Mullen Automotive could be the next Fisker and Lordstown Motors

Mullen Automotive (MULN) stock price has imploded, costing long-term believers millions of dollars. It tumbled to a record low of $0.4875, giving it a market cap of just $12 million. At its peak, the company was valued at more than $450 million.

Mullen’s market valuation is much lower than the $148 million it spent to acquire Bollinger Motors in 2022 and the $240 million it acquired Electric Last Mile Solutions (ELMS) in the same year.

A $10,000 amount invested in Mullen Automotive at its peak has almost disappeared. Just this year, the stock has tumbled by over 96%, making it one of the worst-performing companies in Wall Street.

Mullen Automotive, Lordstown, and Fisker

Tesla’s success has seen it attract hundreds of copycats from around the world. At its peak, China had over 500 electric vehicle companies, a number that has dropped to about 100 today.

The same happened in the United States, where investors embraced low-interest rates and invested billions of dollars to Tesla wannabes, 

Some of those companies have imploded. Lordstown Motors, a company that was lauded by Donald Trump, went bankrupt in 2023 while Fisker filed for its protection earlier this year.

All these companies had a unique angle. Lordstown was using old Detroit plants to build its vehicles while Fisker used a unique approach that has been used widely by companies like Apple and AMD. Instead of manufacturing its vehicles, it turned to Magna International to do the hard work.

Mullen Automotive could be the next EV company to fail simply because its balance sheet cannot handle the elevated cash burn.

Mullen earnings

The most recent catalyst for the MULN stock price was its financial results, which came out on Monday. 

These results showed that the company is in deep trouble. Its revenue for the nine months ending in June came in at $16.8 million. However, the company has not recognized these numbers, instead deferring them until the invoices are paid. This is a notable development since Mullen started delivering its vehicles in 2023 and is yet to recognize these revenues.

At the same time, data shows that Mullen Automotive’s net loss in the nine months to June improved to $326 million from the $806 million it lost in the same period in 2023. 

For the second quarter, its net loss stood at over $91 million, an improvement fron the $311 million it made a year earlier.

A company burning such huge amounts of money can do well only if it has a solid balance sheet behind it. Unfortunately, Mullen does not have that as its cash and equivalents in June stood at just $4 million, much lower than the $155 million it had in September last year. Also, its working capital stood at minus $59 million.

Mullen could file for bankruptcy

Therefore, I believe that it could be forced to file for bankruptcy this year because it has little options to raise money. For one, the company cannot raise adequate funds by selling shares because its total market cap stands at just $12 million. Even if it diluted its shareholders fully, the $12 million would not be enough to cover its working capital.

Mullen Automotive also has a limited chance of raising debt financing because of its weak income statement that revealed substantial losses. 

On the positive side, the company secured a $150 million funding commitment a few months ago. While $150 million is a lot of money, it is not enough for a company losing millions of dollars each quarter. 

Financial results from other EV companies like Rivian and Lucid Group shows that these companies lose substantial sums of money years after they start delivering their vehicles. Rivian started its vehicle deliveries in 2021 and lost over $5 billion in 2023. Lucid Group lost over $2.8 billion in 2023.

This means that, while Mullen has started its vehicle deliveries, its business will continue making substantial losses for a while. 

Additionally, there is also a risk that Mullen will be delisted by Nasdaq since its stock has moved back below $1. It avoided being delisted by doing a reverse split in 2023. Therefore, the company may be forced to do another one soon.

Mullen Automotive stock analysis

MULN chart by TradingView

I have warned about Mullen Automotive for a long time, as you can see here, here, and here. On the daily chart, we see that the MULN stock price has now crashed to zero and it remains below the 50-day and 100-day moving averages. 

Mullen Automotive’s Relative Strength Index (RSI) has tumbled to the extremely oversold level of 16. Being oversold is not a sign that one should buy the stock. It is a sign that it has strong bearish momentum. Therefore, the stock will likely continue falling as sellers target the key support at $0.30.