Hey Folks,
Mullen ran over 80% during regular trading hours today (and another ~10%+ in the AH), making investors and speculators wonder whether the stock is due for a resurgence…
After all, the stock has been on a downtrend for almost two years now, dropping to as low as $0.1 on Monday!
To understand the full picture, we first need some context to the price action.
Let’s roll the clock back to 2020 and 2021…..Tesla’s price had just exploded, and markets were looking to find the next big winner in the space. Mullen Automotive positioned themselves well to make folks think that they could be that next big thing. They did this largely by making bold production and delivery claims.
The problem was, it became increasingly apparent that the promises Mullen was making were unlikely to become a reality…
If we combine this with the decline of the EV hype cycle, it’s not hard to see why the company turned from one of electric vehicle proponents’ biggest hopes to a permabear’s dream stock.
That’s not to say there’s no value in today’s rally from a short term standpoint, but as we often say at ZipTrader…..its important to play the moves rather then letting the moves play you. With this in mind, here are a few reasons why one should be wary of Mullen from a long term perspective.
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Questionable Vehicle Production and Virtually Non-existent Vehicle Deliveries
Given that we’re talking about an EV manufacturer, its a fair assessment to make that the production and sales of vehicles is a critical component to the success of the business…
A successful automaker needs to have the capability to both build working vehicles and have the customers to sell them to. Yet, MULN is far from being proven in either regard…
The company has scrapped multiple manufacturing facility ideas between 2019 and 2021, and it is unproven whether their current facility has the equipment necessary for the scale of production they need.
Things aren’t looking great either as far as actual deliveries are concerned…..After almost two years of impending delivery claims by David Michery (Mullen CEO), the company just recorded its first 22 EV deliveries just last week.
Obviously its possible for the company to turn the ship around as far as these two metrics are concerned, but it looks like they’ve got some serious work to do to get there!
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High Cash Burn Rate
Low to non-existent revenue numbers wouldn’t be as big of a problem if expenses were low.
The problem is that vehicle manufacturing is a very expensive process. This certainly show if we look at MULN’s cash burn…
For the first 3 months of 2023 alone, the company has chewed through over $67 million in expenses! Since the company had no revenue during that period, all of the expenses resulted in a loss.
This could be sustainable for long periods if MULN has lot’s of cash on hand, but this is not the case.
At their current cash burn rate, the company won’t be around for much longer unless they’re able to raise substantially more capital. This begs the question though…..how have they hung around for so long given their seemingly low amounts of cash and high expenditures?
This leads us to our 3rd point…
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Heavily Diluted Stock
In order to raise enough capital to stay operational, the company has been forced to do public offerings amongst other things.
The company needs as much capital as they can get given their limited revenue and high expenses. This means that dilutions in the future are likely, assuming that the price action is in a good enough position for them to do so.
This puts MULN’s stock in a bad position long term, because prolonged bullish sentiment is likely to get doused by even more dilutive measures.
Until Next Time,
