Tuscan Holdings Corp (THCB)

[AlanDeMan]

Please sticky this DD repost!
On Tuesday, the United States Postal Service (USPS) sent shockwaves through the ESG segment with its decision to grant the Next Generation Delivery Vehicle (NGDV) contract to Oshkosh Corporation (NYSE: $OSK) instead of Workhorse Group (NASDAQ: $WKHS). The former's prototype is based on the Internal Combustion Engine (ICE) while the latter is an Electric Vehicle (EV) with a gasoline-powered extender. The news of the announcement sent shares of $OSK soaring 13.5 percent while shares of $WKHS tumbled 46.93 percent. Additionally, shares of $OSK partners, namely Microvast Inc. (NASDAQ: $THCB) and Ford Motor Co. (NYSE: $F) gained sharply while $WKHS partner, Lordstown Motors Corp. (NASDAQ: $RIDE), gradually declined.

On Wednesday, Representative Jared Huffman (D-California) added fuel to the fire by vowing to block the contract decision since USPS decided to electrify only 10 percent of their new fleet. In this post, I will attempt to sift through the noise by outlining the complexities of overturning and/or blocking the USPS contract decision and explain why $WKHS will likely not win the contract despite their best efforts. While the drama surrounding the ongoing USPS contract saga has added to broader market selling pressure on Microvast's share price, I believe the company will emerge as the victor once these political shenanigans are finally laid to rest.

\DISCLAIMER: I am not a financial advisor. This post is NOT/NOT investment advice to purchase $OSK, $WKHS, $THCB, or $F stock. The views below are based on my own personal research. Please make sure to conduct your own DD before investing. DISCLOSURE: I own approximately 20,000 $THCB warrants.**

A. Background
The USPS began the NGDV acquisition program with a Request for Information (RFI) and kick-off meeting open to all interested technology and automotive suppliers in January 2015. Following a review of the responses to the RFI, 15 suppliers were determined to be prequalified to submit proposals to develop NGDV prototypes. A Request for Proposal (RFP) was issued in October 2015, which included a Statement of Objectives (SOO) in response to feedback received from the supplier community and other stakeholders. (See Figure 1) The SOO did not make any mention of EV and/or "zero-emission" as part of the design criteria. At the end of the process, USPS selected AM General, Karsan, Mahindra, Oshkosh, Utilimaster, and VT Hackney as finalists to submit a prototype design - notice the absence of $WKHS.1

Figure 1


r/SPACs - Source: Amended NGDV Prototype RFP (December 2015) per Govtribe.com
Source: Amended NGDV Prototype RFP (December 2015) per Govtribe.com
From 2017 to 2019, USPS tested 50 prototypes for the NGDV contract. $WKHS did not make the cut for the remaining final six contenders, so the company partnered with VT Hackney as a sub-contractor. The testing of the VT Hackney-Workhorse prototype was riddled with issues, which were well documented in Fuzzy Panda Research and corroborated by an internal audit report compiled by the Office of the Inspector General.2 Most notably, a USPS employee and union member was hospitalized in the spring of 2018 after a VT Hackney-Workhorse vehicle's brakes failed and the vehicle ran uncontrollably downhill. Other failures during testing reportedly included vehicles running out of range (stranded), suspension breaking when hitting railroad tracks, door failures, safety belt failures, and motors failing among other things.3 The common theme was safety and reliability.

Long story short, VT Hackney sold its stake in a potential $6.3B contract to $WKHS for $1M + $6.6M of $WKHS stock in November 2019.4 The saga continued for another year as the USPS became a political football during the general election and the contract announcement was delayed time and time again. President Biden signed Executive Order 14008 on 27 January 2021, which pledged to replace the U.S. government (USG) fleet with clean and zero-emission vehicles for Federal, State, local, and Tribal fleets, including vehicles of the United States Postal Service.5 Less than a month later, USPS awarded $OSK the contract, which angered progressives since only 10 percent of the NGDV will be EV and a singular congressman with an unspecified coalition of lawmakers pledged to block the decision via Twitter.6 Can they block the contract and does this course of action make any sense politically? Yes and no.

B. Contesting the Decision
Before delving into the political calculus behind blocking the USPS contract, first it is important to analyze the actions that $WKHS can take to actually contest the decision. After losing the USPS contract, $WKHS said it "requested more information" from USPS regarding the decision and planned to "explore all avenues that are available to non-awarded finalists in a government bidding process." 7 What exactly does that mean and what happens next?

1.) USPS Response: USPS will respond to the $WKHS Request for Information (RFI) outlining the reasons why their submission was not selected. Given what we know about the NGDV prototype testing that took place in 2018, USPS will probably highlight safety and reliability as key factors behind their decision. The original RFP highlighted requirements for "efficiency in a safe and ergonomically sound manner" and "quality and reliability to minimize maintenance and repair" per Figure 1. The USPS will likely provide $WKHS with a response in a timely fashion since the company has only ten calendar days to file an official protest with the Government Accountability Office (GAO).8

2.) Bid Protest: If $WKHS is not satisfied with the USPS response, then the company may decide to pursue a formal bid protest. I suspect $WKHS will address this topic during their earnings call scheduled for 01 March 2021 (Monday). The deadline to submit a formal bid protest is 05 March 2020 (Friday). If $WKHS decides to pursue this route, then the company will have to make a compelling case that the process was carried out in an unfair manner. The recent executive order is immaterial as the RFP did not make any mention of a "zero-emission" requirement.

