivery vans in bulk at $RIDE’s 6.2 million-square-foot plant it acquired from General Motors.
Both companies have touted additional headcount being added (more than 200 personnel for $WKHS as compared to an overall 500 headcount by year-end 2020 and 1,500 by year-end 2021).
Investment Thesis: To Pair or Not to Pair the Two Stocks
During the past few months, the share price for $WKHS and $RIDE have coincided. To a large extent, the daily performance and the general direction of these types of EV stocks tends to track the overall performance of the sector, led by Tesla.
The share prices of $RIDE and $WKHS have interestingly tracked along the same trajectories.
Lordstown’s financial performance would be more steady than Workhorse’s due to its extensive pre-order commitments from the fleet buyers and because of its manufacturing capacity. That said, Lordstown Motors has made it clear that the pre-orders are non-binding.
Even if a few pre-orders should get canceled, for whatever reason, (e.g. adverse economic circumstance of the sector or additional lockdown restrictions), Lordstown Motors distinguishes itself from Workhorse and other competitors as it has a major manufacturing plant at its disposal.
Should Workhorse falter in its longstanding bid for a portion of the USPS NGDV contract (worst-case scenario: not even securing a portion of the tender), the share price impact upon Lordstown would be less than that of Workhorse.
For reference, Workhorse’s competitors for the NGDV contract are a consortium of Ford/Oshkosh and separately, Karsan. Some big boys.
Oft-delayed, the contract tender award announcement is expected by year-end 2020. Governmental procurement contracts of this nature tend to squeeze profit margins on bidders, who probably are in last-stage parallel negotiations with USPS at this writing.
Awards to two competitors may be likely due to the requirement of the USPS to replace rural delivery trucks that may require additional range not offered by Workhorse (i.e., procurement of fossil-fueled delivery vans).
On balance, should an investor take positions in both shares, it may be advisable to overweight an investment in $RIDE as compared with $WKHS.
Timing is critical as it is not certain that the USPS would not further delay the announcement of the NGDV contract into 2021.
Combining the two cult power stocks in the short-term will most likely do well in any portfolio. In the longer term it is important to keep an eye on the production fulfillment, as any hickups there will be devastating – remember Nikola?
EV’s are here to stay, question is which ones?