MULN - Mullen Automotive stock: Is MULN a bargain or a value trap?
2024-01-10 10:00:00 ET
Mullen Automotive (NASDAQ: MULN) stock price has been beaten down in the past two years. The shares have crashed by over 90%, with its market cap falling from over $600 million to $59 million. Some of this sell-off continued after a short report by Hindenburg Research, which argued that it was worse than other EV hustles like Kandi, Ideonomics, and Lordstown.
Some progress but not good enough
Mullen Automotive is not the only EV company that has seen its stock melt away. Others like Canoo (GOEV), Faraday Future (FFIE), and Workhorse Group are all struggling and could run out of money soon.
Mullen Automotive has done a good job despite having negative press for over two years. For one, it has managed to start shipping its vehicles to customers. In a statement on January 4th, the company said that it had delivered 241 Class 1 and Class 3 vehicles in 2023.
These vehicles were delivered to Randy Marion Automotive Group. It now aims to deliver 6k Class 1 vehicles and 1k vehicles to the company this year. In all, this order is valued at over $263 million, which is a good figure for the company.
Still, it is too early to celebrate since we need to see real demand from customers and not dealers. In a recent statement, auto dealers in the US complained that most customers were opting for their internal combustion engine (ICE) vehicles. Also, relying on a single dealer could be risky for Mullen, especially if sales are not strong enough.
Mullen Automotive also has an ambition to challenge companies like Tesla, Lucid Motors, and Rivian. It is set to start building Mullen Five, a SUV crossover with a 325 mile range and one that can do 0-60MPH in 3.2 seconds. In the recent CES event, the company also showcased Mullen FIVE RS, which has over 1,000 horsepower and a maximum speed of over 200 MPH.
“As it often with hand-built vehicles, considerations must be made for efficient transporting of these machines.The forged-carbon mirrors had to be designed for easy removal to enable loading and unloading of our nearly two meter wide FIVE RS.
— Mullen Automotive (@Mullen_USA) January 10, 2024
Over-all, this vehicle is… pic.twitter.com/qQC97BqXC9
These are all positive developments. However, as we have seen with other EV companies like Rivian and Lucid, it takes money to build these vehicles and ramp up production. Mullen does not have enough resources. The company had over $235 million in cash in June last year and $214 milion in the most recent quarter.
Keep in mind that Mullen is burning loads of cash. In the most recent quarter, it reported that its cash burn stood at over $67.5 million in the third quarter. This means that Mullen will need to raise capital either through equity or debt this year to fund growth.
It is not uncommon for EV companies to raise cash in the market. For example, in October, Rivian raised $1.3 billion even though it had over $12 billion in cash. Lucid Automotive has also raised cash several times.
Is MULN stock a bargain or a value trap?
Regular readers know that I have been negative on Mullen for a long time as you can read here and here . I still have concerns about the company and the broader EV industry in general. Therefore, while MULN stock is cheap, I anticipate a mountain of challenges ahead. The biggest challenge is its cash burn and the potential need for cash.
On the other hand, I believe that shorting the stock at these prices is quite risky. Mullen has a short interest of almost 20%, meaning that it can be a candidate for a short squeeze. Therefore, in this case, I’d stay in the sidelines and watch how the situation unfolds.
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