TSLA: Tesla vs. Workhorse Group: Which Stock is a Better Buy?

A Biden win is expected to bolster the already soaring EV industry, with numerous incentives and benefits from the Federal government. Biden’s $2 trillion plan covers the automobile sector as well, in the form of higher tax credits, more charging infrastructure, and a push to convert public vehicle fleets to all electric.

Also, the new administration is likely to restore trade relations with China, which is the biggest EV market in the world. This has positive implications for US-based companies such as Tesla, Inc. (TSLA) and Workhorse Group, Inc. (WKHS), which rely on China for raw materials such as lithium, as well as manufacturing and assembly equipment.

Though TSLA brough the EV industry on the radar with its efficient and safe cars, WKHS has been operating in this industry for quite some time now. The company is currently involved in developing electric trucks for bulk deliveries across the country, which is expected to be commercially launched next year. To that end, WKHS has been shortlisted for a United States Postal Service (USPS) contract estimated at over $6 billion, given its current progress in the production rate. Hence, even before being completely operational, the company has created hype in the market, as investors are expecting the stock to skyrocket upon launch of its vehicles.

Both companies have generated significant returns over the past five years. While TSLA gained 838.8% over this period, WKHS returned 346.1%. However, in terms of year-to-date performance, WKHS is the clear winner with a 523.7% gain versus TSLA’s 403.5% return.

But which stock is a better buy now? Let’s find out.

Latest Developments

TSLA has become a red-hot stock after registering record profits for the fifth consecutive quarter (ended September 2020). The company’s CEO, Elon Musk withdrew the fourth tranche of moonshot award following the impressive results, making him the largest gainer at $11.80 billion in the Bloomberg Billionaires Index.

TSLA is currently planning to launch three new electric vehicles in the near future, including the Tesla Cybertruck and 2 electric cars. It is planning to invest up to $12 billion in electric vehicles and battery factories over the next two years, with manufacturing facilities in three continents. The company raised $4.97 billion through an at-the-market stock offering in September to fund its capital-intensive projects in the near future.

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Moreover, TSLA is reportedly planning to launch its products in India in 2021. With a huge population and thereby market base, this expansion is expected to ramp up the profits for the company.

After successfully dominating the electric vehicle industry, TSLA is currently venturing into other sectors. The company’s prior acquisition of Solar city in 2016 has given it a smooth entry point in the solar panel manufacturing industry. CEO Elon musk expects this segment to become the next “killer product” by 2021. Total solar deployments in the third quarter that ended September 2020 more than doubled sequentially to 57 MV, while solar roof deployments tripled over this period.

TSLA also joined the tequila business on November 7^th, launching its uniquely shaped tequila bottles through its official website, which sold out within hours.

Following the news release of Pfizer and BioNTech vaccine, Musk confirmed that TSLA became the manufacturing partner for German biotech firm CureVac, and is currently in the process of developing RNA micro-factories and version 3 vaccine printers.

WKHS has made substantial progress in developing its Horsefly Unmanned Aerial System. It submitted a type certification application to the Federal Aviation Administration (FAA). If sanctioned, WKHS’ Horsefly commercial drone will be able to deliver parcels, carry sensors and cameras.

Earlier this year, WKHS’ C-series trucks received executive order from California Air Resources board, designating it as a zero-emission vehicle. This bodes well for the company, as it requires each of its vehicles to be tested as per norms set by the Environmental Protection Agency (EPA) as a part of its executive approval process. WKHS partnered with Hitachi America in August to streamline its production and delivery process by leveraging Hitachi’s industry knowledge in this field.

WKHS’s electric truck division is currently in the process of signing a contract with United States Postal Service (USPS) to become a prime supplier of electric trucks for delivering mail across the country. The company recently received orders for 500 electric trucks from Pritchard Auto Company.

