A rise in Government initiatives to go electric, along with a rise in demand for zero emission vehicles, especially in the logistics and e-commerce sector, could fuel the commercial electric vehicle (EV) market.
According to a MarketsandMarkets research report, the electric commercial vehicle market, which was at an estimated 129,000 units last year, is expected to reach 2,026 thousand units by 2028. That indicates a compounded annual growth rate (CAGR) of 41.1%.
Using the TipRanks Stock Comparison tool, let us compare two commercial electric vehicle companies, Lordstown Motors and Workhorse Group, and see how Wall Street analysts feel about these stocks.
Lordstown Motors (RIDE)
Lordstown Motors intends to design, develop and manufacture its first electric full-size pickup truck, Endurance, and sell it to commercial fleet customers. This is part of the company's plan to develop all-electric vehicles targeting the commercial market.
The company’s factory located in Lordstown, Ohio spans 6.2 million sq.ft. and is in “a near-production-ready state.” RIDE introduced Endurance in June last year and is building beta vehicles in the first half of this year. The company stated in its first quarter press release that it had built 48 out of 57 beta vehicles so far and intends to conclude its beta program by the end of this month.
The company intends to start the production of Endurance in a limited capacity in late September of this year.
In the first quarter, the company reported a net loss of $125 million that was wider than a loss of $11.86 million in the same quarter last year. Lordstown incurred a capex of $53 million in Q1 and expects this capex to range between $250 million to $275 million in FY21.
However, insufficient funds could hamper the operations of the company. RIDE stated in its amended annual report filing on June 8, “Our current budget only provides for limited commencement of production in 2021. Additional funding is needed for production in 2022 and beyond and to continue our ramp up to full commercial production. The amounts required may be significant.”
The company further added that its cash and cash equivalents as of December 31, 2020 were not sufficient “to fund commercial scale production and the launch of sale of such vehicles. These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of at least one year from the date of issuance of the consolidated financial statements included in this report.”
However, the company’s management tried to alleviate these concerns in its first-quarter filing on June 8. RIDE said in its filing that the “management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic partners or through obtaining credit from government or financial institutions.” (See Lordstown Motors stock analysis on TipRanks)
Last month, BTIG analyst Gregory Lewis lowered the price target from $40 to $20 (78.1% upside) and reiterated a Buy on the stock. The analyst noted that the price target of $20 “…is based on production of ~50,000 trucks at $55,000 per truck, which points to a ~1.2x EV/Sales multiple.”
Regarding the lack of funds issue, Lewis noted in the research report, “We expect management to look to add $200-$500M in debt capital (currently RIDE has no debt), which should provide RIDE ample liquidity to scale up Endurance production, build out its service network, and add another production line to the Endurance frame.”
RIDE expects operating expenses to rise in FY21 and to range between $335 million and $350 million. Lewis commented on the raised Opex outlook, “OPEX raise was largely driven by increased insourcing (frame tooling, a second battery line, and increased hub motor capacity), which, though we believe it was a smart longterm move, requires upfront capital.”
While supply chain constraints are hitting other automakers, Lewis noted, “…RIDE has existing battery cell supply contracts with two of the largest suppliers. Additionally, management said they have largely secured their supply chain in the near term, noting that Lordstown's near-term production is 1,000s of trucks, not 10,000s of trucks, over the next few quarters.”
Interestingly, RIDE entered into a transaction with Workhorse Group (WKHS) in November 2019, wherein RIDE would obtain certain intellectual property of Workhorse Group. In return, WKHS received 10% of Legacy Lordstown’s outstanding common stock and royalty payments that would be 1% of the gross sales price of RIDE’s first 200,000 vehicle sales.
The Street is sidelined on the stock based on 1 Buy, 4 Holds, and 3 Sells. The RIDE average analyst price target of $9 implies approximately 19.9% downside potential to current levels.
Workhorse Group (WKHS)
Workhorse Group manufactures all-electric delivery trucks and drone systems and also sells the technology for electric vehicle trucks. The company’s electric vehicle trucks target the Class 2-6 commercial-grade, medium-duty truck market.
Last month, the company reported its Q1 results with sales of $521,000, up 5.2% year-over-year, driven by a rise in the deliveries of its C-Series truck deliveries. The company delivered six trucks in the first quarter and has produced 38 C-Series vehicles year-to-date. However, WKHS had an adjusted operating loss of $16.5 million in Q1 versus an adjusted operating loss of $9.1 million in the same quarter last year.
Following the results, Oppenheimer analyst Colin Rusch assigned a Hold on the stock. Rusch said in a research note to investors, “We continue to see a very challenging environment for production given supply chain dislocation while demand remains very strong as evidenced by WKHS's existing order book.”
Considering the supply chain constraints, WKHS has adjusted its production estimate for this year to 1,000 units. Rusch commented on the production estimate, “Management downwardly revised its FY21 vehicle production target to 1,000 (from 1,800), as it continues to face various supply chain challenges. The company expects that sum to be heavily 2H21=weighted, and still anticipates gross margins to be negative through FY21 before turning positive in FY22.”
Last month, Workhorse entered into a strategic development agreement with EAVX, a subsidiary of J.B. Poindexter & Co., to expand the company’s product line with a next-generation delivery vehicle and provide solutions for new customer segments. J.B. Poindexter & Co. provides commercial vehicle body solutions. (See Workhorse Group stock analysis on TipRanks)
The analyst commented on this strategic agreement, “We would not be surprised to see the companies begin working together on opportunities near term as well with Poindexter customers as they work toward building plans to meet zero-emissions commitments and begin integrating UAV [unmanned aerial vehicle] functionality.”
Workhorse has also entered into a supply agreement with Coulomb Solutions, Inc. for the supply of Commercial Vehicle Battery Systems to its electric delivery vehicles.
Rusch gave the rationale for the Hold rating on the WKHS stock, saying, “Given its augmented balance sheet, we believe the company is positioned to navigate the challenges of the ramp. We remain on the sidelines as WKHS optimizes operations looking for the company to reach scaled production.”
Consensus among analysts on Wall Street is a Moderate Buy based on 3 Buys and 4 Holds. The WKHS average analyst price target of $15.70 implies approximately 7.1% downside potential to current levels.
Bottom Line
It seems that both the commercial vehicle companies, Lordstown Motors and Workhorse Group are going through a tough time right now. While RIDE is scrambling for funding and looking at various funding alternatives to stay afloat, WKHS is attempting to scale up its operations, but the company is hit by supply chain constraints.
Analysts are sidelined on RIDE as questions regarding additional funding remain, while they are cautiously optimistic about WKHS.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
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