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Sunday, February 5, 2023

Workhorse Stock Won’t Bring Quick Gains, but It’s a Long Term Buy

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If there’s one assumption we can make about the auto-industry in the corona-economy, it’s that the markets are wild for electric vehicles (EV), specifically those made by Workhorse Group (NASDAQ:WKHS). WKHS stock has had a really good run.

A Workhorse (WKHS) W-15 hybrid electric pickup truck on display at a branding event in Flatiron Plaza in New York.

Source: rblfmr / Shutterstock.com

The Ohio-based automaker hopes to disrupt the shipping industry with its all-electric commercial vans that could improve the speed and agility of corporate supply chains. Workhorse’s strong presence in an attractive market has made WKHS stock a solid buy in the current environment.

Riding on the Tesla (NASDAQ:TSLA) highs, up-and-coming EV stocks have been on many investors’ radars this year. WKHS stock rallied over 400% this year and continues to thrive in a niche but growing market with a number of high-profile deals in the pipeline. Here’s why this stock is worth your time.

WKHS Stock Soars After Hitachi Deal

As EV manufacturers continue to dominate the world of consumer cars, WKHS is taking its innovation to the commercial sector. The current market for delivery vehicles in the U.S is worth over $18 billion and Workhorse Group’s proprietary technology for commercial vans means that the company has the opportunity to scale at an unprecedented rate.

Given that electric vehicles for commercial use are still a fairly novel concept, WKHS has a lot to prove with the release of its “next-gen delivery vehicles.” The company’s latest partnership with Hitachi America (OTCMKTS:HTHIY) will be its key ingredient for success in its upcoming launch.

As part of the deal, Hitachi will act as a strategic partner and assist WKHS with its operations and supply chain. The two companies will also work closely to develop a network and help customers and franchisees finance the vans.

This agreement will help WKHS spearhead its growth in the U.S market and mark its territory in the competitive world of electric vehicles. The company will be able to leverage Hitachi’s large presence and network to ramp up production of its new line of C-Series vans. The deal increased investor’s bullish sentiment and WKHS stock rose by 12.3% following the announcement.

Exciting Partnerships Ahead

Tesla’s unprecedented levels of growth this year has made electric vehicles one of the hottest sectors in the market and is a major reason for WKHS’ strong rally. The company that was once considered too small and too new to take on this high-growth market now stands to gain a lion’s share in the commercial van industry with a number of exciting deals in the pipeline.

In addition to its Hitachi partnership, WKHS is currently bidding for a contract with the U.S Postal Service. The USPS made headlines recently over discussions on whether mail-in ballots will take precedence over in-person voting in the November election.

The postal service currently uses a traditional vehicle that lacks essential functions like air-bags or air-conditioning. Partnering with an electric vehicle company to deliver mail could improve the speed and agility of the process. Workhorse is currently in a bidding war with four other companies for a contract that will be worth north of $6.3 billion. A deal with USPS could make WKHS a major player in the commercial van sector.

As traditional companies hope to streamline their operations with more fluid vehicles, the growth in e-commerce has also created a demand for electric vans. Using electric vehicles to get the job done has two key benefits as reported by The New York Times. First, the duty cycle of mail delivery, which includes short trips and lots of breaks, can be more efficient with an electric vehicle.

Second, studies show that by the mid-2020s, the cost economies of electric vans will equate to its fuel-consuming counterparts. In some cases, EVs may even come with a lower price tag. The underlying benefits of “electrifying” commercial vans led the mail delivery giant, UPS (NYSE:UPS), to place an order for 950 Workhorse delivery trucks.

As the effects of climate change and the corporate carbon footprint become the foundation for business decisions, companies that rely on trucks as part of their supply chain system are likely to make the switch to electric vans in the next few years. WKHS stock is well-poised to benefit from this emerging trend.

The Bottom Line on WKHS

Although WKHS’ potential for growth is undeniably vast, it’s also worth noting that the company is not yet profitable. In its most recent earnings, the company reported a loss of $.176 per share and a decline in sales of $100,000. But analysts believe that there is still reason to remain confident in the future of the company.

The company is still in its growth stages and is working on ramping up production in the current year. WKHS has successfully secured the required safety approvals and is expected to produce 300 to 400 vans by the end of the year. The stock also gained 860% during Q2 which ate into its accounting costs.

With a successful partnership with Hitachi and many more exciting deals in the pipeline, WKHS stock will make some big gains in the coming years. If short-term returns are your main goal, it would be best to stay on the sidelines for now but if you in it for the long-haul, jump in while prices remain low.

Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020. On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

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