Mullen Automotive (MULN) stock: learn from Rivian cash burn

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on Oct 3, 2023
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  • Mullen Automotive share price has been in a freefall for months.
  • The shares have retreated by more than 98% from the highest point this year.
  • Other EV companies like Rivian, Lucid, and Ford have all lost billions.

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Mullen Automotive (NASDAQ: MULN) stock price woes continued in September as investors remained wary of the EV startup. The shares were trading at $0.4411, near its lowest level on record. This price was ~40% below the highest point in September and 98% below the year-to-date high.

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Mullen Automotive

MULN chart by TradingView

Mullen faces huge challenges

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Mullen Automotive is an electric vehicle upstart that aims to be a leading player in the consumer and commercial sectors. The company has made a of progress, including receiving thousands of orders, mostly from Randy Automotive. It is now in a tour where it is showcasing its top products to potential customers and most reviews were relatively positive.

Mullen Automotive faces numerous risks ahead, with the biggest one being its balance sheet. The most recent results showed that the company had total assets worth over $559 million against liabilities of $208 million. Data by SeekingAlpha shows that the company had over $214 million in cash and short-term investments.

While $214 million is a lot of money for a company valued at $82 million, it is worth noting that its net loss during the quarter was $308 million. This means that the cash balance could run out soon since the company is not bringing in enough revenue.

At the same time, Mullen Automotive is doing something that most companies at its stage always avoid. It recently announced a decision to share buy back worth over $25 million. Highly profitable companies like Tesla rarely buy back their shares. Instead, they plow their free cash flow to long-term investments like plants. 

Most importantly, companies repurchase their stocks using their free cash flow (FCF). FCF is simply the cash that remains after it has done everything. Mullen does not have FCF yet.

Lessons from Rivian Automotive

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Mullen Automotive investors should learn from Rivian and Lucid Motors, two EV companies that sell thousands of vehicles every year. Rivian has sold over 65,000 vehicles since production started a while ago.

The challenge is that the company is a cash incinerator that has lost over half of the $12 billion it raised in 2021. It is losing at least $33k for every vehicle it sells and the management believes that it will turn a gross profit in 2024, meaning that a net profit will take a longer period.

Rivian Automotive is not alone. Other companies like Ford, Lucid Motors, and General Motors are also losing billions of dollars. All this means that Mullen Automotive also faces huge cash outflows when it starts manufacturing.

The implication for the Mullen Automotive stock is that cash is getting more expensive as interest rates rise. For example, as I wrote in my Hang Seng article, US bond yields have surged to the highest level in more than 15 years. Therefore, the company will likely need to dilute shareholders again, which will hit the MULN stock.

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