Mullen Automotive (NASDAQ: MULN) stock price has made a swift recovery in the past few days after the company made some encouraging announcements. The shares jumped to a high of $0.1575 on Friday, ~70% above the lowest level this year.
Mullen Automotive short-squeeze
The MULN stock price made a strong recovery after the company announced that it had started delivering its Class 1 EV cargo vans to MGT Lease company. These vehicles are being sold through its deal with Randy Marion Automotive.
In a statement, the firm said that it had delivered four vehicles with more scheduled for delivery in the coming months. The initial order by Randy was for 6,000 vehicles. The company’s CEO said:
“We continue to see growing interest in our commercial EV offerings, and it’s great to have MGT as one of our first commercial customers. We look forward to growing our relationship with MGT across our entire platform of commercial EV vehicles.”
Despite the encouraging news, Mullen Automotive is still an extremely risky company to invest in. As I wrote in this article on Friday, lessons from Lucid and Rivian show that EV companies need more cash when they start vehicle deliveries.
Rivian burnt over $6.4 billion in 2022 as it lost money for every car it sold. Similarly, Tesla had 13 years of negative cash flows before it turned positive a few years ago. Lucid Motors burnt about $3.3 billion in 2023. Ford lost $3 billion in its EV business in 2022.
Bankruptcy risks still elevated
Therefore, vehicle deliveries does not remove the bankruptcy risks I have written about before. Unlike Rivian, which had over $13 billion in cash, Mullen Automotive does not have adequate cash for now. The most recent report showed that it had about $68.1 million in cash and short-term investments.
Notably, Mullen had $14.1 million in accounts payable, $6.2 million in accrued expenses, and over $372 million in current liabilities. Its short-term debt, which are set to mature this year is about $93 million.
Therefore, Mullen Automotive will likely need to raise capital this year, which will see more dilution among investors. For one, with interest rates rising, it will be a bit difficult for the company to raise capital using debt. Also, raising capital through share sales may not be sustainable because of where the stock is at today. Mullen knows these risks as it noted in its 10k:
“Our ability to obtain the necessary financing to carry out our business plan is subject to a number of factors, including general market conditions and investor acceptance of our business plan. These factors may make the timing, amount, terms and conditions of such financing unattractive or unavailable to us. In particular, recent disruptions in the financial markets and volatile economic conditions could affect our ability to raise capital.”
Therefore, while it is too early to tell, I believe that the company’s bankruptcy risks remain in the next few months or years.
MULN stock price forecast
So, is it safe to buy Mullen Automotive stock? The 4H chart shows that the Mullen Automotive stock price made a strong recovery after starting to deliver vehicles. It rose and approached the key resistance point at $0.1786, the lowest point on December 7. This is a sign that the stock is doing a break and retest pattern, which is usually a bearish sign.
The stock remains below the 50-period moving average. Therefore, there is a likelihood that it will resume the bearish trend as the delivery hype falls.
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