Mullen Automotive May Survive, But You Don’t Want to Own It

  • Mullen Automotive (MULN) as a company has likely not reached its “game over” moment yet.
  • This early stage EV maker has several options in order to keep the lights on and maintain its Nasdaq Exchange listing.
  • However, these options are unfavorable to existing shareholders and will push MULN stock to even lower prices.
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

It is clear that Mullen Automotive’s (NASDAQ:MULN) “meme wave” has come to a close. This is not only because the MULN stock price has taken a big plunge over the past month. After all, meme plays have been hit hard by the market maelstrom arising from the Federal Reserve’s (Fed’s) hard pivot to fiscal monetary policy.

It goes beyond that. Take a look at the level of chatter of this electric vehicle (EV) startup on Reddit. On r/WallStreetBets and similar subreddits, conversation about it has fallen significantly. In fact, there hasn’t been a thread about it since Apr. 24. Even if its meme days are in the past, you may still be curious if it’s wise to be bullish about Mullen’s future.

As a company, Mullen may figure out a way to survive, yet this will not translate into big returns for investors buying shares today.

MULN Mullen Automotive, Inc. $0.80

MULN Stock and its Recent Performance

As mentioned, Mullen shares have taken a big dive in recent weeks. Much of this price decline is market-driven. With investors fearful that the Fed’s raising of interest rates to fight inflation will result in a hard landing, the market has lost its appetite for speculative growth plays.

Skepticism about MULN stock, driven by last month’s short report on it by Hindenburg Research, has also weighed on it. Together, these negatives far outweigh positives, like updates on the company’s efforts to produce high-range batteries for its EV lineup.

In the immediate-term, market conditions could continue to negatively affect its performance. It may pop once or twice again if there is a temporary rebound in stock prices, but further price declines in the coming weeks or months are still on the table.

That said, while short-term volatility alone may keep many away, you might still think it’s worthwhile to roll the dice on Mullen. You may think that, even if you temporarily go underwater with your position, in the end, if its efforts start to pay off, your position will be worth many times what it is worth today. However, I wouldn’t bet on that being the case.

This Cash-Strapped EV Maker’s Likely Downward Spiral

As my InvestorPlace colleague Dana Blankenhorn recently argued, the key issue with MULN stock is that the company is short on cash and big on promises. Put simply, $65 million, which is its current cash position, simply isn’t enough to make many of its EV dreams come true.

That’s not to say that Mullen will burn through this cash and close up shop. It has other avenues to raise capital. You may recall that the company has raised money through equity lines of credit. This convertible financing method is a win for cash-strapped companies and a win for the hedge funds that provide them.

However, existing shareholders lose out. Why? Take a look at the terms of its active equity line of credit agreement under Note 18 in the latest quarterly financial filing.

Per the agreement, the fund investing in the deal gets $3.125 million worth of shares (fixed value, not fixed number of shares) with a 5% discount applied to the share price used to calculate the number of shares received. It is easy money for the fund and dilution for other shareholders.

Despite a Low Price, Mullen Could Keep Dropping

Besides likely future dilution pushing it lower, there is something else that could result in big declines for Mullen shares. At today’s prices, it may be difficult for shorts to add to or enter new positions.

Yet, this may change. If it stays under $1 per share, it could be forced to do a stock split in order to keep its Nasdaq Exchange listing. For example, a 10-for-1 split would get it out of penny stock territory. From there, the short-side could again knock it lower, especially as more shares from its favorite financing method become freely tradable.

As a company, it has a path to survival. Whether this results in it bringing any of its proposed vehicles to market is another question. As a stock, though, there is no question what the future likely holds. Dilution and a reverse split, which will send MULN stock to even lower prices.

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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