MULN Stock: What Should Mullen Do With a $110 Million Windfall?

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  • Mullen Automotive (MULN) is poised to receive around $110 million by the summer.
  • The company could use these new funds for a variety of activities.
  • Mullen will have to spend the $110 million effectively in order to make it count in the increasingly competitive electric vehicle (EV) space.
In this photo illustration, the Mullen Technologies (MULN) logo is displayed on a smartphone screen
Source: rafapress / Shutterstock.com

What would you do with $110 million?

Me? I’d be tempted to plow it into research and development (R&D) at an electric vehicle (EV) startup. Companies like Tesla (NASDAQ:TSLA) are riding a multi-decade wave of vehicle electrification and there’s still plenty of room at that table. I might even roll the dice on solid-state battery technology — something that battery firm QuantumScape (NYSE:QS) has done.

But if you’re more risk averse, perhaps you’d prefer to buy a completed product to resell. Not only is it cheaper to outsource EV research and production, you might even get to keep the remaining dollars for yourself.

That’s the strategy that Mullen Automotive (NASDAQ:MULN) CEO David Michery has traditionally favored. In October 2022, Mullen announced it would begin selling the I-Go, an EV that looks much like a $5,000 Chinese-made car from Alibaba (NYSE:BABA). (Online commentators might make fun, but it’s essentially an authorized distribution deal.) Mullen’s arrangements with Bollinger Motors and Electric Last Mile Solutions (OTCMKTS:ELMSQ) have also effectively outsourced its R&D to third parties.

The strategy is reflected in Mullen’s financial reports. In 2022, Michery’s firm recorded $122 million in expenses, of which only $29 million went into direct research and development. The remainder was mainly divided between acquisitions and stock-based compensation. According to public filings, the CEO himself received the equivalent of $36.1 million in share-based compensation over recent quarters.

In June, Michery will need to make these same decisions again. On March 16, he announced that his firm is due to receive around $110 million in fresh financing by the summer. And as the money starts flowing in, investors will want to ask:

What would David Michery do with $110 million?

MULN Stock: When Money Isn’t Free

I couldn’t pinpoint exactly how Michery calculated his $110 million figure. Here’s what comes close:

In November 2022, Mullen Automotive signed a third amended agreement (Series D Convertible) with what’s probably Acuitas Capital, LLC, a Seattle-based investment firm that specializes in financing micro-cap companies. The deal will generate around $90 million of financing for Mullen payable on April 17 and May 15. The agreement has since been modified again to include another $20 million in promissory notes, which could retroactively help us reach the $110 million.

Or, Michery could have been referring to the $25 million of commitments from another financing firm, DBI (Series E Preferred). That, plus the $90 million from Acuitas Capital, could result in a figure close to $110 million. It also avoids counting the promissory notes as long-term fundraising. The DBI deal, however, has been tied up in court for reasons only our Eddie Pan can explain. It also doesn’t get us precisely to Michery’s $110 million figure.

Of these two options, the $110 million is likely from the former. At least that’s what I can gather from Mullen’s oft hard-to-follow financial reports.

Alas, these funds are also not arriving for free. The Series D deal immediately awards creditors with common stock worth 185% of the funds raised. At Mullen’s current market values, existing shareholders could see their stakes diluted by 40% (assuming the $90 million inflow adds another 90*1.85 = $166 million worth of shares to its float). And the Series E Preferred comes with many legal headaches. It’s a pattern that has forced Mullen’s outstanding shares up 336X since mid-2021.

Graph of Mullen Automotive muln shares outstanding

How to Spend $110 Million?

Nevertheless, let’s assume that Mullen will receive another $110 million by June 1.

That leaves the California-based startup in an odd situation. On the one hand, Mullen could play it conservatively and set aside the money to fund day-to-day operations at its recent acquisitions. Even at current cash burn rates, Mullen could theoretically survive over two more years — far longer than even Michery might think. After all, Bollinger appears to be developing its commercial vehicles on a relatively tight budget.

But spending too slowly also carries significant risks. Last week, Ford (NYSE:F) announced its EV sales had risen 41% in the first quarter. The company claims it will hit an annual production run rate of 150,000 Ford Lightning electric trucks this year. And the competition will only get more intense over time. By 2025, BloombergNEF estimates that 23% of all new passenger vehicle sales will be fully electric. Mullen will soon compete with Toyota (NYSE:TM), Hyundai (OTCMKTS:HYMTF) and dozens more firms joining the electrification race.

That means the EV startup has precious little time to spend its $110 million… a rather odd thing to say about a company that has already used around $210 million of cash since December 2021.

Perhaps the company will use it to agitate for a network of showrooms across its home state of California. Michery’s business partners have a long history in real estate deals. The company’s increasing attention to legal matters also shows they have no problem using lawyers to fight on their behalf. Mullen will need that legal firepower to break into the heavily regulated car dealership industry. (Even Tesla has struggled against entrenched rules; Elon Musk’s firm has been forced to build dealerships on tribal lands to skirt bans on direct sales and service centers.)

Or Mullen could focus on an industry niche… say school buses, recreational vehicles (RVs) or Class 8 trailers. Many companies — from THOR Industries (NYSE:THO) to PACCAR (NASDAQ:PCAR) — have focused on the less-glamorous side of the industry to earn super-normal returns. Mullen might delay its FIVE SUV Crossover to concentrate on any of these less-competitive segments.

Regardless of how Mullen spends its $110 million, it must decide quickly. Waiting too long risks its R&D spend getting spread out too far between SUVs, vans and heavy-duty trucks. (Even Tesla only focused on one production model at a time, ceasing Roadster production in 2012 to focus on the Model S.) And the rise of more established EV players will make it difficult for upstarts like Mullen to stand out in an increasingly crowded space.

Will MULN Stock Recover?

In 1985, Universal Pictures released Brewster’s Millions, a comedy starring Richard Pryor and John Candy. In the movie, Pryor’s character is tasked with spending $30 million in 30 days to receive an even larger inheritance. A set of complicated rules bar him from spending it on anything he can show for.

Today, a similar problem is brewing for startups like Mullen. These firms know they need to spend money to earn money. Yet they all face a Brewster’s Millions problem since R&D spending has no guaranteed outcome. In January, British EV battery maker Britishvolt collapsed after running out of money. The roughly GBP 200 million it raised through 2022 was worth only GBP 8.6 million when its assets were sold in bankruptcy.

Even well-capitalized firms can have trouble turning R&D into commercial successes. Rivian’s (NASDAQ:RIVN) $6.4 billion cash burn in 2022 only produced 25,000 vehicles, a $256,000 loss for every truck made. Fisker (NYSE:FSR) has yet to deliver a single vehicle, despite spending seven years and around $1.1 billion of invested capital.

On the other hand, some companies do succeed at the Brewster’s Millions game. Tesla’s $2 billion Shanghai Gigafactory now generates upwards of 710,000 vehicles a year. That accounts for half of the company’s worldwide deliveries. It is now Tesla’s most-productive factory in the world. And Ford’s attempts to distance itself from Rivian have resulted in an impressive line-up of production-ready EV designs.

MULN stock investors will doubtlessly hope for such successes, too. Its 11 cent share price would undoubtedly benefit. But unless Michery and his team can figure out how to spend $110 million, they risk becoming another Britishvolt — a once-promising company that ran out of money before its R&D could create a profitable business.

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On the date of publication, Tom Yeung did not hold (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.

Tom Yeung is a market analyst and portfolio manager of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He is the former editor of Tom Yeung’s Profit & Protection, a free e-letter about investing to profit in good times and protecting gains during the bad.


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