10-Q: Workhorse Group Reports Q3 2025 Results Amidst Merger

Workhorse Group Inc. reported a reduced net loss for Q3 2025, driven by cost-cutting and asset sales, while announcing a significant merger with Motiv Power Systems and ongoing liquidity challenges.

Summary

• Net loss for the nine months ended September 30, 2025, significantly improved to $43.3 million, compared to $80.6 million for the same period in 2024.
• Sales, net of returns and allowances, increased to $8.7 million for the nine months ended September 30, 2025, up from $4.7 million in the prior year, primarily due to increased W56 truck deliveries.
• Operating expenses decreased by $17.5 million to $24.3 million for the nine months ended September 30, 2025, largely due to cost-saving measures, lower headcount, and reduced R&D activities.
• The company entered into a Merger Agreement with Motiv Power Systems, Inc. on August 15, 2025, which, upon closing, will result in pre-Merger Motiv investors owning approximately 62.5% of Workhorse on a fully-diluted basis.
• A sale-leaseback transaction of the Union City, Indiana manufacturing facility generated $20.0 million in proceeds and a $13.8 million gain on sale of assets.
• Workhorse issued a $5.0 million Subordinated Secured Convertible Note to an affiliate of the Motiv Investor as part of the Convertible Financing.
• The company faces substantial doubt about its ability to continue as a going concern due to recurring losses, accumulated deficit of $896.6 million, projected capital needs, and lower than expected market demand.
• Material weaknesses in internal controls over financial reporting persist, related to the review of third-party valuation deliverables and insufficient internal resources in technical accounting and financial reporting.

Sentiment

Score: 2

Explanation: The company faces severe liquidity issues, a going concern warning, and ongoing operational challenges despite some cost reductions and a proposed merger. The significant dilution for existing shareholders and unresolved internal control weaknesses contribute to a highly negative outlook.

Positives

• Net loss for the nine months ended September 30, 2025, decreased to $43.3 million from $80.6 million in the prior year, indicating improved financial performance.
• Sales, net of returns and allowances, increased by $4.0 million to $8.7 million for the nine months ended September 30, 2025, driven by increased W56 truck deliveries.
• Operating expenses decreased significantly by $17.5 million for the nine months ended September 30, 2025, reflecting successful cost-saving measures, lower headcount, and reduced R&D.
• The sale-leaseback of the Union City, Indiana manufacturing facility generated $20.0 million in cash proceeds and a $13.8 million gain on sale of assets.
• Cash and cash equivalents increased to $12.7 million as of September 30, 2025, from $4.1 million at December 31, 2024.
• Working capital improved to $12.5 million as of September 30, 2025, from $8.2 million at December 31, 2024.
• The divestiture of the Aero business in June 2024 provided estimated monthly cost savings of approximately $0.4 million.
• The company regained compliance with NASDAQ's $1.00 minimum bid price requirement as of April 1, 2025.

Negatives

• Gross loss worsened to $19.6 million for the nine months ended September 30, 2025, compared to $16.7 million in the prior year, primarily due to increased inventory excess and obsolescence reserves.
• The company has an accumulated deficit of $896.6 million as of September 30, 2025.
• Substantial doubt exists regarding the company's ability to continue as a going concern within one year due to recurring losses, accumulated deficit, and projected capital needs.
• The ability to obtain additional financing is extremely limited under current conditions, and the company may need to seek bankruptcy protection if unable to obtain sufficient proceeds.
• Approximately $17.0 million of proceeds from the Tenth Additional 2024 Note remain in a lockbox account, subject to conditions for release.
• Inventory reserves increased by $4.5 million to $16.1 million as of September 30, 2025, primarily due to slower than anticipated truck sales.
• The company is overdue on payments to certain suppliers for outstanding accounts payable.
• The company recorded a net fair value loss of $6.8 million on warrants for the three months ended September 30, 2025, and $4.2 million for the nine months ended September 30, 2025.
• The company recorded a net fair value loss of $2.9 million on convertible notes for the three months ended September 30, 2025, and $7.8 million for the nine months ended September 30, 2025.

