Workhorse accused of fraud and is facing an SEC investigation

EV startup Workhorse has been accused of touting fake preorders, accounting fraud, and hiding a Securities and Exchange Commission investigation from its investors in a new report published by short-selling research firm Fuzzy Panda. The report also contains allegations that Workhorse’s new electric vans are already breaking down for customers like Ikea.

Workhorse announced just last month that it already needs to redesign the new C-1000 van based on early feedback, though the company said it was because customers wanted more payload capacity. The company also named a new CEO at the time, Rick Dauch, who came from automotive supplier Delphi, while its general counsel and vice president of finance announced they were leaving.

The report also comes as Workhorse is in the middle of a legal battle in Federal Claims Court, where it is trying to overturn the United States Postal Service’s decision to tap defense contractor Oshkosh to build its next-generation mail truck. Workhorse was one of two companies that lost to Oshkosh when the award was announced in February.

Workhorse didn’t respond to requests for comment or answer questions about the claims made in the report.

Workhorse is the latest EV startup to become a target of short-sellers who bet that the stock price of a company will go down and often try to uncover information to support that bet. There has been a massive increase in potential targets, too, as dozens of startups — including many in the automotive space — have gone public in the last year, despite not yet running revenue-generating businesses.

Perhaps most famously to date, Hindenburg Research published a report last year about potential fraud at Nikola, including that the startup filmed one of its trucks rolling down a hill but tried to make it look like it was being driven. The report led to SEC and Department of Justice investigations, and just last month, Nikola’s founder and former CEO, Trevor Milton, was charged by both agencies with committing fraud.

Hindenburg Research also published a report earlier this year on Lordstown Motors, alleging that the EV startup was lying about the number and veracity of the preorders it took for its pickup truck. The company, in its own investigation, ultimately decided founder and CEO Steve Burns had indeed misled investors, and he resigned. The startup is also facing investigations from the SEC and DOJ.

Fuzzy Panda doesn’t have as extensive a track record as Hindenburg, but it lays out a paper trail to support many of its allegations. The firm discovered the SEC investigation after the agency denied a Freedom of Information Act request citing an “active and ongoing” probe, for instance. Workhorse, which has been public for years, hasn’t disclosed any SEC investigation in its financial filings, which could be considered misleading.

One of the most recent orders that Workhorse has touted, for 20 C-1000s, is from a company that appears to have been set up just days before the announcement, according to Fuzzy Panda. What’s more, the president of that company was an employee of Workhorse at the time, according to his LinkedIn profile. (That company’s CEO, and the president, did not respond to requests for comment.) Fuzzy Panda also says it spoke to the head of Pritchard EV, a company that ordered some of Workhorse’s older trucks. Workhorse allegedly booked revenue for those trucks one quarter early, a possible accounting fraud violation.

Other customers have allegedly had a lot of trouble with Workhorse’s vehicles, both old and new. Fuzzy Panda claims an Ikea distribution center in New York quickly gave up its C-1000s after immediately dealing with quality problems, including the battery pack rapidly draining. Both FedEx and UPS also detailed the unreliability of Workhorse’s vehicles in previously unreported documents filed with the Department of Energy, which Fuzzy Panda uncovered. Despite this, Workhorse still touts FedEx and UPS as customers on its website.

Workhorse is also still walking a financial tightrope. The startup has, in recent years, stayed afloat by borrowing money from hedge funds and selling off assets, including the intellectual property for the pickup truck Lordstown Motors is trying to build. But since Workhorse has struggled to get the C-1000 into production, it’s had to keep up that risky borrowing. To wit, its assets are being used as collateral for a $200 million loan it took in late 2020 — including the minority ownership stake it has in Lordstown Motors. As Fuzzy Panda points out, the Lordstown Motors stake (and the nearly $80 million Workhorse has received so far from selling shares) is being held by a special purpose vehicle LLC. If Workhorse defaults on the loan, the lender (another hedge fund, Antara) could take over that LLC.