Earlier this year in July, WKHS entered into an agreement to sell 950 electric delivery trucks to United Parcel Service, forming one of the largest EV orders of this base in the United States. The company also received a delivery order of 20 electric trucks from eTrucks company this month.

WKHS has raised approximately $540 million over the past couple of months through investments from institutional lenders and a senior notes offering, supplying the company with sufficient capital to finance its electric truck production to ensure timely delivery of the existing orders in place.

WKHS’ long time strategic partner Lordstown Motors Corporation has announced a SPAC agreement with DiamondPeak Holding Corp, following which Lordstown will become public. Post this transaction, WKHS will retain its 10% ownership stake in the newly merged company with an estimated valuation of $1.6 billion.

Recent Financial Results

TSLA reported impressive results for the third quarter that ended September 2020, surpassing analyst expectations. Its EV deliveries increased 7% year-over-year (subject to operating lease accounting) over this period. Revenue increased 39% year-over-year to $8.77 billion, while gross profit rose 73% from the same period last year to $2.06 billion. Its net income and EPS rose 131% and 69%, respectively. TSLA’s EPS for this period beat the consensus estimate by 33.3%.

WKHS’ net sales increased 131.62% year-over-year to $564,707 in the third quarter that ended September 2020. It is currently in the process of manufacturing electric trucks, with a production and delivery target of 1,800 vehicles in 2021.

Past and Expected Financial Performance

WKHS’s total assets grew at a CAGR of 36.1% over the past three years. Analysts estimate the company’s EPS to grow 58.3% in the current quarter, and 83.1% next year. The consensus revenue estimates indicate an 850,900% improvement in the current quarter, and a 4,942.4% improvement next year.

TSLA’s total assets grew at a CAGR of 17.6% over the past three years. Analysts expect TSLA’s EPS to rise 112.2% in the current quarter, and 70.4% next year. Consensus revenue estimates indicate 35.3% rise in the current quarter, and 45.3% growth next year.

Thus, WKHS has an edge over TSLA here.

Profitability

TSLA’s trailing 12-month revenue is 15,389.7 times what WKHS generates. Also, TSLA is more profitable with a gross margin of 21.1%, compared to WKHS’ negative values.

Furthermore, TSLA’s leveraged free cash flow margin and ROA of 8.4% and 2.7% compare favorably with WKHS’ negative values.

Valuation

In terms of trailing 12-month price/sales, WKHS is currently trading at 7233.88x, 525.5% higher than TSLA, which is currently trading at 13.74x. WKHS is also more expensive than TSLA in terms of trailing 12-month EV/Sales (11120.74x versus 14.25x).

Thus, TSLA is a more affordable stock here.

POWR Ratings

While TSLA is rated “Neutral” in our proprietary POWR Ratings system, WKHS is rated s “Sell”. Here’s how the four components of the POWR Ratings are graded for both these stocks:

TSLA has a “C” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is ranked #11 out of 32 stocks in the Auto & Vehicle Manufacturers industry.

WKHS has a “F” for Trade Grade and Buy & Hold Grade, a “D” for Peer Grade, and a “C” for Industry Rank. It is currently ranked #22 out of 32 stocks in the same industry.

The Winner

While both WKHS and TSLA are expected to benefit from the outcome of the presidential election, WKHS lacks fundamental strength. The company currently doesn’t have any products in the market and is still working on prototypes to be launched later this year. Even if its proprietary electric trucks prove to be efficient, the company has a long way to go to catch up to the industry leader TSLA.

TSLA, on the other hand, has brought about its own set of speculations in the market, despite being the largest EV manufacturer in the world. The stock has been long considered to be overpriced, even after a 5-for-1 stock split in August this year. Also, the company is now facing tremendous competition as mature players are entering the market along with newly emerged companies. Hence, it might be wide to wait for a better entry point for buying TSLA shares.

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TSLA shares were trading at $414.39 per share on Tuesday afternoon, down $6.87 (-1.63%). Year-to-date, TSLA has gained 395.29%, versus a 11.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...