Risks

• Substantial doubt about the ability to continue as a going concern due to recurring losses, accumulated deficit, projected capital needs, and lower than expected market demand.
• Uncertainty regarding the consummation of the Motiv merger and the achievement of expected synergies and efficiencies.
• Potential regulatory delays and industry/market reaction to the merger announcement.
• Integration difficulties, time-consuming processes, or higher-than-expected costs and business disruptions related to the merger.
• Inability to obtain regulatory and other approvals required for the merger, including from NASDAQ.
• Challenges in developing and manufacturing the product portfolio (W4 CC, W750, W56) and attracting/retaining customers.
• Ongoing and anticipated changes in the U.S. political environment, including the Presidential Administration, Congress, and regulatory agencies, affecting subsidies, tariffs, and regulations.
• Supply chain disruptions, including constraints on steel, semiconductors, and other material inputs, leading to cost increases.
• Limited operations and the need to expand production processes to fulfill orders.
• Inability to raise additional capital to fund operations and business plans, with current financing options being extremely limited.
• Potential costs, dilution, and restrictions resulting from existing or future financing arrangements.
• Inability to maintain compliance with NASDAQ listing requirements, including new rules limiting reverse stock splits.
• Inability to protect intellectual property.
• Market acceptance of products and potential competition, including shifts in technology.
• Volatility and deterioration of national and international capital markets and economic conditions.
• Global and local business conditions, acts of war (Ukraine, Middle East), and terrorism.
• Inability to retain key members of the management team.
• Inability to satisfy customer warranty claims.
• Outcome of regulatory or legal proceedings, including with Coulomb Solutions Inc.
• Slower-than-anticipated industry-wide electric truck adoption rates and lack of government subsidies/incentives.
• Delayed governmental approvals in certain states and slower roll-out of charging infrastructure.
• Potential negative impact from proposed changes to California's HVIP and removal of the Federal 45W tax-rebate.
• Continued cost increases for key materials (lithium, cobalt, nickel, steel, aluminum) due to commodity price volatility.
• Inflationary pressures impacting operations and potentially raising future financing costs.
• Unresolved material weaknesses in internal controls over financial reporting, risking misstatements and reporting delays.

Future Outlook

The company's ability to continue as a going concern is contingent on the successful execution of the Motiv merger and management's plan to increase sales, reduce expenses, and raise capital. It expects to continue benefiting from the electrification of the commercial truck market, particularly in last-mile delivery. However, it anticipates ongoing challenges from slower-than-expected EV adoption rates, lack of government subsidies, delays in charging infrastructure, and volatile commodity prices. The company plans to continue focusing on product quality, manufacturing capacity, and developing new truck programs like W56 variants.

Management Comments

• Our ability to continue as a going concern is contingent upon the outcome of the Recent Transactions, as well as the successful execution of management's intended plan over the next twelve months to improve the Company's liquidity and working capital.
• It is essential that we have access to capital as we bring our existing line of trucks to market, scale up production and sales of such trucks and continue to develop additional variations of our existing trucks and our next generation of trucks.
• Our revenues from operations are unlikely to be sufficient to meet our liquidity requirements for the twelve months following the date of the issuance of our Condensed Consolidated Financial Statements, and, accordingly, our ability to continue as a going concern depends on our ability to obtain and receive proceeds from third-party financing.
• Our ability to obtain additional proceeds from financing is extremely limited under current conditions, and if we are unable to obtain such proceeds, we may need to further adjust our operations and seek protection by filing a voluntary petition for relief under the Bankruptcy Code.
• We continue to focus on product quality, manufacturing capacity and operational planning, and engineering and design to enable increased deliveries and deployments of our products and future revenue growth.
• We expect to continue to benefit from ongoing electrification of the commercial truck market and in particular last mile delivery sector.