3.) The Process: The GAO will render a final decision within 100 days. $WKHS is responsible for covering any legal and/or consulting costs and the GAO is not obligated to reimburse the company for these expenses even if the GAO eventually rules in their favor. The legal expenses associated with a contract bid can often exceed several hundreds of thousands of dollars depending on the scope and complexity of the case.9

With the above in mind, I suspect $WKHS will decide against pursuing a formal bid protest with the GAO due to the low likelihood of overturning the USPS decision and the potentially non-reimbursable expenses the company will incur as a result. The company will inform shareholders of their decision as early as next week's earnings call. Even if the company decides to pursue a formal bid protest, I assess the company will not be successful unless evidence of serious misconduct and/or wrongdoing comes to light in the next few days.

C. Political Calculus
Politically speaking, Representative Huffman's tweetstorm has nothing to do with $WKHS or $OSK and everything to do with increasing the total number of EVs within the new USPS fleet. Representative Huffman is searching for a political victory and cares little about the manufacturer that delivers him that victory. Even if $WKHS decides to pursue a bid protest with the GAO, congressional support is unlikely given the risk associated with the company's track record in safety and reliability during NGDV trials. As such, Representative Huffman and other special interest groups will likely pressure USPS to increase the number of EVs by working with $OSK, $F, and Microvast as opposed to blocking the contract deal in its entirety.

Indeed, re-starting the RFP process makes little sense from a zero-sum political risk vs. gain perspective. If Representative Huffman were to make an effort to block the contract in its entirety, then the RFP process would set the USPS back an additional two to three years (at least), which would mean zero percent of EVs for USPS during the first term of the Biden Administration. Indeed, Paul Steidler, a Senior Fellow at the Lexington Institute, said "If [Huffman] just kills the thing, then we’re back at square one, with a very dirty, very antiquated delivery system...It’s going to keep dirty vehicles on the road for a longer period of time.” 11

That said, options for Congress and the White House to take direct action against USPS are limited since it is classified as an independent agency under the executive branch. USPS is operated by an 11 person Board of Governors, which consists of the Postmaster-General, his deputy, and nine governors appointed by the President and approved by the Senate for seven-year terms.12 President Biden recently appointed three nominees, which if confirmed, would cement a left-leaning majority on the Board of Governors. Regardless, this does not guarantee the Board of Governors will immediately remove Postmaster Louis DeJoy who is a supporter of former President Donald Trump. Even if DeJoy was immediately replaced, USPS would still likely opt to work with $OSK to electrify the USPS fleet as opposed to delaying the process for several more years, which is costly and not politically palatable.

D. Conclusion
The USPS contract saga is gradually coming to an end. $WKHS does not have compelling evidence to contest the USPS decision based on publicly available information. Further, Congress and the White House have few options to directly terminate the contract despite the fact the decision, as it currently stands, appears to be incongruent with Executive Order 14008. However, Congress and the White House can take indirect steps to ouster DeJoy by exerting more influence over the Board of Governors, which is ongoing. Given the fact DeJoy has stated his intent to remain Postmaster for a "long time", I assess he will be more likely to strike a more favorable balance with the percentage of total EVs within the new USPS fleet by leveraging $OSK's partnership with $F and Microvast. A higher percentage of EVs within the new USPS fleet will benefit Microvast in the long-term, which quite frankly, never even needed this contract in the first place.

Thanks for reading.

v/r

s30ul


r/SPACs - Source: The Postal Times
Source: The Postal Times
1.) https://about.usps.com/news/statements/091616.htm

2.) https://www.uspsoig.gov/sites/default/files/document-library-files/2020/19-002-R20.pdf

3.) https://fuzzypandaresearch.com/workhorse-group-critical-failures-revealed/

4.) https://www.sec.gov/ix?doc=/Archives/edgar/data/1425287/000162828019013414/wkhs-20191031.htm

5.) https://www.federalregister.gov/documents/2021/02/01/2021-02177/tackling-the-climate-crisis-at-home-and-abroad

6.) https://about.bgov.com/news/lawmaker-seeks-to-stop-postal-service-contract-with-limited-evs/

7.) https://finance.yahoo.com/news/workhorse-requests-more-information-usps-135240574.html

8.) https://governmentcontracts.foxrothschild.com/2014/03/articles/federal-government/gao-bid-protest-series-part-4-protest-timing/

9.) https://governmentcontracts.foxrothschild.com/2014/04/articles/federal-government/gao-bid-protest-series-part-6-gao-bid-protest-procedures/

10.) https://www.businesswire.com/news/home/20210204005668/en/Oshkosh-Corporation-partners-with-Microvast-to-strengthen-electrification-capabilities

11.) https://about.bgov.com/news/lawmaker-seeks-to-stop-postal-service-contract-with-limited-evs/

12.) https://news.yahoo.com/biden-nominates-postal-board-slate-091600079.html