Chronicle Journal: Finance

Nikola or Workhorse: Which Electric Truck Manufacturer is a Better Buy in 2021?

While there will be increasing demand for electric vehicles (EVs) over the next decade, there will be many upstarts and legacy companies fighting for market share. Two companies in the upstart category are Nikola (NKLA) and Workhorse (WKHS). Let’s find out which of these two stocks is a better investment.

Nikola Corp. (NKLA) and Workhorse Group, Inc. (WKHS) are two of the world's emerging electric truck manufacturing companies. NKLA operates as an integrated zero-emissions transportation systems provider. WKHS is primarily a technology company engaged in the designing, development, manufacture, and sale of electric medium-duty trucks and unmanned aerial delivery systems that are integrated into electric vehicles (EVs).

EVs are expected to dominate the passenger car space in the future. And, as battery costs reduce eventually, electric trucks are also expected to be a common sight. So, both NKLA and WKHS are expected to gain in the future.

In terms of past six-month performance, WKHS is a clear winner with a 22.3% returns versus NKLA’s 76.3% loss. But which of these stocks is a better pick now? Let's find out.

Latest Movements

On December 23, NKLA announced that it has discontinued its collaboration with Republic Services, Inc. (RSG) on refuse truck development. Given the resources and investments required, the companies decided to terminate it as it would result in longer than expected development time and unexpected costs. NKLA named Mary L. Petrovich to its board of directors on December 23.

The company announced the signing of a non-binding Memorandum of Understanding (MOU) with General Motors Company (GM) on November 30. As per the terms of the MOU, the companies will work together to integrate GM’s Hydrotec fuel-cell technology into NKLA’s Class 7 and Class 8 zero-emission semi-trucks for the medium- and long-haul trucking sectors.

WKHS announced on November 9 that it has received a purchase order for 500 of its all-electric C-1000 delivery vehicles from Pritchard Companies for its National Fleet Program, which is being financed by Hitachi Capital America Corp. (HCA). The company submitted its formal “Type Certification” application to the Federal Aviation Administration (FAA) in October for its HorseFlyTM Unmanned Aerial System (UAS).

Recent Financial Results

NKLA completed the assembly of the first Nikola Tre in the third quarter (ended September 2020). However, it incurred a $117.3 million loss from operations. Moreover, the company reported a net loss of $117.5 million as compared to $15.5 million in the same quarter last year.

WKHS’s net sales increased to $564,707 for the third quarter ended September 30, 2020. However, the company incurred losses due to increased interest expenses. The company also had to modify its assembly process, and limit production support from third-party sources due to the pandemic.

Expected Financial Performance

The market expects NKLA’s revenue to increase 69,322% next year. The company’s EPS is expected to grow at a rate of 20.6% per annum over the next five years.

On the other hand, the market expects WKHS’ revenue to increase by 6,934.5% next year. The company’s EPS is expected to grow 75% for the current quarter ending December 2020, and 82.5% next year.

Profitability

WKHS’s trailing-12-month revenue of $743.56 thousand compares to NKLA’s $144 thousand. However, NKLA is more profitable with a gross margin of 19.4%.

WKHS’ ROE of 831.1% compares favorably with NKLA’s negative value.

Valuation

In terms of trailing 12-month price/sales, NKLA is currently trading at 11496.4x, much more expensive than WKHS which is currently trading at 2270.01x. Moreover, NKLA is more expensive in terms of EV/Sales (36354.29x versus WKHS’ 3505.63x).

Thus, WKHS is the more affordable stock here.

POWR Ratings

While NKLA is rated “Sell” in our proprietary POWR Ratings system, WKHS is rated “Neutral.” Here’s how the four components of overall POWR Rating are graded for NKLA and WKHS:

NKLA has an “F” for Trade Grade, and Buy & Hold Grade, a “D” for Peer Grade, and an “A” for Industry Rank. It is currently ranked #27 of 35 stocks in the Auto & Vehicle Manufacturers industry.

WKHS holds a “D” for Trade Grade, and Peer Grade, a “C” for Buy & Hold Grade, and an “A” for Industry Rank. It is currently ranked #23 in the same industry.

The Winner

With governments across the globe taking initiatives to transition to a sustainable future, there is no doubt that electric vehicles will be in demand. However, both NKLA and WKHS need to make further advancements to dominate the electric truck space amid rising competition. In addition to the factors discussed here, higher earnings growth potential and relatively lower valuation make WKHS a better choice.  

 

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WKHS shares were trading at $20.67 per share on Thursday morning, down $0.60 (-2.82%). Year-to-date, WKHS has gained 579.93%, versus a 17.79% rise in the benchmark S&P 500 index during the same period.



About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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