Laying Out the Bear Case for MULN Stock

It’s possible that some meme stock traders with impeccable timing have profited by trading in and out of Mullen Automotive (NASDAQ:MULN). However, the same can’t be said about investors who have bought MULN stock with a buy-and-hold strategy.

Shares in the electric vehicle startup trade wildly, creating many short-term opportunities to buy when it falls out of favor and sell when short-squeeze buzz emerges, but the stock has been on a downward trajectory since its debut in late 2021.

Back then, MULN traded for around $13. Today, it changes hands for around 42 cents per share. That’s a nearly 97% drop in price. Even if you bought Mullen more recently, there’s a strong chance you are deeply underwater. In the past six months alone, shares have declined by 47%.

Worse yet, based on its fundamentals, the stock is likely to remain a poor performer.

Why MULN Stock Has Been a Losing EV Wager

Mullen Automotive isn’t the only EV stock out there that has been mostly sizzle with little steak. One can list off scores of other small-cap automakers that have overpromised and underdelivered. Some of the more established EV startups, like Lucid Group (NASDAQ:LCID), have also had the same dynamic at play.

Still, when it comes to excessive hype and unimpressive results, MULN stock really takes the cake.

Mullen hasn’t been shy about touting its ambitious plans. These include its efforts to mass-produce the Mullen Five, an electric crossover SUV. It is also working on developing solid-state batteries that will enable its vehicles to offer greater range than the competition.

Thus far, though, Mullen has made little progress with both these projects. Production of the Mullen Five isn’t expected to begin until 2024. Regarding the battery technology, the company has not announced a major battery update since last May.

Meanwhile, Mullen has issued, sold, and converted new shares to both fund its operations and to make questionable acquisitions. The resulting dilution, coupled with a lack of progress, is why this company has been such a losing EV wager for investors.

The Bear Case for Shares Going Forward

MULN stock has moved higher lately, but it’s best to consider the stock’s latest rally to be little more than yet another temporary wave of excitement about a potential short squeeze. Once this latest squeeze fades, fundamentals will once again be the main driver for shares.

Put simply, that’s bad news for anyone buying the stock at or near current prices. A further decline is likely. Why? As I’ve argued previously, this is mainly due to the fact that the issues behind MULN’s massive price decline still persist.

Given Mullen’s cash position is likely not enough to sustain current operations, much less finance its ambitious vehicle production and battery technology development efforts, it’s nearly certain that the company will raise more capital through dilutive methods. This dilution will place additional pressure on the stock.

With its small size and reputation as a meme stock, it’s doubtful Mullen will be able to even raise the institutional capital necessary to turn its ambitious plans into reality. Whatever capital the company raises from additional offerings will likely be quickly exhausted. MULN will stay at square one, except with a lot more outstanding shares.

Your Best Move With MULN

Barring this early stage EV maker quickly reaching profitability with one of its smaller projects, such as its I-GO urban delivery EV, Mullen Automotive will likely remain on its current dilution spiral.

Mullen will keep burning through cash and raising just enough capital to keep the lights on. The company also will likely reverse split the stock within the next year, helping to mask future price declines.

On a split-adjusted basis, continued dilution stands to send the stock substantially lower once again. In contrast to other EV stocks, where bulls and bears can have a well-thought-out debate, the bear case with Mullen is pretty cut and dry.

Likely to stay an EV dud, it’s best to avoid MULN stock.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.