After conducting research on Mullen Automotive (NASDAQ:MULN), I view the company as a “poor man’s” combination of Lucid (NASDAQ:LCID) and Fisker (NYSE:FSR). Since I’ve long been bearish on LCID stock and FSR stock, I’m obviously not too upbeat on MULN stock.
Mullen does have some positive qualities, including two employees with a great deal of experience in the auto sector and a significant history in the automotive space. However, Mullen may very well not have what it takes to survive and thrive in the rapidly expanding electric vehicle (EV) sector.
Moreover, in a recent report, Hindenburg Research stated that Mullen “apparently misrepresented” the outcome of a test of the solid-state battery that it is developing and made many accusations against its Chief Executive Officer (CEO) David Michery. Hindenburg is shorting MULN stock.
Let’s take an in-depth look at Mullen’s challenges.
A Slew of Problems for MULN Stock
As I’ve noted many times previously, competition in the EV space is intense and will only get steeper as the years go on. In addition to the obvious gorilla in the space — Tesla (NASDAQ:TSLA) — many huge, veteran automakers — think General Motors (NYSE:GM), BMW (OTC:BMWYY), Volkswagen (OTC:VWAGY), Toyota (NYSE:TM) and Daimler (OTC:DDAIF) — are diving into EVs.
And two start-ups that have received major backing from the large, veteran automakers — Rivian (NASDAQ:RIVN) and Arrival (NASDAQ:ARVL) — have also entered the ring in a big way. Meanwhile, a number of very successful Chinese EV makers, including BYD (OTC:BYDDF), Nio (NYSE:NIO) and Xpeng (NYSE:XPEV), are likely to be in the U.S. consumer EV market within two or three years.
In this environment, Lucid and Fisker — which are not longtime automakers and do not have the backing of any such companies — could very well have major difficulties competing in the cutthroat EV sector.
Mullen also does not appear to have any big-name automotive companies behind it. And unlike Lucid and Fisker, Mullen is not currently producing EVs. In fact, it does not intend to start delivering its EVs until 2024. By that time, expect the EV sector to be super saturated.
In January, Michery said that it was poised to sell solid-state batteries in the next 18 to 24 months, Hindenberg reported. If true, that would put the company, which only spent $3 million on Research and Development last year, ahead of QuantumScape (NYSE:QS), which has spent hundreds of millions of dollars on developing such batteries. Mullen would also be ahead of multiple, major automakers that plan to work on these batteries for many more years before releasing them. Hindenburg calls Mullen’s claims about solid-state batteries “exceedingly implausible.”
Mullen reported that a company called EV Grid tested its batteries and found that their “range was almost double that of other top EV companies” and that they charged more quickly than other batteries. But, according to Hindenburg, the CEO of EV Grid recently said that he would not have made those statements.
Finally, Hindenburg wrote that Michery “led 5 failed penny stock companies prior to Mullen. Two had their securities registrations revoked by the [U.S. Securities and Exchange Commission] SEC, two terminated their securities registrations, and the last one merged with a speculative gold mining company.”
Not Much Money and no Concrete Signs of Strong Demand
Given the huge amount of competition that Mullen will face by the time it enters the EV sector in a couple of years, it will need all the money that it can get to pay for ads, recruit top-notch marketing and advertising minds, and hire many sales professionals with great track records. So the fact that it had only $42,000 of “cash and cash equivalents” on its balance sheet as of the end of the fourth quarter of 2021 isn’t very encouraging.
On the demand front, there are no tangible reasons to be very optimistic about MULN stock. As far as I can tell, Mullen has not released any order or reservation metrics or disclosed any major competitive advantages that will enable its EVs to generate strong demand despite the onerous competition that it will face.
The only news that the company has released on the demand front came recently, when Michery said that, in the second quarter, the company would announce orders from a “major, major Fortune 500 company” for Mullen’s cargo vans.
Without more details than that, however, it is a good bet that Michery is referring to an order of one or two prototypes. While such a deal would be a positive sign for Mullen, it is not a very reliable signal for MULN stock. Anyone who doubts that should consider that Workhorse (NASDAQ:WKHS) had a number of small-time orders from major companies before WKHS stock ultimately tanked.
Mullen’s Positive Attributes Don’t Outweigh Its Challenges
Like Lucid and Fisker, Mullen does have executives with good experience in the auto sector. Its top engineer, Marian Petrelecan, held key roles with BMW and Chrysler. Additionally, its designer is Andreas Thurne, who was responsible for the exterior look of a 2009 Rolls Royce Ghost. However, it is easy to argue that the resumes of Petrelecan and Thurne are dwarfed by those of Lucid CEO Peter Rawlinson, who held a top position at Tesla, and Fisker CEO Henrik Fisker, who is credited with designing many iconic vehicles.
But also to its credit, Mullen isn’t starting the auto-building process from scratch. Mullen itself and CODA Automotive, another EV maker, have significant experience in the sector. Moreover, Mullen has already purchased a factory in the U.S. and pictures of the upcoming Mullen FIVE EV on the company’s website do look impressive.
Still, given Mullen’s tough challenges and the $681 million market capitalization of MULN stock, I recommend selling the shares.