Industry Context

The company operates within the rapidly evolving electric commercial vehicle sector, specifically targeting last-mile delivery. While the industry is poised for long-term growth due to electrification trends, Workhorse is currently facing headwinds from slower-than-anticipated industry-wide EV adoption, a lack of consistent government subsidies and incentives for dealers, and delays in the rollout of charging infrastructure. Commodity price volatility and potential changes in tariff measures also pose challenges. The proposed merger with Motiv Power Systems could significantly alter its competitive position and market reach by combining resources and technologies in the medium-duty EV segment.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• Coulomb Solutions Inc. (CSI), a battery supplier, filed a breach of contract complaint against the company seeking over $4 million. The court granted summary judgment for CSI on a $2.95 million claim, with other claims denied. A mandatory settlement conference is set for December 8, 2025. The company has accrued $1.0 million in connection with this dispute.

Related Party Transactions

• The Merger Agreement with Motiv Power Systems, Inc. involves Motiv's largest investor providing up to $20 million in debt financing and an affiliate of the Motiv Investor purchasing the Union City, Indiana manufacturing facility for $20 million in a sale-leaseback transaction.
• Workhorse issued a $5.0 million Subordinated Secured Convertible Note to an affiliate of the Motiv Investor as part of the Convertible Financing.

Stakeholder Impact

• **Shareholders**: Significant dilution is expected from the Motiv merger, with pre-Merger Motiv investors owning 62.5% of Workhorse. Further dilution is possible from future equity financings. The ongoing going concern risk poses a threat to the value of their investment.
• **Employees**: Cost-saving measures have led to lower headcount and reduced employee compensation. Executive employment agreements are being amended in anticipation of the merger, with severance and bonus payments tied to the merger and future financing.
• **Customers**: The company's focus on product quality and new truck programs (W56 variants) aims to meet customer requirements, but delays in EV adoption and charging infrastructure could impact customer experience and demand.
• **Suppliers**: The company is overdue on payments to certain suppliers and is in litigation with a key battery supplier (CSI), indicating potential strain on supplier relationships and supply chain stability.
• **Creditors**: The 2024 Notes are expected to be repaid upon the closing of the Motiv merger, and new debt financing from Motiv's investor will introduce new secured obligations. The going concern warning highlights risks for all creditors.

Next Steps

• Consummation of the Merger with Motiv Power Systems, Inc., subject to satisfaction or waiver of conditions.
• Finalization of terms for the $20 million Closing Debt Financing from Motiv's largest investor.
• Efforts to effect an Equity Financing for Workhorse on terms mutually acceptable to the parties.
• Repayment of outstanding obligations under the 2024 Notes and exchange of 2024 Warrants for Rights upon merger closing.
• Continued implementation of cost-saving measures and efforts to reduce cash expenditures.
• Working with suppliers to extend or restructure payment terms for outstanding accounts payable and future material purchases.
• Continued focus on product quality, manufacturing capacity, and operational planning for electric truck offerings (W4 CC, W750, W56).
• Development of new W56 variants and other truck programs.
• Resolution of the CSI litigation, with a mandatory settlement conference scheduled for December 8, 2025.
• Remediation of identified material weaknesses in internal controls over financial reporting.
• Potential stockholder approval of a reverse stock split (1-for-8 to 1-for-12) prior to June 30, 2026, to comply with NASDAQ listing standards for the merger.

Key Dates

Recommendation

Workhorse Group Inc. faces severe financial instability, evidenced by a 'substantial doubt' about its ability to continue as a going concern, an accumulated deficit nearing $900 million, and recurring gross losses. While the proposed merger with Motiv Power Systems and recent asset sales provide some short-term liquidity, the merger terms involve significant dilution for existing shareholders, and the company's ability to secure additional necessary financing remains 'extremely limited.' Unresolved material weaknesses in internal controls, ongoing litigation with a key supplier, and a challenging market for EV adoption further compound the risks. For a seasoned investor, the high level of uncertainty, potential for further dilution, and the explicit risk of bankruptcy make this a 'strong sell' recommendation.

Keywords

Electric Vehicles, Commercial Trucks, EV Manufacturing, Last-Mile Delivery, SEC Filing, 10-Q, Workhorse Group, Motiv Power Systems, Merger, Going Concern, Liquidity, Capital Raise, Supply Chain, Corporate Governance, Financial Results, NASDAQ Compliance, Reverse Stock Split, Risk Factors, W56, Convertible Notes, Warrants, Sale-Leaseback, Cost Savings, Litigation