It’s been four months since I last discussed Mullen Automotive (NASDAQ:MULN). I’ve never been a fan of the company or MULN stock. I always thought it was all talk and no walk.
So, with a share price trading at 36 cents, I don’t have a problem discussing why I wouldn’t touch Mullen stock with a 10-foot pole.
InvestorPlace contributor Eddie Pan recently covered the electric vehicle (EV) company. The company believes it can deliver 160 Mullen THREE Class 3 EV trucks by the end of the year. Production on this model began in August.
It has delivered just 10 to date to the Randy Marion Automotive Group (RMA) as part of its $63 million, 1,000 Mullen THREE vehicle order. The company says it will deliver 150 before the end of the year and the remaining in 2024.
If you believe that, I’ve got some prime Nova Scotia swampland to sell you. You don’t need to fly here to see it; it’s that good.
Like I said in June, “It’s hard to understand how this company stays afloat.”
It’s sub-$1 for a reason. Stay far away from this dog with fleas. Here’s why.
Its Projections Are Worthless
In his Oct. 16 article about the company, my colleague pointed out that CEO David Michery said in July that Mullen would deliver 930 Class 3s in 2023 and 3,000 in 2024. So, my simple calculation is that’s 2,930 short (3,900 minus 1,000) of an estimate it gave less than four months ago.
In late September, Michery updated shareholders about how things were progressing. In it, the CEO twice mentions the Randy Marion Automotive Group. The group has 14 dealerships in North Carolina and Jacksonville, Florida. While that’s impressive, it pales compared to AutoNation (NYSE:AN), with 253 locations in the U.S.
If the $279 million in purchase orders from Marion for Mullen Class 1 and 3 EV Vans and Trucks were from AutoNation, I might be more convinced that the total amount of the purchase orders would turn into actual deliveries. I have nothing against the dealership group, but the slightest wobble in the economy and Marion’s orders will disappear into thin air.
At least in the September update, Michery had the good sense to avoid delivery projections.
A Little Nasdaq Issue
Mullen requested and was granted a hearing before a Nasdaq hearings panel. It is working to regain compliance with listing requirements — it got a delisting determination in early September for failing to restore compliance with the exchange’s rule that companies must maintain a minimum bid price of $1. It believes several brokerage firms conducted activities between May 4 and Aug. 25 to manipulate the price of Mullen shares intentionally.
Mullen management feels its share price wouldn’t be trading for 36 cents if not for those evil people in the brokerage community. It obviously couldn’t have something to do with its business being in a heap of trouble.
The one thing I’ve learned about companies that run into listing troubles. If it happens once, it can survive. However, if it runs afoul of Nasdaq compliance twice or more, it’s bound for the pink sheets, rarely ever to return to the exchange.
A Strong Balance Sheet
Here’s what the CEO had to say in the first paragraph of his September update:
“Despite a challenging economic environment where many enterprises are capital-constrained, our balance sheet remains strong, and we have achieved meaningful strides since our last update to shareholders on August 14, 2023,” Michery stated.
My focus is on his assertion that the company’s balance sheet remains strong. He said the same thing earlier in September, answering Fox Business’s question about its general & administrative expenses.
On September 1, the CEO said, “If you compare our operating cash flows to our competitors, you will see that we operate very efficiently. Mullen also has a strong balance sheet with $352 million in stockholders’ equity, $560 million in total assets and total notes payable of only $7.3 million.”
Looking at its Q3 2023 10-Q, all three comments check out.
Of course, he doesn’t say it burned through $113.6 million in cash in the first nine months of 2023, up from -$43.2 million a year earlier. And that cash burn is from $308,000 in revenue. That’s $369 of negative cash flow from one dollar of revenue.
If it generates $10 million in revenue in 2024, that translates to a cash burn of $3.7 billion. It currently has $214 million in cash on its balance sheet.
Its balance sheet might be strong as of June 30. This time next year, it will be a miracle it hasn’t gone bankrupt. Just check its Altman Z-Score to understand why.
On the date of publication, Will Ashworth did not hold (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.