Workhorse’s new CEO admits the startup’s electric van is no workhorse

The new CEO of struggling EV startup Workhorse admitted Tuesday that he’s not sure the company’s C-1000 electric van can stand up to the kind of punishing work required by delivery companies. In other words, Workhorse’s EV isn’t a workhorse.

“As I’ve talked to the big customers at UPS, FedEx, others, they expect to have these trucks last 15 to 20 years and go 15 to 20,000 miles a year and carry up to seven or 8,000 pounds of payload,” CEO Rick Dauch said during a revealing conference call about the company’s third-quarter financial results. “I’m pretty darn sure the C-1000 can’t meet those kind of stringent requirements. Okay? That’s the bad news.”

More bad news? Not only does Workhorse have to redesign its flagship C-1000 delivery vehicle, but Dauch also said it might not be possible to salvage the van as a mass-production product.

The good news, Dauch said, is that prospective customers have told him they will take “every C-1000 [Workhorse] can build in 2022 so they can start demonstrating to their teams and their customers in the field how an EV vehicle works versus an [internal combustion] vehicle.”

Dauch believes there’s a lot of room for large electric commercial vehicles like the ones Workhorse has been developing — and, in fact, he said Tuesday that he’s been working with his new executive team to draft a refreshed product roadmap — but its best bet in the near term may be to sell demonstration vehicles to these apparently eager buyers. He said Workhorse has enough supplies on hand to build “somewhere north of 500 vehicles” in 2022 before it would need to bring in any new raw material. But even that’s only if Workhorse is able to fix the C-1000.

“If we can look each other in the eyes, and we can pass every single test, and we can make the modifications on the vehicles we’ve already built, and we can make those design changes on the next vehicles we build, then yes, we could probably do that, but we haven’t made that decision yet,” Dauch said.

Still, he said, “we are a real company and not a PowerPoint EV company,” as he guided investors through the presentation.

Dauch took over as CEO of Workhorse in July, at a time when the EV startup was in disarray. It was racing to ship electric delivery vehicles that we now know weren’t compliant with federal safety standards. It was building those vehicles with parts bought through online auctions and flown in from Asia, cementing their money-losing status. Even the factory in Union City, Indiana was surrounded by debris and unpaved roads, Dauch said Tuesday.

But now Dauch, who came from automotive supplier Delphi, has detailed a corporate exorcism he believes can save the struggling startup. He cleaned house at the leadership level. He recalled the unprofitable, non-compliant vehicles. He scuttled the company’s costly legal fight over the lost bid to build the next-generation mail truck for the US Postal Service. He even paved the roads at the Union City plant. And now he wants Workhorse to “pioneer the transition to zero emission commercial vehicles.”

“We’re taking the sometimes painful but necessary early steps to reshape our company to become a more focused and capable industry leader in the EV space,” Dauch said.

Surviving, let alone leading, will be a challenge. Workhorse confirmed this week that it’s under investigation from both the Securities and Exchange Commission and the Justice Department regarding allegations of fraud. (The company says it’s cooperating with the probes.) Workhorse has to navigate all of this while massive players like General Motors and Ford and well-funded startups like Arrival and Rivian push into the commercial EV space.

One “painful” step Dauch described Tuesday was recalling all 41 of the C-1000s that Workhorse had delivered this year — a decision that cost the company at least $1.1 million in the short term, leaving it with negative $576,000 in revenue for the quarter. (Workhorse posted an $81 million loss overall and has $230 million in the bank.) “Our current C-1000 vehicle design is not robust, nor is it profitable,” Dauch said on the call.

But the decision was necessary for two reasons, he explained. Most importantly, the C-1000s that went out to customers this year were not compliant with multiple Federal Motor Vehicle Safety Standards (FMVSS). Certain parts of the electronics were not up to snuff. Neither were the windshield wipers and defogging system nor the lamps and reflective safety devices.

“As a new startup company, we just weren’t experienced enough [around] some of the regulations and standards that we need to hold ourselves accountable to under FMVSS,” he said. While he expects Workhorse to be done putting the C-1000 through new testing by the end of the year, Dauch said he won’t put the van back on the road if it’s not safe. “I’m not going to jeopardize anybody’s life or any family’s lives on the road.”

Another “painful” step Dauch described Tuesday was cleaning shop at the executive and vice president level. That, too, was costly for the startup. Workhorse’s general and administrative expenses for the quarter were $4.6 million higher than compared to last year, in part because of severance packages for the people who got Workhorse into its current mess, including the former CEO, CFO, and vice president of finance.

Dispatching that team opened up room for Dauch to hire his own staff. He touted seven of them on the call, all men, most of whom have deep backgrounds in the automotive or related industries. And he said it would be up to them (and him) to rebuild Workhorse’s supply chain, retain customers while courting new ones, and chart a new course for the company’s products.

Dauch has made at least one decision since taking over that didn’t sound painful: abandoning the company’s lawsuit against the government, which it filed after it lost the contest to build the Postal Service’s next-generation mail truck. Workhorse was spending “a hell of a lot of money” on outside consultants, legal firms, and lobbying groups, Dauch said. In fact, he said Workhorse’s previous leadership team had been paying “five times more” for consultants than it would have been paying in-house employees for similar roles. “That’s just, like, almost ludicrous.”