Shares of Workhorse Group  (WKHS) – Get Report rose Monday after the electric delivery truck maker announced it will sell $200 million of four-year, 4% senior secured convertible notes to two unnamed institutional lenders.

The proceeds will be used to increase and accelerate production volume, advance new products to market, replace previous higher cost financings, and support current working capital and other general corporate purposes, the company said in a statement Monday.

Workhorse shares traded at $27.22, up 1.68%, in premarket trading. The stock has soared 781% this year through Friday as investors have rushed into electric vehicle stocks.

Workhorse also has forged an agreement with the unnamed holder of its existing 4.5% convertible notes to exchange the $70 million outstanding principal for shares of the company’s common stock. After this transaction, Workhorse will have more than $270 million in cash available.

As for the notes being purchased, they will initially be convertible into common stock by the holders at $36.14 a share, a 35% over Friday’s closing price. The interest rate may be reduced to 2.75% under certain conditions. Workhorse has the option to make interest payments in cash or stock.

The company expects that the note sale and the note exchange will occur on or about Wednesday.

“With this financing in place, we can more quickly advance our production efforts heading into 2021 by increasing our supply chain component volumes, hiring more manufacturing employees and automating certain sub-assembly processes,” Workhorse CEO Duane Hughes said.

“We can also accelerate our production timeline for new, high-demand customer products, including a refrigeration truck for grocery applications as well as a purpose-built class 2 delivery van,” Hughes added.

It’s hard to justify Workhorse’s (WKHS) current ~$3 billion valuation, considering that the Street expects the company to make less than $150 million in revenues next fiscal year. The major reason why the stock trades so high is due to the fact that the company might win some portion of USPS’s $6.3 billion contract to deliver its EV trucks to the country’s biggest postal service. Other than that, we don’t see any other reason to justify Workhorse’s recent share price appreciation. In addition, the lack of capacity to manufacture trucks at scale on its own is likely going to hurt the company’s margins even if it wins the contract. Considering this, we believe that Workhorse is overvalued.

Lots of Red Flags

By being a pioneer of the EV business, Workhorse worked on various electrification projects with General Motors (GM) and Mercedes for more than a decade and only later decided to sell its own EV vehicles under its brand name. Currently, the company has slightly more than 100 employees and it’s on track to deliver up to 400 C-Series EV trucks by the end of 2020.

Earlier this year, Workhorse benefited from the injection of liquidity to the markets by the Fed, as stocks managed to quickly recover from their March lows and reached new all-time highs shortly thereafter. By being an EV company, Workhorse’s stock followed the upside trend of other stocks like Tesla (TSLA), Nikola (NKLA), and NIO (NIO) and quickly appreciated and reached its own all-time high. In addition, the company was able to keep its momentum by reaching the final stage of the bidding process for USPS’s $6.3 billion contract to manufacture vans for the postal service.

While Workhorse’s growth prospects look good, its financials are not as impressive as some might think. In Q2, Workhorse’s