Mullen Automotive (NASDAQ:MULN) is telling investors an exciting story, centered not only on new, innovative electric vehicles, but a potential breakthrough in battery technology. But the MULN stock price shows that the market simply doesn’t believe that story.
Even with Mullen stock down sharply — it’s declined 75% so far this year — it’s difficult not to share the market’s skepticism. The Mullen story is intriguing — but it also has a number of rather large holes. Until management offers a more credible plan for getting to production, it’s hard to be bullish at any price.
The Mullen Story (As Management Tells It)
To listen to management, Mullen has a real chance to be the next great American electric vehicle manufacturer. The company was pieced together through a pair of 2014 acquisitions, including the purchase of EV manufacturer CODA Automotive out of bankruptcy.
That history, chief executive officer David Michery told EV website The Buzz, provided “experience that money can’t buy,” along with “a billion dollars of technology.” Mullen since has added more such experience by bringing on executives with experience at General Motors (GM), Tesla (TSLA), and other major carmakers.
Mullen also acquired a manufacturing facility outside of Tunica, Mississippi, which will produce its vehicles going forward. The most-hyped is the Five, a sport-utility vehicle priced at $55,000 before incentives. The Five boasts solid specs — including an estimated 325 miles of range — while Mullen is developing an interactive system named Persona, which includes exterior and interior cameras to prevent theft, unlock via facial recognition, and even offers a “pet mode.” Mullen already has produced show cars for the Five line, which will be part of a 19-city test-drive tour later this year ahead of full production targeted for 2024.
But the Five isn’t the only product here. Michery said at the end of March that a “major, major Fortune 500 company” would be buying cargo vans from the company this quarter. Mullen offers (or at least, plans to offer) Class I and Class II versions of that product.
Mullen also is looking to make waves in the battery market. It’s developing solid-state battery technology, and said in February that it was progressing toward a pack that could deliver over 600 miles in range. Michery told The Buzz that the new technology created minimal battery degradation: just 2% over 10,000 cycles, against ~80% for the lithium-ion batteries used by Tesla and other EV manufacturers.
Mullen plans to put the solid-state packs in the second-generation Five, likely arriving in late 2025 or 2026. It’s now retrofitting another facility, in California, to produce battery packs for the Five, the cargo vans, and the high-end (if long-awaited) DragonFLY sports car. Mullen even owns CarHub.com, an automotive buying and selling platform that “leverages artificial intelligence to offer an interactive solution” for users, according to the most recent 10-K.
At least in one interview, with CarBuzz.com, Michery himself refused to compare his company to Tesla. But the story that he and his team are telling does sound a bit like that of the world’s most valuable automaker. Mullen is starting toward the higher end of the market (albeit with a price point not nearly as high as that of the original Model S) with longer-term plans to move down the ladder. Like Tesla, the company is working on its own battery technology.
And between CarHub.com and some lightly-discussed energy initiatives (Mullen also acquired Coda Energy Facilities, renaming that business Mullen Energy), there’s at least the outline of a business beyond EVs, much like that promised by Tesla. Mullen even applied for a federal loan program last week, the same program that jumpstarted Tesla’s growth with a $465 million infusion back in 2010.
Michery might not want to come out and say that Mullen is the ‘next Tesla,’ but no doubt many MULN bulls believe it might be.
Three MULN Stock Key Metrics Cast Doubt
It’s an attractive story, no doubt. But it has some holes, holes highlighted by three separate financial metrics.
The first is Mullen’s market capitalization, which at the moment sits around $400 million. (As of Mar. 31, the company had 284.8 million common shares outstanding, along with 11.3 million shares of preferred stock convertible on a 1-to-1 basis.) That’s a fraction of the $3.1 billion equity valuation for Fisker (FSR), let alone the $30 billion-plus market caps for Rivian (RIVN) and Lucid Group (LCID).
Again, the market cap tells us, unequivocally, that the market is discounting this story.
Two other metrics might show why that is. At the end of Q1, according to a press release, Mullen expected to have “in excess of” $65 million in cash on its balance sheet. But the company closed fiscal Q1 (ending Dec. 31) with $19 million in short-term debt, which ostensibly would eat up some of that cash in coming quarters.
Debt or no debt, $65 million is nowhere close to enough to get Mullen to where it plans to go. Michery alluded to this, if perhaps indirectly, in raising a hypothetical with CarBuzz in which Mullen could “get to a finished vehicle” for $2 billion instead of $5 billion. Whatever the precise figure, it’s not anywhere close to $65 million. Fisker will probably spend $2 billion-plus getting the Ocean, its own SUV at a similar price point to the Five, into production. Tesla raised $19 billion and after its Model 3 launch had spent $9 billion.
And while Michery has talked up Mullen’s assets, there really isn’t that much there yet. Coda’s products were a disaster, and the “billion dollars of technology” Michery cites apparently were built on the back of total funding just over $200 million. Short-seller Hindenburg Research last month highlighted questions about Mullen’s Mississippi facility, including its past use (for tiny EVs that were supposed to deliver pizza) and an apparent lack of machinery. Mullen itself has said in filings that it needs to expand the facility by a factor of ten — an effort that alone could eat up all of the company’s cash, particularly with a trailing twelve-month cash burn rate of ~$30 million even excluding the outlay for the factory (which was purchased in calendar Q4).
