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Mullen Automotive (NASDAQ: MULN) has experienced a significant decline in its stock price over the past few years. In 2023, the stock hit an all-time low of $0.87, marking a drop of over 99% from its peak. The stock has also underperformed compared to other EV companies like Tesla and Nio in 2024, currently trading at a year-to-date (YTD) low of $4.61, which is 68% below its YTD high of $14.20.
The outlook for Mullen Automotive remains bleak, as the stock continues to decline without finding a bottom, despite an ongoing downtrend that has lasted for 18 months. The stock has behaved like a meme stock, with retail investors buying in hopes of a short squeeze, which has yet to materialize.
A key factor behind this decline is Mullen’s decision to dilute its stock following a reverse merger with Net Element. This dilution has contributed significantly to the stock’s slump, compounded by the company’s ongoing struggle to break even amid a pessimistic outlook for the EV industry in 2024.
The automobile industry is undergoing rapid change, particularly in the types of vehicles sold. In 2022, 10% of all new vehicles sold in the United States were electric. In China, domestic brands have gained significant market share in recent years. Mullen Automotive aims to position itself as a strong alternative to Tesla and other EV companies, building its vehicles in California and researching solid-state battery technology, which could lead to better battery performance. The company also operates CarHub, a platform for buying and selling cars.
Mullen has been active in acquisitions, purchasing Electric Last Mile Solutions (ELMS) for $240 million in 2022 and acquiring a 60% stake in Bollinger Motors, a manufacturer of electric trucks. The company is developing several vehicles, including the Mullen FIVE, Mullen FIVE RS, Mullen Class 1 van, Mullen Class 3, and several models from Bollinger.
Recently, Mullen Automotive hired three new executives for its commercial EV van and truck program, signaling continued expansion efforts. The company is also seeking approval from U.S. Customs and Border Protection (CBP) for its electric vehicles and is working toward gaining approval from the U.S. General Services Administration (GSA) to sell its Class 1 EV cargo vans to government branches.
Mullen is also expanding its battery operations with a new high-energy facility in California, while planning to close its Monrovia facility by the end of 2023. However, the company’s financial health is deteriorating, and a recent SEC filing suggests further investor dilution is likely, which could negatively impact shareholders.
On September 22, Mullen announced it had received EPA certification for its Class 3 EV vehicles, which follows the start of production for these vehicles. This certification is a crucial step toward beginning deliveries.
Mullen also acquired battery assets from Romeo Power for $3.5 million, including battery testing equipment and EV pack assembly production lines, which led to a 5.77% rise in the stock price. Despite this positive news, the company’s fiscal third-quarter net loss was $309 million, a sharp increase from the $7.1 million loss in the same period the previous year. The company disclosed that it has enough cash to operate until June 2024.
Despite generating its first revenue of $308,000 from selling 22 EV Vargo Vans to Randy Marion Automotive Group and receiving $263 million in purchase orders for its Class 1 and Class 3 EV vans and trucks, Mullen’s stock has continued to decline. The company raised $110 million in additional funding by selling convertible preferred stocks, warrants, and promissory notes.
In May 2023, Mullen announced a reverse stock split at a 1:25 ratio, consolidating the number of shares while increasing the price per share. However, the company’s market cap remained unchanged. The reverse stock split was implemented to meet the NASDAQ’s minimum bid requirements, but the stock has since fallen below the key psychological level of $1.
Mullen, along with companies like Virgin Galactic, SoFi, OpenDoor, and Clover Health, went public through a SPAC merger, a process that has seen many companies struggle after the initial excitement faded. Since the SPAC bubble burst in 2021, Mullen’s stock has been on a downward spiral.
Analysts are concerned about Mullen’s rapidly thinning balance sheet and cash burn rate, which could lead to bankruptcy. The recent bankruptcy of Lordstown Motors has only intensified these fears, contributing to MULN’s all-time low stock price.
In early September 2023, Mullen narrowly avoided delisting from NASDAQ after its stock fell below the $1.00 threshold. While the company appealed and managed to push its stock back above $1.00, the current trend remains worrying, especially as projections for the EV industry in 2024 suggest reduced performance.
Mullen received a notice from NASDAQ for failing to meet the annual meeting requirement, but later regained compliance. The company has until March 2024 to hold its annual meeting, as stipulated by the NASDAQ Hearings Panel.
The threat of bankruptcy looms large for Mullen, as the company continues to burn through cash at an alarming rate. In 2022, Mullen lost over $740 million, a significant increase from the $44 million lost the previous year. The company’s latest 10-Q report paints a grim picture, revealing that it produced no revenue in the last three months while burning $67.5 million in operating cash and diluting shareholders by another 60%.
Mullen’s assets at the end of the fiscal year on September 30, 2023, included $75 million in property, $82.0 million in inventory, $155.7 million in cash, and $25.0 million in other current assets. The company had $7.5 million in accounts payable, an improvement from the previous year’s figures. Mullen’s net working capital rose to about $133.3 million, up from $34.9 million in 2022.
Given the company’s uncertain future, MULN stock is not an attractive investment. Mullen has no proven technology, burns millions of dollars each month, and has a history of shifting focus without clear direction. Additionally, the outlook for EVs in the U.S. remains uncertain, and building a successful EV company requires significant capital investment.
In its second-quarter financial results, Mullen authorized a stock buyback program, allowing the company to purchase up to $25 million worth of shares by the end of 2023. However, this buyback program is not obligatory and could be terminated early.
Looking at the stock’s price action, $0.40 is a critical level to watch. I don’t anticipate any significant price reversal until the stock reclaims this level. Buying MULN stock at its current valuation seems unwise, given the lack of strength and the looming risk of delisting. It’s better to wait for the stock to reclaim at least $0.39 on a higher timeframe before considering an investment.
In conclusion, I believe Mullen Automotive may face bankruptcy by 2025 if the current trajectory continues. The company is burning too much cash at a time when interest rates are rising. If it doesn’t go bankrupt, it will likely have severely diluted shareholders to raise the necessary funds. As we’ve seen with companies like Tesla and Rivian, ramping up EV production is a capital-intensive process, and Mullen will likely need to raise billions of dollars in the coming years.