Merger Will Create A Leading North American EV OEM

Key Takeaways

• The merger with Motiv enhances product offerings, operational scale, and access to new customers, strengthening Workhorse's position in the medium-duty electric truck market.
  
• Greater efficiency, cost reductions, and expanded incentives access position the company for margin expansion and future revenue growth as fleet electrification accelerates.
  
• Heavy dependence on government incentives, persistent losses, dilution risks, fierce competition, and significant integration challenges threaten future profitability and shareholder value.

Catalysts

A technology company, engages in design, manufacture, and sale of zero-emission commercial vehicles in the United States.

• The recently announced strategic merger with Motiv is expected to create a leading North American medium-duty electric truck OEM, leveraging scale, a broader product portfolio, complementary customer bases, and enhanced manufacturing capabilities-this expanded scale and offering should drive future revenue growth and earnings visibility.
  
• Workhorse's demonstrated improvements in operational efficiency (e.g., record quarterly truck shipments, rising deliveries, and significant year-over-year reductions in SG&A and R&D costs) positions the company to achieve better gross and net margins as it gains scale and further streamlines production.
  
• The combined entity's ability to access voucher and incentive programs (such as New Jersey ZIP and California CARB incentives) and to meet rapidly tightening emissions regulations gives it a strong competitive position to benefit from accelerating fleet electrification mandates-supporting potential material increases in order volumes and therefore revenue.
  
• The merged company's consultative direct sales model, robust national dealer network, and entrenched relationships with large commercial fleets (including pilots and proven field operations) align well with rising e-commerce-driven last-mile delivery demand, expanding the addressable market and bolstering long-term top-line growth prospects.
  
• The expectation of margin expansion due to significant projected cost synergies (at least $20 million by end of 2026), stronger supply chain, and the pursuit of total cost of ownership parity with diesel vehicles, positions the combined company to capture outsized earnings gains as EV adoption among fleet operators accelerates.

Workhorse Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Workhorse Group's revenue will grow by 23.7% annually over the next 3 years.
• Analysts are not forecasting that Workhorse Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Workhorse Group's profit margin will increase from -760.7% to the average US Auto industry of 5.1% in 3 years.
• If Workhorse Group's profit margin were to converge on the industry average, you could expect earnings to reach $1.0 million (and earnings per share of $0.06) by about September 2028, up from $-81.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.2x on those 2028 earnings, up from -0.2x today. This future PE is greater than the current PE for the US Auto industry at 18.1x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Workhorse Group Future Earnings Per Share Growth

Risks

• The combined company is highly dependent on continued government incentives, vouchers, and regulatory support (e.g., California CARB, New Jersey ZIP, school and shuttle bus incentives). Management acknowledges that long-term success "must be competitive against internal combustion engines...no vouchers, no cost support, no other support," but commercial adoption has been delayed in part due to "a shifting political landscape and changing government regulations and incentives." Removal or reduction of these programs would significantly hurt future revenue growth and margin improvement.
  
• Workhorse has a history of significant net losses, negative operating margins, and persistent need to raise further capital (ongoing reliance on convertible notes, sale-leaseback, anticipated $20m debt at close, and additional future fundraising), indicating continued difficulty in reaching sustained profitability. This raises the risk of dilution for existing shareholders as well as potential insolvency risk if capital markets tighten or execution falters, threatening both earnings and equity value.
  
• The merger results in substantial dilution: Workhorse shareholders' ownership drops to just 26.5% of the combined entity on a fully diluted basis, with further future dilution possible due to warrant rights held by lenders and possible additional stock compensation, constraining future shareholder value from operational improvements.
  
• The competitive environment remains intense, with dominant global OEMs and incumbent automakers (many with superior scale and resources) pushing hard into the electric and autonomous commercial vehicle market. Management notes that "it gives us more scale...to compete more effectively with our industry's pure-play electric and legacy OEMs," yet there's an inherent risk that technological developments, pricing pressures, and fleet relationships could outpace Workhorse/Motiv's ability to keep up, leading to lower future revenue and margin compression.
  
• There remain unresolved potential operational and product risks, including integration risk post-merger (matching overlapping product lines, battery suppliers, and supply chains), historical challenges with scaling production ("balance sheet that's a little bit risky...large customers previously reluctant to commit"), and execution risk around further product launches and achieving promised unit cost reductions. Any setbacks here could undermine expected cost synergies and revenue growth, harming long-term earnings and cash generation.

Valuation

• The analysts have a consensus price target of $1.5 for Workhorse Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $20.3 million, earnings will come to $1.0 million, and it would be trading on a PE ratio of 37.2x, assuming you use a discount rate of 12.3%.
• Given the current share price of $1.3, the analyst price target of $1.5 is 13.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.