MULN stock price forecast: Is Mullen too cheap or a value trap?

The automotive industry is a difficult one, as evidenced by some of the biggest bankruptcies in the sector. For example, General Motors (NYSE: GM) and Chrysler filed for bankruptcy during the 2008 financial crisis. 

Most recently, electric vehicle companies like Lordstown Motors and ELMS filed for bankruptcy. And in China, analysts at AlixPartners believe that only 30 EV companies of the 167 firms will survive in the long term. 

Mullen Automotive is at significant risks

Mullen Automotive (NASDAQ: MULN) stock price has been in a freefall, leaving the company a shell of its former self. The firm’s total market cap has dropped to about $46 million. At its peak, the company was valued at over $700 million.

Its current market cap is much smaller than the $148 million it spent to acquire Bollinger Motors in 2022. It is also lower than the $240 million that the company acquired Electric Mile Last Solutions (ELMS).

Most importantly, its market cap is lower than the $60.3 million cash that the company ended last quarter with. This means that investors believe that the company has no value since it is burning millions of dollars every quarter. In the most recent quarter, Mullen Automotive recorded a $114 million net loss.

Therefore, while Mullen Automotive has started manufacturing, there is a likelihood that the company will face huge losses in the future. For example, a quick look at EV companies like Rivian and Lucid shows that they have made substantial losses after they started manufacturing.

As such, it is questionable why the company decided to repurchase its stock by about $235 million. While share buybacks are always welcome, I believe that this one was a bit questionable since its finances are still thin. In June, the company said that it had enough cash to last for about 12 months. At the time, the firm said that it had $135 million in cash.

MULN stock price forecast

MULN chart by TradingView

In May, I warned that Lordstown Motors would file for bankruptcy soon. This prediction was accurate as the company filed two weeks ago. I also warned that Mullen could be the next one to go burst.

Turning to the daily chart, we see that the Mullen Automotive share price has been in a strong bearish trend in the past few months. Bearish volume has also jumped in the two months. At the same time, the shares have moved below the important support at $4.50, the lowest point since December last year.

Mullen Automotive remains below all moving averages while the Average True Range (ATR) has crashed. ATR is one of the best indicators for measuring a stock’s volatility. Therefore, I believe that the shares will continue falling as sellers target the next key support at $0.10.