Workhorse Group (NASDAQ: WKHS) continued to struggle in ramping production of its composite-body electric delivery vans, delivering just six units in Q1.

But the Cincinnati-based company said it has built 38 of its C-Series vans so far this year, most of those in April. Parts shortages and delivery uncertainty led to a downward revision in trucks Workhorse expects to build this year to 1,000 from 1,800.

“Bottlenecks within the global supply chain and offshore shipping delays of commodity raw materials and components as well as our initial stages of production limited our capacity to produce in the first quarter,” Workhorse CEO Duane Hughes said in a press release.

To some extent, Workhorse’s slow ramp-up has been influenced by circumstances out of its control. The current supply chain issues follow a COVID outbreak in the fourth quarter that affected 36% of the company’s workers. Before that, final safety certification and shortages of batteries stalled production.

“The entire industry has unfortunately experienced a slower output of vehicles,” Hughes said on the company’s conference call with analysts Monday. “We are certainly not immune. We expect the situation to remain challenging in the near term and for the rest of 2021.”

Workhorse shares traded at $8.38 intraday Monday, down 13.07%. It missed analysts’ estimates for revenue and income.

Living on borrowed money

Financially, Workhorse lives almost exclusively on borrowed money. The $205 million in cash on hand at the end of the first quarter is just over the $200 million Workhorse owes to a hedge fund in 2024, either in cash or shares of Workhorse stock priced at $35.29 each. Workhorse skipped a $2 million interest payment on the note in the quarter.

Its share price has plummeted from an all-time high of $42.18 since Workhorse lost out on a $6.8 billion U.S. Postal Service contract for Next Generation Delivery Vehicles that investors expected it to win.

Workhorse is investigating options to wrest at least part of the contract from Oshkosh Truck Corp. (NYSE: OSK), the surprise winner announced Feb. 23. Hughes offered no substantive update Monday.

The company lost $120.5 million in Q1 compared to a profit of $4.76 million a year ago. Workhorse spent about $250,000 to build each truck because volume was so low. Revenue was $521,000 compared to $84,000 in the year-ago quarter. 

Selling, general and administrative expenses rose to $6.9 million from $5.6 million as Workhorse added about 120 employees since the beginning of the year. It also spent more on consultants and research and development.

On a noncash basis, Workhorse saw its stake in Lordstown Motors Corp. (LMC) fall significantly as short seller Hindenburg Research accused the startup electric pickup truck maker of fabricating orders. 

Lordstown (NASDAQ: RIDE), founded by former Workhorse CEO Steve Burns, licensed the pickup truck technology from Workhorse in exchange for 10% equity and royalties on any pickup orders converted from bookings for the truck originally known as the W-15. Lordstown was expected to assemble the Postal Service vehicles if Workhorse won the contract.

LMC shares traded intraday Monday at $7.49, well below the March 31 close of $11.77 that Workhorse used to calculate its lost value.

“Should we choose to monetize our position in LMC, we believe our existing capital resources will be sufficient to support our projected funding requirements for several years, after which time additional funding will be required,” Workhorse said in its 10-Q statement filed Monday with the SEC. “However, if the opportunity arises, we may elect to raise additional financing in 2021.”

Backlog stable at 1,800

Workhorse will build about 10% of the projected 1,000 trucks this quarter, 30% in Q3 and 60% in Q4, Chief Financial Officer Steve Schrader said on the call. Canada’s Pride Group, which placed a multiyear order for 3,620 trucks, expects to get 20 this year. 

Pritchard Cos. received the six trucks Workhorse delivered during the quarter to use as demonstration units to generate orders for the 500 units it committed to purchase. Workhorse’s production backlog, not counting the out years of the Pride Group order, is about 1,800, No new orders were booked in Q1.

Workhorse thinks it can achieve a break-even margin sometime in 2022, Schrader said.That will require building about 200 trucks a month.

New partnerships and executives

Despite its precarious financial position, Workhorse continues to cut deals and expand its ranks of senior leaders. 

After experiencing delays in getting batteries, Workhorse signed an agreement with the U.S. distributor of batteries from China’s Contemporary Amperex Technology Co. (CATL), which supplies Daimler Trucks North America among others with lithium-ion batteries.

Workhorse also announced a partnership Monday with EAVX, a subsidiary of J.B. Poindexter, the parent company of Morgan Olson bodybuilders, to work on next-generation vehicles. The collaboration could go in several directions, Hughes said. Morgan Olson was tangentially involved in the Postal Service competition.

In April, Workhorse named veteran aviation executive John Graber as president of Workhorse Aerospace. He is overseeing the development and Federal Aviation Administration certification of the Workhorse Horsefly drone, which can autonomously launch from an opening in the roof of the C-Series van.

Graber is being paid $300,000 a year, plus a $100,000 signing bonus and stock grants equal to half his salary over three years.

On April 22, Workhorse hired Ryan Gaul as president of commercial vehicles, responsible for the Workhorse plant in Union City, Indiana, and the commercial vehicles division. Gaul is being paid $300,000 with a $25,000 signing bonus and stock grants equal to half his salary payable over three years.

Related articles:

Workhorse lawyers up in mail truck dispute with Postal Service

Oshkosh takes victory lap over Postal Service delivery truck contract

Workhorse share collapse raises pressure on debt repayment

Click for more FreightWaves articles by Alan Adler.