What Happens if Your EV Company Implodes? That’s the Mullen (MULN) Dilemma

With electric vehicle juggernaut Tesla (TSLA) demonstrating the viability of new energy vehicles, it was practically inevitable that EV startups would join the fray. One of the most popular names among speculating retail investors that quickly stood out was Mullen Automotive (MULN). Benefiting from a charismatic head executive in David Michery, MULN stock soared to stunning prominence during the early phase of the post-pandemic new normal.

However, the back half of 2021 and the stifling environment of 2022 – when the Federal Reserve imposed an aggressively hawkish monetary policy – rapidly eroded the good fortunes of the EV hopeful. Despite multiple reassurances and the disclosures of seemingly promising deals and partnerships, rational investors cut their losses, leaving the ardent bulls to hold the bag. Now, it’s questionable whether MULN has any real support.

On a reverse-split-adjusted basis, Mullen shares started the year trading hands at around $8. At the beginning of January 2022, MULN stock debuted at almost $132. One year prior, shares launched at well over $300. Following the close of Aug. 2, MULN finished the midweek session at 12 cents. It’s absolutely horrifying what the pump-and-dump folks did to Mullen’s early believers.

To be fair, Mullen refuses to go down without a fight. Earlier this year, the company filed a lawsuit against a media company alleging damages sustained from a false article. Last month, management stated that since its announcement on April 28, Mullen has been actively investigating naked short selling activities negatively impacting MULN stock.

Still, given that Mullen shares lost over 98% of equity value since the beginning of this year, the manufacturer risks being in a position to answer a lingering question on many consumers’ minds: what happens if the EV company you bought your car from implodes?

MULN Stock Faces an Obvious Risk Factor

Given the polarizing nature of MULN stock, it’s easy to find opinions on all sides of the opinion spectrum. For example, in May of this year, Barchart content partner The Motley Fool mentioned that it’s possible given Mullen’s wheeling and dealing, along with its core technical strengths that failure was already priced in. Unfortunately, it was not and there are myriad ominous articles explaining the EV startup’s dilemma.

I’m not going to reinvent the wheel and bring up concerns already forwarded. However, moving forward for MULN stock and similar troubled EV enterprises, investors should consider the obvious threat that surprisingly doesn’t get addressed that much. And that centers on consumers’ apprehension about buying an expensive EV from an unproven entity.

For arguably most households, the second-most expensive item that they purchase is a vehicle. Due to an ambiguous economy and soaring cost structures, consumers can’t be flippant about their car purchases. Plus, with the average price of a new EV clocking in at around $66,000, all but the exceptionally affluent must be prudent with their vehicular acquisitions.

Frankly, buying a car from a no-name brand like Mullen is wildly risky. With all due respect to Mullen, it’s not like its customers are buying an EV from General Motors (GM) or Toyota (TM). These latter two auto giants are industry icons and they have every incentive to serve their customers lest they suffer the wrath of public outcry.

As for Mullen, it could fail and relatively few people would notice or care. By logical deduction, customers could be on an island should circumstances sour. In fact, Consumer Reports explored the topic back in February 2009. Essentially, depending on whether a failed company reorganizes or liquidates, the decision could yield wildly disparate results.

It’s not clear that consumers are ready to take such a risk. Therefore, I would be extremely cautious about banking on a recovery in MULN stock.

It’s All in the Numbers (or Lack Thereof)

As Mullen itself readily admits, the company “has not generated revenue to date and has accumulated losses since inception.” So, not seeing anything on the top line for its Form 10-Q disclosure for the three months ended March 31, 2023 wasn’t surprising. However, the company didn’t disclose any deferred revenue in Q1 nor the half-year period ending March 31. This should raise some eyebrows.

For all the talk about Mullen’s strong demand for its consumer EVs, the lack of a deferred revenue line item implies no pre-orders. Now, I don’t want to ruffle any feathers and contradict the broadcasted positive sentiment from the EV upstart. Still, we’re talking again about a publicly traded security that lost over 98% of market value.

Something isn’t clicking with the enterprise and investors should read between the lines. Yes, it’s always possible that the market acts irrationally. I just don’t think they act 98% down irrationally, especially when we haven’t even hit a full one-year period. Ultimately, I would leave MULN stock for the extreme gamblers.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.