The $40 Million EV: How Mullen Lost $1 Billion… And Accidentally Produced the World’s Most Expensive Car


Mullen - The $40 Million EV: How Mullen Lost $1 Billion… And Accidentally Produced the World’s Most Expensive Car

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In August 2023, Rolls-Royce unveiled the Droptail, the most expensive production vehicle in the world. According to industry estimates, the four vehicles produced will cost roughly $28 million each. And these superyachts on wheels will feature customizations that test the term “production vehicle.” One will feature a champagne refrigerator built specifically for the owner’s vineyard products.

Fortunately, ordinary buyers can now purchase an even more expensive car. Each of these electric vehicles cost roughly $40 million for its maker to produce. But buying one will only set you back $25,400 at a nondescript Irish car dealership.

Of course, I’m talking about the Mullen Go, a pint-sized commercial electric vehicle from Mullen Automotive (NASDAQ:MULN) designed to “easily handle the stop/go and weave in/out typical of narrow urban streets.” Each vehicle can theoretically seat 4 people (twice as many as the Rolls-Royce Droptail) and the car’s 96-inch wheelbase makes parallel parking a breeze. For those looking for an even cheaper option, internet sleuths have suggested that the same vehicle can be bought directly from Alibaba for $5,000.

Nevertheless, these small vehicles cost Mullen $1 billion in losses for fiscal 2023. And because the EV startup only invoiced and recognized 25 units as revenue, each urban delivery vehicle technically cost $40 million to make.

So, how did Mullen’s tiny electric car pull this off?

How to Lose $1 Billion in 12 Months

When Mullen released its annual report in January, one number stood out among the rest: its $1.01 billion loss for the year.

It’s hard to miss. On page F-10 of its annual report, Mullen’s accountants report that their firm generated $366,000 from vehicle sales while incurring $273,882 of direct costs, $215 million of overheads, and roughly another $725 million of financing and other non-operating charges. In total, the firm lost $1,006,658,828 in fiscal 2023.

Our writers at have meticulously dissected these numbers. In a Jan. 17 article, Eddie Pan notes how $820.4 million of these expenses were in non-cash charges and included everything from $85.44 million in stock-based compensation to $63.98 million in goodwill impairment. He notes how CEO David Michery alone received $48.87 million in stock awards for the year.

The biggest issue, however, came from Mullen’s “derivative liability” charges, which included $506.2 million of financing costs, $116 million of revaluations and $20.1 million on interest and other financing charges. Together, these made up almost two-thirds of Mullen’s overall loss.

These enormous costs largely stemmed from the firm’s convertible notes, a form of funding sometimes known as “death spiral financing.” Mullen had issued $150 million worth of these instruments in June 2022 to top off other promissory notes, and the financial results were devastating. By allowing bondholders to convert at the closing price of common stock and issuing 1.85 bonus warrants for every share converted, the company essentially spent $427.5 million to raise $150 million in fresh capital.

In June 2023, Mullen’s management raised another $145 million from this same funding vehicle, costing the company another $255 million in warrant liabilities and roughly $100 million in share issuances. To top off these losses, the firm also incurred fees from Preferred C warrants, a $10 million charge for defaulting on notes in December 2022, and $94.5 million of interest expense.

Mind the GAAP

America’s generally accepted accounting principles (GAAP) require accounting firms and auditors to count these non-cash charges as “real” expenses. Even though issuing new shares technically triggers no cash outflows, they generate costs to common shareholders through share dilutions. In 2023, Mullen increased its share count roughly 75-fold to accommodate the bonds and warrants it converted to stock. If you owned 1% of the company at the beginning of 2023, your stake would have been diluted 98.7% by year-end to a 0.0133% ownership amount.

These losses can sometimes be hidden in plain sight. In its Q2 2023 financial statements, Mullen recorded just $245 million in initial recognition of derivative liabilities. Convertible bondholders had not yet exercised their final $100 million investment, so the company had no need to recognize the loss.

However, these financial losses eventually catch up. As derivatives get exercised, they leave a trail of financial costs that directly impact common shareholders. In 2021, the company recorded $21 million of non-operating financing expenses. The following year, it was $511 million. And in 2023, those financing charges caused Mullen to lose a grand total of $1 billion.

The Most Expensive Car in the World

Together, these financing charges have made Mullen’s 25 Go vehicles some of the most expensive that the world has ever seen. By using these highly dilutive instruments (as well as splashing out on pricey acquisitions), the firm lost $1 billion in a year while only being able to recognize the sale of two dozen vehicles.

To be sure, Mullen’s costs will come down as it begins recognizing revenues for the 241 vehicles invoiced and not yet recognized as sales. On Jan. 19 and 22, the firm announced it had received vehicle orders for another 40 vehicles and delivered 130, respectively.

Mullen also remains financially viable. On Jan. 24, the firm regained compliance with Nasdaq’s minimum bid requirement after reverse-splitting its shares for the third time in less than a year. And there’s no rule that prevents Mullen from raising more cash from convertible debtholders. As long as there’s buyer demand for Mullen’s newly issued shares, there’s no reason for management to throw in the towel.

Other firms have managed to survive for years without generating significant revenues. Bit Brother Limited (NASDAQ:BETS), a Chinese firm founded in 2011, has been raising capital from willing shareholders since at least 2013. And paper packing firm DSS (NYSEARCA:DSS) has raised capital from stock issuance in all but two years since 2002.

Perhaps stock exchanges will someday create new rules barring perennially money-losing firms from raising fresh capital. Many of these firms, like the $100 million New Jersey-based Hometown Deli, exist primarily to enrich insiders at the expense of others. But until the exchanges themselves bear the costs of these financing deals, you can expect plenty more million-dollar cars and pricey deli sandwiches to give Rolls-Royce a run for the most expensive products money can buy.

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On the date of publication, Thomas Yeung 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 Publishing Guidelines.

Thomas 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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