Workhorse Group Inc. (NASDAQ: WKHS) signed several partnership deals to leverage its intellectual property in electric trucks and drones in the third quarter while more than doubling its loss of a year ago.
Workhorse recorded sales of $4,000 in the third quarter, down from $11,000 in the third quarter of 2018. It delivered fewer trucks but at higher prices.
"We are in the final stages of transition from our first-generation vans to the next generation," Workhorse Chief Financial Officer Paul Gaitan said on a Nov. 8 conference call with analysts. "The absence of significant revenue is primarily due to migration to this new platform."
Workhorse's $11.5 million loss in the third quarter more than doubled its $5.5 million net loss in the third quarter of 2018. Higher interest expense and more debt on its books accounted for much of the loss, the company reported.
Research and development spending rose 13% because of prototype development. As of Sept. 30, the company had assets of $9.3 million compared to $1.5 million on Dec. 31, 2018. The third-quarter cash burn consumed nearly all of a $25 million capital raise in the second quarter.
"Strongest Position To Date"
Cincinnati-based Workhorse licensed intellectual property for its electric pickup truck to Lordstown Motors Corp., founded by former Workhorse CEO Steve Burns. Workhorse received a non-dilutive 10% stake in Lordstown Motors, which purchased the 6.2-million-square-foot complex in northeast Ohio from General Motors Co. (NYSE: GM) on Nov. 7.
"This transaction is of tremendous value to Workhorse," CEO Duane Hughes said on the call with analysts. Workhorse gets a 1% royalty on each of the first 200,000 electric trucks Lordstown Motors sells. It also gets an advance on the royalty payments equal to 1% of the capital the new company raises.
Neither Burns nor GM would comment on the sale price of the plant or how much money Lordstown Motors has paid to GM so far. Burns also declined to say how much money he is trying to raise, but he hopes to retool the plant to begin producing electric pickups in 2020.
The Lordstown complex covers 740 acres with more than 1,200 manufacturing robots and has remains of "an experienced workforce that has been producing automobiles for generations," Hughes said. Most of the 1,400 workers in Lordstown have accepted jobs at other GM plants.
Burns, who also founded Workhorse and was CEO until February, is counting on Workhorse technology to build an electric pickup called Endurance for fleet customers. Lordstown Motors also assumed 6,000 preorders worth $300 million that Workhorse had for a consumer version of the W-15 electric pickup.
Workhorse would receive a 4% commission from Lordstown Motors on each of the W-15 trucks converted to a letter of intent. The arrangement allows Workhorse to avoid raising "the hundreds of millions of dollars it would take to bring the W-15 to market," Hughes said.
Manufacturing pickups at Lordstown and delivery vans at its own plant in Union City, Indiana, "affords Workhorse a footprint unrivaled in commercial electric truck manufacturing," Hughes said.
"Put together, Workhorse occupies its strongest position to date, both operationally and financially," he said.
C-Series Delivery Vans
Meanwhile, Workhorse expects to begin producing its C-Series delivery vans late this year at the Union City plant. The company expects to build 14 to 20 electric delivery vans a day in 2020, clearing a 1,100-unit backlog and building additional vans, Hughes said.
The backlog, including an order from United Parcel Service (NYSE: UPS), is worth about $70 million, Hughes said on the conference call. Once Workhorse reaches 20 units a day, it would consider adding automation at Union City, he said.
The manual building process of the composite bodies requires no welding, which streamlines manufacturing, Workhorse Chief Operating Officer Robert Willison said.
Workhorse held a ride-and-drive of the 1,000-cubic-foot and 650-cubic-foot versions for potential customers on Nov. 5 at the Transportation Research Center in East Liberty, Ohio. The C-1000 is one of eight final-mile configurations Workhorse plans. They include cargo volumes of 250, 450, 650 and 1,200 cubic feet, plus a refrigerated cold cube package and two flatbed variants.
Duke Energy Partnership
An affiliation with Duke Energy Corp. (NYSE: DUK) to lease batteries to delivery van customers and provide charging infrastructure frees Workhorse to focus on building trucks while reducing its financial exposure. Workhorse earlier sold its battery pack inventory to Duke Energy.
"The Duke alliance along with the battery-leasing option will help us overcome one of the biggest objections to fleets buying Workhorse electric vehicles at scale," he said.
Certain locations could include solar installations to lower the kilowatt-hour price for electricity, Hughes said. Workhorse has battery leasing models and pricing worked out.
SureFly To HorseFly
Workhorse sold its SureFly electric vertical takeoff and landing personal helicopter to aerospace and defense contractor Moog Inc. (NYSE: MOG-A) for $4 million, which will be booked in the fourth quarter.
Burns developed the SureFly and was tasked with finding a buyer to help keep Workhorse afloat financially and allow it to focus on truck-making, Hughes said earlier this year.
"It was a passionate project for me," Burns told FreightWaves. "I am happy to see it get a great partner. I think they found a good home for it."
Workhorse signed a 50-50 joint venture with Moog to further develop the truck-based HorseFly.
Separately, Workhorse is working with Unmanned Systems Operations Group Inc. (USOG) to pilot the HorseFly drone delivery program in the San Diego area. One of the goals is to enable the HorseFly to make multiple deliveries in a single flight, Hughes said.
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