Mullen Automotive Inc. (NASDAQ:MULN) is an electrical automobile firm based mostly in Brea, California. It manufactures and distributes electrical automobiles, together with passenger and business automobiles, in keeping with Looking for Alpha’s description. They’re additionally recognized for his or her solid-state polymer battery expertise, which ought to have modified the idea of electrical automobiles a number of years in the past, judging by articles written by earlier authors.
I got here throughout this firm reasonably accidentally – one of many articles ended up in Looking for Alpha’s “Trending Evaluation” part, and I made a decision to take a more in-depth look. What I discovered stunned me, to say the least – MULN is not the primary automaker I’ve analyzed, however nowhere did I see as many crimson flags as I did right here. Let me clarify.
Pink Flags In every single place
My readers know that I do not concentrate on any explicit business, however take a standard sense strategy to analyzing particular person firms and monetary devices. This has each its benefits and drawbacks. With out ample business information, for instance, I threat lacking some necessary factors – that is a giant minus. Alternatively, with widespread sense, I can apply traditional frameworks and monetary logic to my evaluation and decide the attitude of the corporate analyzed, no matter what it does – that is positively a plus as a result of I am not limiting the vary of objects of investigation.
I am completely satisfied that you just need not have labored on an auto crew at some big-shot funding financial institution to see that MULN’s company developments and steadiness sheet are wanting significantly worrisome.
The corporate just isn’t producing revenues but, in addition to the prices of gross sales, which is logical. The working bills burn a number of money from quarter to quarter – the overall enhance of this revenue assertion merchandise greater than doubled in Q2 [10-Q filing].
As you may see, R&D bills for Mullen Automotive elevated considerably by $19.3 million or 1,630% to succeed in $20.5 million in Q2. These bills primarily cowl engineering, homologation, and prototyping prices. The R&D prices additionally embrace $6.8 million representing the truthful worth of warrants issued for the acquisition of the appropriate to assemble, manufacture, and promote homologated automobiles based mostly on the Qiantu Okay-50. The continuing improvement of electrical automobile applications and the current acquisition of Bollinger Motors ought to contribute to additional R&D bills acceleration.
In 2022, Mullen additionally made an influence transfer by buying Electrical Final Mile Options to ramp up its manufacturing capability “at a a lot decrease funding than beforehand anticipated”, in keeping with the 10-Q. Because of this acquisition, MULN acquired the next property:
In the course of the first half of the fiscal 12 months, Mullen Automotive witnessed a major outflow of $97.4 million in web money used for investing actions. This occurred alongside an outflow of roughly $67.6 million in money used for working actions. The acquisition of inventories, known as “Different present property” by MULN’s administration [which is weird for a car company], contributed to an outflow of roughly $8.9 million in money from working actions. Alternatively, the merchandise “Accounts Payable” resulted in an influx of $8.5 million in the course of the half-year interval.
That’s, the corporate has elevated its accounts payable, whereas its inventories most definitely include submodules, elements, uncooked supplies, and tooling.
The corporate not too long ago entered right into a automobile buy settlement with fleet leasing supplier MGT Lease Firm. The settlement contains the acquisition of 250 Class 3 all-electric business automobiles with cab chassis and a contract worth of $15,755,000. Supply of those automobiles is scheduled to start in August 2023, and the complete buy settlement is anticipated to be fulfilled by December 2023. Shares rose sharply on the time of this information, however then continued to fall anyway – the market did not assume this deal could be a sport changer for the corporate. And I agree wholeheartedly – think about MULN will obtain almost ~$18 million in income for the 12 months beneath this deal, giving freely the COGS that no one noticed earlier than, which can make the gross revenue near breakeven at finest. The money burn will not seemingly go anyway and might even speed up as MULN hires extra personnel.
I learn someplace that the truth that MULN has >40% of its market cap in money makes it undervalued. Nevertheless, that’s about as a lot as is required to cowl quarterly working prices, which I perceive aren’t anticipated to be lowered quickly regardless of the brand new income stream.
The corporate’s advanced capital construction towards a backdrop of unprofitability solely makes MULN inventory extra complicated and confounding. Truly, it would not actually matter what sort of capital goes the place for my part – what issues is that it will increase the shareholders’ deficit and makes dilution seem like an inevitable resolution to at the very least maintain paying salaries.
Because the firm went public, competitors out there has elevated considerably, and now it appears to be like like MULN has misplaced its probability towards this backdrop. To the chagrin of present shareholders, solely a takeover by a bigger participant can reserve it, if the executives will be capable of discover a purchaser. By itself, the corporate is unlikely to free itself from the shackles of fixed dilution – even when its product is commercialized.
The Backside Line
In my view, MULN inventory can solely be a speculative instrument for short-term buying and selling – the one severe threat to my Promote score is the share of shares excellent offered quick. If MULN experiences even the slightest optimistic information or the corporate’s CEO goes public once more with a loud assertion just like the one about solid-state batteries, the inventory will most definitely expertise a powerful quick squeeze.
This hearth will seemingly be extinguished by the necessity to difficulty new inventory to maintain the enterprise going.
Perhaps I am lacking one thing in my evaluation of the corporate. That’s one other threat to remember. Nevertheless it baffles me that regardless of years of improvement and existence, the stock steadiness merchandise solely confirmed up on the steadiness sheet this 12 months – because of buying one other startup. MULN has too many crimson flags to place hard-earned cash in danger – and I have not but identified the Hindenburg Analysis report, which anybody all in favour of MULN already is aware of.
I difficulty a Promote score this time round and anticipate the inventory to carry out exceptionally poorly [maybe except for the short covering period or a buy tender].
Thanks for studying!
Editor’s Observe: This text covers a number of microcap shares. Please concentrate on the dangers related to these shares.