Mullen Automotive (NASDAQ: MULN) stock price is hanging around near its all-time low as concerns about dilution remain. The penny stock was trading at $0.2169 on Thursday, which was a few points above its all-time low of $0.1750. It has plunged by more than 99% from its highest level on record.
Mullen Automotive’s broken promises
Mullen Automotive is one of the many electric vehicle companies that seeks to compete with the likes of Tesla, Rivian, and Ford. However, unlike all these companies, it is significantly behind since it has not started delivering its vehicles yet.
Mullen’s recent results showed why there are still bankruptcy and dilution risks in the company. For one, as shown in this report, the company did not have any revenue in the fourth-quarter. Instead, its operating expenses rose to over $64.9 million while its research and development costs jumped to $8.6 million. Its total loss from operations were $73 million while losses attributable to shareholders came in at over $376 million.
Mullen Automotive should be making money by now, judging by its past statements. For example, in July last year, the company reached a binding agreement with DelPack Logistics to deliver 600 Mullen Class 2 EV cargo van. These deliveries would start in November and run for 18 months. As such, we can see that the company did not deliver any vehicles.
This is not the only questionable deal. In 2018, the company reached a deal with Qiantu Motors, a Chinese company. The deal, which you can read about here, would see the company repurpose Qiantu K50 for the American market. According to the statement, the firm was to start selling the car in 2020.
And last year, the company reached a deal with Newgate Motor Group. The latter agreed to buy 500 vehicles per year, with the first deliveries set to start in December. Again, according to the quarterly report, the company made no money during the quarter.
Bankruptcy and dilution risks remain
The biggest risk for the MULN stock price is dilution. In fact, the company has been diluting its shareholders for a long time as shown below. There is a likelihood that the company will have more dilution in the coming months. Its cash and equivalents rose to $68 million. As we have seen with companies like Lucid Motors, building EVs is a highly technical and expensive process.
Therefore, Mullen will need to raise capital this year since its cash burn is substantial. At the same time, the company carries substantial debt. It has $93.8 million in debt that are set to mature in by September.
The other maturities for 2024 are $4.8 million. This means that it will need to raise capital to pay these funds. And with interest rates expected to remain high for longer, the company will struggle to pay its debt. This explains why I believe that bankruptcy is a possibility in 2023 or in 2024.
MULN chart by TradingView
As I wrote in my previous MULN stock price forecast, the shares will likely continue falling in the near term. But I warned that a short squeeze was a possibility ahead of the upcoming reverse split.
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