Mullen Automotive ( NASDAQ: MULN ) stock price has lost its bullish momentum even as other EV stocks like Tesla rebound. The shares were trading at $0.377 on Tuesday, about 118% above its all-time low. It nonetheless remains sharply below its all-time high of $1,225.
An uphill battle ahead
The electric vehicle industry has had mixed success in the past few years. On the one hand, we have well-known brands like Tesla and Nio that are selling large volumes of cars. In the other side of the spectrum, there are upstart EV companies like Arcimoto, Veemo, Britishvolt, and Lightyear have filed for bankruptcy. Canoo is on the brisk as well.
The future of electric vehicles will be made up of companies with huge balance sheets and substantial scale. Unfortunately, Mullen Automotive seems to be at risk of not succeeding as the cost of manufacturing rises and balance sheet remains stretched.
Mullen losses have been rising over the years. In its recent 10k , the company said that its losses from operations in 2022 surged to over $96 million from the previous $22.4 million. Total loss jumped to over $740 million. Most of these losses came from the revaluation of warrant liabilities and other financing costs.
For a company with no revenues to continue as a going concern, it needs to have a solid balance sheet. The 10k showed that the company had $86.3 million in current assets, including $54 million in cash and equivalents. This is important since the company closed its acquisition of Electric Last Mile Solutions (ELMS) in December, meaning that it used some of these funds.
Dilution risks remain
Therefore, Mullen Automotive faces a major liquidity challenge considering that it is burning cash at a quick rate. The most likely scenario is where the company sells more shares and dilutes existing investors. In December, shareholders voted for a provision to increase the outstanding share count from 1.75 billion to a whopping 5 billion.
Mullen will likely need less amount of money than it used in 2022 since I don’t expect it to make other big acquisitions. However, with the production of its key vehicles slated for 2024, the company could see more costs. Its 10k shows that R&D costs surged to $21 million while G&A costs rose to $74 million. Unless it makes major job cuts, these are not costs that are easy to cut.
Therefore, Mullen Automotive faces a major liquidity risk in 2023 that could push the company into bankruptcy. This risk will likely be avoided but the cloud still hangs around. The biggest risk is that of dilution of existing shareholders.
The only benefit of the Mullen stock price is that the company is incredibly popular among traders. As such, we can’t rule out a short squeeze that pushes the price sharply higher. This short-squeeze could happen if the company decides to reverse split it stock to meet Nasdaq listing requirements. I wrote about the reverse split here . Nasdaq has given it until March 6 to ensure that the stock remains above $1. Find out how to buy Mullen Automotive .
Several of these studies allude to the notion that reverse stock splits might attract short selling activity. Kadiyala and Vetsuypens (2002) suggest that if reverse stock splits enhance liquidity, as documented in Han (1995), both the risk of a short squeeze and the opportunity cost of a short sale are lowered.
MULN Stock Analysis: This Could Squeeze Higher in 2024
So, as you can see, my current MULN stock analysis is cautious but still optimistic. If you can handle risk and volatility, a now is a good time to consider a tiny share position in Mullen Automotive.
Mullen seeks to reverse split its shares for a third time in order to regain compliance with Nasdaq's minimum bid requirement of $1. In order to regain compliance, MULN must close at or above $1 for 20 consecutive business days by Jan. 22, 2024.
Are reverse stock splits good or bad? All things equal, a reverse stock split is neither good nor bad and has no impact on the value of the total company. However, it often carries a negative connotation as many of the companies doing them are countering a sharp drop in their share price.
But there's no ceiling on the stock. You can sell it at $10 and then be forced to buy it back at $20 … or $200 … or $2 million. There is no theoretical limit on how high a stock can go. The first way to avoid getting squeezed is simply to avoid shorting.
Selling before a reverse stock split is a good idea, but selling after the reverse stock split is not. Since you can sell before and after a reverse stock split, selling during one is optional. The main advantage of selling before the reverse stock split is that you don't have to wait around for it to happen.
Stock analysis & scores update: Mullen Automotive (MULN) has an AI Score of 5/10 (Hold) because its overall probability of beating the market (S&P 500) in the next 3 months (32.34%) is -0.44% vs. the average probability (32.78%) of US stocks analyzed by our Artificial Intelligence.
According to Benzinga Pro, Mullen Automotive's peer group average for short interest as a percentage of float is 10.18%, which means the company has more short interest than most of its peers.
Mullen Automotive's odds of distress is above 80% at this time. It has very high probability of going through financial crunch in the upcoming years. Odds of distress shows the probability of financial torment over the next two years of operations under current economic and market conditions.
Shares of Mullen Automotive Inc. blasted higher in very active trading Thursday, after the California-based electric vehicle maker enacted a much-needed reverse stock split.
For instance, a reverse split worked for internet travel giant Priceline, now Booking Holdings (BKNG 0.59%), which did a 1-for-6 reverse split following the internet tech bust. Since bottoming in late 2000, shares of the travel company are up more than 6,000%.
Key Takeaways. A reverse stock split consolidates the number of existing shares of stock held by shareholders into fewer shares. A reverse stock split does not directly impact a company's value (only its stock price). It can signal a company in distress since it raises the value of otherwise low-priced shares.
Some loss in market value often follows a reverse stock split as investors unload their shares. It does not reward investors at dividend time, either. If the company pays cash dividends, future dividends would be adjusted to reflect the new, lower number of shares outstanding.
It occurs when a security has a significant amount of short sellers, meaning lots of investors are betting on its price falling. A short squeeze begins when the price of an asset unexpectedly jumps higher. It gains momentum as a significant number of the short sellers decide to cut losses and exit their positions.
The reverse stock split will affect all holders of the company's common stock uniformly and will not affect any stockholder's percentage ownership interest in the company. Unfortunately, there is typically no limit on the amount of shares a company may issue after a reverse split which would dilute investors.
Introduction: My name is Stevie Stamm, I am a colorful, sparkling, splendid, vast, open, hilarious, tender person who loves writing and wants to share my knowledge and understanding with you.
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