If you believe that electric vehicles (EV) are the future, a potential stock to consider is Mullen Automotive, Inc. (NASDAQ:MULN), an EV company that has excited many investors this last week. The stock price jumped by 58.33% in the previous few days. However, the price is heavily based on speculation rather than performance. The actions the company has recently taken and the announcements made are undoubtedly exciting.
Stock Price over the Last 5 Days (SeekingAlpha.com)
The company aims to produce electric vehicles on a significant scale within the USA. One major catalyst for change is its acquisition of bankrupt Electric Last Mile‘s fully functioning manufacturing plant and assets, allowing production to start one year earlier than anticipated. Another positive sign is the quality of people MULN has onboarded recently to lead the company’s growth. These include former Tesla staff and a highly experienced former General Motors executive of 35 years, John Schwegman, as CCO. Furthermore, the US government is investing heavily in developing the EV market.
MULN already has the facilities to produce 50,000 electric vehicles annually, with leadership focused on growth and investing in game-changing battery advancements. For these reasons, I believe there is a lot of upside potential for this very cheap stock in the long run while the company begins to enter its growth stage of the business cycle. However, we cannot ignore that this is a loss-making micro-cap company with little historical performance and a long road to potential profitability, which will include heavy dependence on vast amounts of financial backing to be successful. Investors may want to take a cautious but bullish stance on this company if we look at its successful history of acquisitions, the workforce onboarded to run the show, and the company’s strategic partnership deals recently made.
MULN was founded in 2014 in California by current CEO David Michery after acquiring CODA Automotive and Mullen Motor Cars. The timeline below shows that the company has spent the last years strategically developing and building the business. Most recently, it has been recognised as a company that could potentially change the electronic vehicle market.
Company Growth timeline (MullenUsa.com)
The business includes the manufacturing and distributing of electronic vehicles. Furthermore, it runs an AI-operated digital platform to deliver point-of-sales solutions, including buying, selling, owning and maintenance services for end customers. MULN started trading on Nasdaq less than a year ago, in November 2021, after a reverse merger transaction with Net Element.
One of the critical drivers for growing interest in MULN is its soon-to-be-released solid-state battery technology. According to tests, the 150-kilowatt-hour battery can cover 600 miles for the Mullen Five EV crossover series. An EV vehicle’s average distance is around 250 miles, with Tesla, Inc (TSLA) increasing it to about 350 miles. Compared to traditional lithium EV batteries, these cells are smaller in size, provide increased safety, have quicker charging time and have a higher energy density.
The EV market is still very young, and TSLA leads the pack by leaps and bounds. In 2020 the market was valued at $163.01 billion and was projected to grow to $823.75 billion by 2030, a CAGR of 18.2%. I have compared MULN to the three largest EV companies on the US stock market.
Peer Valuation (SeekingAlpha.com)
If we compare MULN to the three largest EV companies on the US stock market we can see that the balance sheet is debt-heavy across the industry.
Peer Comparison Balance Sheet (SeekingAlpha.com)
Looking at the NYSE’s market capitalisation across these EV companies, we can see incredible growth from 2010 to date. Year-end of 2021, the top four EV companies totalled $1.3 trillion. At the same time, there has been a slowdown in growth for legacy car manufacturers.
Market cap across the largest vehicle manufacturers (visualcapitalist.com)
Although MULN is a minor player, it is stirring up excitement on the battery technology front. However, can this micro-cap ensure the financing it requires to continue its ambitious business plan? This company is too young to base our decisions on its financial performance. We must consider alternative factors to evaluate the company’s future growth potential.
For instance, it has recently joined the Russel Index. This index helps companies receive greater visibility amongst the investor community and, therefore, more accessible access to liquidity.
Another potentially positive sign is if more prominent companies are partnering with your potential micro-cap stock. Earlier this year, MULN signed an agreement with Amazon’s delivery partner, DelPack Logistics, to manufacture up to 600 electronic vans. The market for last-mile delivery is projected to grow by billions in the next few years. These early partnerships could lead to significant growth for MULN.
MULN is also organising a tour in the upcoming month for investors and car enthusiasts to test drive the new model in cities across the country. There has been positive response and feedback across the internet regarding these events.
The income statements across the companies give us an idea of how long it will take MULN to reach profitability. The only company to show positive numbers is front-runner Tesla. TESLA reported its first profitable year in 2021, eighteen years in the making.
Peer Comparison (SeekingAlpha.com)
MULN is, without a doubt, a risky choice. The stock price has dropped from its IPO debuting price in 2021 of $12.99 to under $0.50. Furthermore, it is a pre-revenue entity with a high cash burn rate. If we look at the second quarter results, it has a low current ratio of 1.08. However, the company has given a preliminary release on its third quarter results and is said to have its most robust balance sheet to date with $99 million in cash and cash equivalents, increasing its assets by 391% and positive working capital of $27.6 million. Much of the money has been dedicated to R&D, particularly engineering expenses. The recent acquisitions have had and will continue to take up high costs, including legal and integration.
There is undoubtedly risk involved in investing in a company this young in a market that is still evolving and unpredictable and heavily influenced by politics, technology, competition and the state of the economy. A recession is not generally a favourable environment to release new cars and expect thriving sales numbers.
Furthermore, we are looking at a young and unprofitable company with very high operations costs. The company will continue to deliver losses for years, and at the same time, it needs to attain sufficient financing to follow through on its business plans.
Net Income per Quarter (SeekingAlpha.com)
It could take decades before the company sees profitability. The market is fierce; MULN has just acquired manufacturing facilities from a fellow EV company, ELMS, that declared bankruptcy twelve months after its IPO.
MULN has $318 million in financial commitments available to them, which can see them through 22022 and 2023. The debt level has been reduced by 77%. For this reason, equity holders can have more confidence that the company is set up for growth. Furthermore, assets have increased by 391% from the recent acquisition in addition to cash from financing activities. Finally, the working capital is positive due to the ability to use current notes and cash from various financing activities. MULN will also provide DelPack Logistics with its first 300 of 600 vans by the end of November 2022 under a binding contract.
The EV market is fierce and evolving, with many potentials, but not every company can or will succeed. MULN has benefited from ELMS’ bankruptcy. It can now bring many EV vehicles to the market sooner than planned. However, is there a chance that MULN can experience a similar fate? The years of acquisitions, technological advancements, partnership deals and growth plans are exciting to hear and have been well received by the market over the last few days. Up until now, the company has been successful in financing its ventures. However, much of what we have to rely on is speculation on futures. I believe investors may want to take a bullish stance on this company because of its heavy investments in assets and technology, although remaining cautious about whether the company can turn this into a profit.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.