Despite Its Low Price, There’s Still Big Downside Risk in Mullen Automotive

  • Popping in price earlier this month, Mullen Automotive (MULN) has found a floor around $1 per share.
  • Taking a look at its full quarterly filing, the details aren’t so rosy.
  • While trading at a low price, there’s big downside and questionable upside in MULN stock.
The Mullen Five vehicle is displayed at the 2021 LA Auto Show media day in Los Angeles, November, 18, 2021. MULN stock.

Source: Ringo Chiu / Shutterstock

In recent weeks, Mullen Automotive (NASDAQ:MULN) shares have found support. No longer in freefall, MULN stock has seemingly found a floor at around $1 per share. Investors reacted favorably to the aspiring electric vehicle (EV) maker’s May 13 press release, in which it touted positive news such as an increased cash position.

What hasn’t received much fanfare has been the company’s actual quarterly financial filing. Released on May 17, it paints a much less rosy picture of Mullen’s current financial status. Quickly burning through cash, there’s a high likelihood it will need to raise significant capital in the coming months.

Like its past financing deals, this will likely be done on terms unfavorable to existing investors. At around $1 per share and down more than 90% over the past year, it may seem as if it has little more room to drop, but think again. Investors bottom-fishing today could still see big losses.

MULN Mullen Automotive $0.98

A Rosy Press Release and a Less Rosy 10-Q

Mullen Automotive touted many positives in its May 13 press release. For example, the fledgling EV maker highlighted that it increased its cash position by $65.2 million during the quarter. It also reduced its debt position, and that shareholder equity swung from negative to positive.

Also, Mullen entered a deal with Thurner Design to develop a high-performance EV sport crossover, the Mullen Five RS. While it’s not enough to get MULN stock “to the moon” again, this news was enough to get the stock over the $1 per share mark. Since then, it’s managed to hold steady at or around this price level.

This is despite both market volatility and the May 17 10-Q release. Mullen hyped up the good in its press release, but buried the bad in the filing. For the quarter ending March 31, it reported an operating loss of $30.4 million and negative operating cash flow of $24.9 million.

Adding in capital expenditures, cash burn came in at around $36.6 million. Assuming its cash burn will rise as it moves further towards the production stage, today’s $65.1 million cash position will not last long.

High Cash Burn Confirms Past Concerns

In my last article on MULN stock, the crux of my argument was the company’s need to raise more capital would severely dilute shareholders. Through the issuance of more shares and a likely reverse stock split, it would continue to tumble in price — even as shares traded deep in penny stock territory.

Put simply, the numbers provided in the 10-Q confirm this concern. Any way you slice it, a company with $65.2 million in cash that’s burning through $36.6 million of it (or more) per quarter is going to need more money.

Assuming it has to continue raising this money through convertible financing, as it’s done before, it’ll do so on terms highly unfavorable to anyone holding MULN stock. Between the fading of excitement over the May 13 press release, plus the issuance of more shares, Mullen will likely fall below its current level.

In theory, this could provide it with another floor. Investors erroneously believing its sub-$1 stock price makes it “cheap” could soften the blow. However, there’s another factor to consider.

MULN Stock Isn’t Worth a Risky Bet

Dilution will set a further drop in motion, but something else will really drive it: a reverse stock split. If it falls below $1 per share for a significant amount of time, it’ll likely reverse split to keep its Nasdaq listing.

Bringing its share price out of penny stock levels, the short-side will return. They’ll hammer it lower once again. On a split-adjusted basis, this would result in a big decline relative to today’s stock price.

Coupled with this high downside risk is questionable upside. As my InvestorPlace colleague Josh Enomoto argued earlier this month, it’s hard to believe this undercapitalized upstart will beat out established rivals by bringing out a better line of EVs.

In short, don’t view its May 13 press release as a sign the story’s changed with MULN stock. It hasn’t.

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On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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