Mullen Automotive (NASDAQ: MULN) stock price has gyrated recently after the company made some important headlines. The penny stock jumped to a high of $0.9624 in August and then recoiled to $0.3895 on September 11th. It then rebounded by 92% and peaked at $0.75. Despite these moves, MULN stock has plunged by more than 90% this year.
MULN stock chart
Headwinds and tailwindsMullen Automotive has made several headlines recently. For example, the cash-strapped electric vehicle company started buying back its stock. I believe that these buybacks makes no sense since the company has limited financial resources and has a longer path to profitability.
History suggests that many EVs take many years before turming a profit. For example, Rivian and Lucid, which are growing at a fast pace, have never turned a profit. It took Tesla more than a decade to make its first profit.
And even then, Tesla has not engaged in share repurchase program. Instead, the company has used its resources to expand its manufacturing capacity. Therefore, I don’t understand how Mullen Automotive, which had just $135 million in cash and lost $53 million in Q2 can sustain its repurchase.
Mullen Automotive is also suing companies like TD Ameritrade, Charles Schwab, and National Finance Services alleging market manipulation. I believe that the chances of victory for Mullen are limited. Also, the company will need to spend its meager resources to handle the lawsuit.
Also, Mullen has received a compliance notification by Nasdaq. This is not a big issue since the company will address it through another reverse split in the next few months.
On a positive side, Mullen recently landed IRS approval for its federal EV tax credit. This means that its vehicles, including Mullen ONE and Mullen 3 will be eligible for the $7,500 tax credit. Therefore, the company’s vehicle prices will become more affordable in the coming months.
Is Mullen Automotive stock a good buy?MULN stock price is clearly cheap now that it has fallen by more than 90% this year. However, as I have warned before, I believe that the shares are a classic value trap. First, Mullen Automotive has not received any major orders recently. Most of its existing orders have come through Randy Automotive Group. Therefore, it is too early to judge the company’s demand.
Second, I suspect that Mullen Automotive will incur losses for a while. Unlike Rivian which has billions of dollars in cash, Mullen will need to get these funds from somewhere. And with interest rates at an elevated level, the company will likely issue more shares, diluting existing shareholders. Mullen’s outstanding shares have jumped from 1.29 million in 2022 to over 75 million today.
Mullen outstanding shares
Third, Mullen is in a slowing and highly competitive industry. Most EV companies like Tesla and Ford have been forced to slash their prices, signaling that demand is evaporating. This trend will continue as long as interest rates are this high.
Therefore, I believe that MULN stock price will remain under pressure for a while. It is an extremely risky company to invest in but could be a good one to day trade.
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