What happened

Shares of Workhorse Group (NASDAQ:WKHS) lost nearly half their value on Tuesday after the U.S. Postal Service decided to go in another direction to modernize its fleet of delivery vehicles. The sell-off continued on Wednesday morning, with the stock off an additional 12% in early trading.

So what

Workhorse is an early-stage company focused on the development of electric delivery trucks. The company is relatively small right now, with plans to manufacture just 1,800 vehicles in 2021, but had hoped to quickly change that if it was selected to replace upward of 165,000 postal vehicles over the next 10 years.

A row of postal delivery vehicles.

Image source: Getty Images.

Alas, the Postal Service on Tuesday awarded Oshkosh (NYSE:OSK) an initial $482 million to begin work on a new truck, a deal that could be worth as much as $6 billion in revenue over the next 10 years. Workhorse shares had nearly doubled in the early days of 2021 in part on anticipation it would be involved in the final award, and the stock fell back on the latest news.

Following the award, Roth Capital lowered its price target on the shares to $15, from $19, and Oppenheimer downgraded Workhorse to perform from outperform.

Now what

Workhorse said it has requested additional information about the award, and said it intends "to explore all avenues that are available to non-awarded finalists in a government bidding process."

Protests of major government awards are common in the defense industry, and are sometimes successful, but it isn't much for investors to hang their hopes on. Given the massive scale needed to handle this order, Workhorse always seemed unlikely to get more than a sliver of the total prize at best.

Workhorse is more than a one-trick pony. The company has a backlog of more than 8,000 vehicles worth about $600 million in revenue, as well as potential royalty payments from Lordstown Motors. But the Postal Service contract would have been a path to the express lane. Its challenges as a start-up are more daunting without the deal.

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