Mullen Automotive (NASDAQ:MULN) is a popular EV growth and meme stock that has displayed very volatile price action of late. Unfortunately for investors, since the meme craze of 2021 and hysteria around anything tied to hyper-growth, Mullen stock has effectively imploded, losing almost all its value in short order.
Now, the question is whether this stock is too heavily-shorted at these levels, or if more downside is on the horizon.
The company continues to see heightened risk due to its high operating losses and reliance on dilutive financing methods. To sustain operations and fund the development of its Mullen FIVE, the company may need to sell additional shares exceeding its current market cap.
Let’s dive into how much more downside may be possible with Mullen stock moving forward.
This early-stage EV manufacturer has faced its share of challenges in recent weeks. A declining stock price (to put it nicely) has forced the company to resort to a reverse stock split to meet Nasdaq compliance requirements.
However, the split did not yield the desired results, as the stock price has once again fallen below $1. The split also has led to the company’s share price dropping lower than its authorized count.
Mullen Automotive now faces potential delisting from the Russell 2000 Index because of its low share price and depressed valuation. Eligibility for this exchange requires a closing price of at least $1 on the rank day, or an average daily closing price over the past 30 days of $1 or greater.
With well-funded electric vehicle companies such as Lucid Group (NASDAQ:LCID) and Rivian Automotive (NASDAQ:RIVN) facing challenges in scaling up and achieving profitability, it is likely that Mullen Automotive will face similar difficulties. Further rounds of dilution may only worsen its position in the stock market.
Mullen Stock Continues to Slide
This California-based EV maker has been facing an uphill battle recently, with the constant threat of delisting looming overhead. In March, Mullen was granted a 180-day extension to fulfill Nasdaq’s $1 minimum bid price requirement to avoid being removed from the exchange.
Mullen performed a 1-for-25 reverse stock split to meet the $1 share price requirement, but the stock quickly fell back below this key level.
Despite the looming delisting deadline, Mullen has some time to meet the minimum stock price requirement. However, investor sentiment towards the company is negative, as reflected in the state of its short shares.
Despite positive news, investors remain hesitant. Mullen lags behind competitors in EV production and cash flow, making its future uncertain.
Recent News on MULN
Mullen Automotive’s stock gained attention as the company disclosed a letter of agreement (LOA) with Acuitas Capital tied to a securities purchase agreement (SPA). Acuitas provided $20 million in capital on June 1, with the remaining $45 million to be paid on June 12.
Mullen Automotive revised its agreement with Acuitas Capital, opting to offer 19.43 million shares of common stock and pre-funded warrants for 8.07 million shares instead of the initially agreed upon 27.56 million shares of Series D preferred stock.
Additionally, Mullen provided Acuitas with warrants for 50.99 million shares of common stock at an exercise price of 72.55 cents per share.
On a technical basis, there’s not a lot to like about Mullen’s delisting prospects and continually declining share price.
From a fundamentals perspective, this is a challenged company that needs some sort of market miracle to see a valuation anywhere near where this stock traded near its peak.
Indeed, in terms of risk, Mullen stock is about as risky as it gets in the EV space. I don’t know how much further downside this stock has from here (I suppose bankruptcy is the absolute worst-case scenario).
In my view, there are other higher-risk bets (like Rivian or Lucid) in this space I’d make first. This one just has too much hair, and I think investors are better off looking elsewhere for growth right now.
On the date of publication, Chris MacDonald did not have (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.