MULN stock price could crash to zero as bankruptcy risks rise
- Mullen Automotive stock has been in a freefall in the past few months.
- The company is a cash-burning machine as it starts production.
- There are limited ways for Mullen to raise cash in this environment.
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Mullen Automotive (NASDAQ: MULN) stock price continued its bearish trend on Wednesday as jitters in the financial market continued. Shares of the electric vehicle company were trading at $0.1380, meaning that they have plummeted by over 70% from their highest point in February.
Bankruptcy risks remain
I have been warning about Mullen Automotive for a while now. You can read some of my past reports on the company here and here. In all these reports, I warned that Mullen has a higher possibility of going bankrupt in the next few months or years.
The events of the past few days make it almost certain that this company will not survive. In this period, we have seen the collapse of key banks like Silicon Valley Bank (SVB) and Signature. As I wrote earlier, Credit Suisse is also on the brisk.
The overall market view is that venture and growth investors will now become more cautious when investing in unprofitable companies. The same is true among Wall Street investors who are now getting more defensive, as evidenced by the performance of the bond market.
This is a major issue for Mullen Automotive, which is not only loss-making but also pre-revenue. And because of its acquisitions last year, the company’s cash at hand has dwindled. As we have seen with other EV companies like Rivian and Lucid, launching and selling cars is different from making a profit. Rivian lost billions of dollars last year.
Can Mullen survive?
Now, Mullen Automotive needs more money to start and ramp up production. To do that, it can either sell shares or raise debt. With its stock at its lowest point on record, this will be a tough thing to do. Raising debt in this environment will also be difficult. Indeed, in its most recent 10Q, the company warned about its default risk, saying:
“The Company’s ability to continue operating as a going concern is contingent upon, among other things, its ability to raise sufficient additional capital and/or obtaining the necessary financing to support ongoing and future operations and to successfully manufacture and launch its products for sale.”
The need for more capital is dire considering that the company has about $93.8 million in debt that is maturing later this year. Another $4.8 million will mature in 2024. In its most recent statement, Mullen Automotive had over $68 million in cash and total current assets of over $135 million.
But Mullen is spending millions per month. It spent $73 million in the three months to December. As such, if this trend continues, the company will need to raise money soon. Therefore, I suspect that the MULN stock price will go to zero in the course of this year even after the upcoming reverse split. As such, I don’t recommend buying the Mullen Automotive stock even as it becomes a bargain.