Mullen needs a significant amount of cash, but it’s not at all clear where that cash is supposed to come from. The company can sell some stock, but it’s a narrow, narrow path (at best) to raise $1 billion off a market cap of $400 million, and even $1 billion probably isn’t enough given Michery has repeatedly cited plans to design and manufacture the vehicles in-house. The debt markets are closed in any real size; less than a year ago, per filings, Mullen raised just $4.4 million in convertible debt at a whopping 15% interest rate. The government loan program perhaps could be a lifeline, but the last loan was made in 2010, and Mullen is not what Tesla was, let alone what Ford (F) was when that company received $5.9 billion back in 2009.
The one path out seems to be to get MULN stock high enough to recreate the virtuous circle that so helped Tesla, where a higher share price means cheaper capital, which means more growth, which means a higher share price, etc. But with the stock below $1.50, there instead is the risk of a vicious cycle, in which a lower share price itself depresses the company’s outlook.
Is MULN Stock Overvalued?
Access to capital is thus a huge roadblock to the Mullen story. But capital aside, there’s a real question as just how realistic that story is.
That question is brought into relief by the third key metric here: the company’s spending on research and development. In FY21, Mullen spent just $3 million on research and development, per the 10-K. Q1 R&D expense did more than double year-over-year — but to just $1.16 million, bringing the trailing twelve-month total to about $3.6 million.
Notably, Mullen itself said in the 10-K that the expense “primarily consist[ed] of the Mullen FIVE EV show car development.” Roughly the same description was given in the Q1 10-Q. Not all of that spend was even done in-house. The Q (see p. F-27) highlights agreements with two companies, Thurner, Inc. and Phiaro, Inc., to develop the show cars for the FIVE line. (Phiaro in fact features the Five on its home page.) The filing suggests a total cost for the two show cars of $4.1 million — with Thurner and Phiaro accounting for about half that cost. During the R&D discussion in either filing, there’s no mention of the battery program — at all.
The filings do mention a three-year agreement with a Chinese concern for solid-state battery development. In its piece, Hindenburg noted that the Chinese company, Linghang Boao, no longer has functional websites, and that Mullen has long since terminated the agreement, which began in 2019. (Per Mullen’s filings, Mullen declared force majeure due to the novel coronavirus pandemic.) The technology Mullen supposedly is developing doesn’t actually seem to be coming from the company itself.
So when Michery says that “I like to think that we’re on the forefront of electrifying America,” it’s probably fair to have some skepticism. When he talks up “the entire ecosystem, from beginning to end” being American, it’s wise to wonder why Mullen keeps signing partnerships with companies from overseas. When he claims to have solved one of the most intractable problems in batteries — the intense degradation of solid-state models — on an R&D budget equal to 2% that of QuantumScape’s (QS) TTM expense, it seems smart to question how, precisely, that occurred.
When he says a “major, major” customer is buying cargo vans, investors should ask why vans are mentioned once in the entire 10-K, and where exactly in the financial statements the expense of designing, manufacturing, and selling those vans is being reflected. (Hindenburg argues, coherently, that Mullen is just reselling a Chinese product.)
To listen to Michery, Mullen is an absolute steal at a $400 million valuation. His company’s filings with the SEC, however, show something very different. This is a company with no revenue, outsourced design, minimal R&D spend, a shaky balance sheet, and ownership of a supposedly AI-driven website where the photo links literally don’t work. Without the CEO telling that story, this looks like a company worth very little, if anything at all.
What Is Mullen Automotive Stock’s 2022 Forecast?
Given those problems, from here there’s not much of a case to be long MULN stock at this valuation. It’s possible that somehow this works; that an enterprising chemist at Mullen truly did crack the solid-state code; that the Five is just that good. (To be fair, the Five did win an audience award at last year’s LA Auto Show, and to my eye it does look well-designed though, again, that does not appear to be Mullen’s doing).
But with this stock in this environment, there’s little case to be short, either. MULN continues to be a social media favorite. It’s skyrocketed on multiple occasions on relatively insignificant pieces of news. It would not be at all surprising to see the stock rip on another development — or no news at all.
Indeed, it seems likely that it’s going to be retail traders on social media that drive the stock for the rest of the year. We’ll see if Mullen indeed has an update on the cargo van order; even a smaller, lower-quality order probably spikes the stock. That aside, the rest of the year probably doesn’t look that much different than the first four months, with Mullen trying to spark investor optimism. Overall, Mullen’s strategy hasn’t fared well so far in 2022, but the stock still is up more than 100% from February lows:
Is MULN Stock A Buy, Sell, Or Hold?
Longer-term, to be blunt it looks like MULN probably is a zero. $65 million is not enough cash to get any vehicle into production; it’s not close to enough cash even if Mullen moves to an outsourced model, minimizing upfront capital needs. Mullen’s only option to raise cash is to sell stock, but the plunging share price and a very different market environment from 2020-2021 present real roadblocks on that front.
To be fair, a stock that “probably is a zero” over time is not necessarily worth zero right now. The optionality of upside has value, and, again, there potentially is a scenario where MULN stock gets off the mat, allowing the company to fund itself into 2023. From there, optimism toward the Five (or a possible cargo van deal) can allow for more capital to come into the company’s coffers.
But, again, it’s a very narrow path. And if Mullen has any slip-ups — most notably, if the major customer announcement disappoints — the stock can fall hard and fast. A $1.30 share price may sound ‘cheap’, but a $400 million valuation quite obviously isn’t. There’s no reason both can’t go lower — in fact, over time, that’s the most likely direction.