Shares of California-headquartered electric vehicle start-up Mullen Automotive (NASDAQ:MULN) — which actually does its manufacturing in Indiana and Mississippi — slid a disheartening 29% last week after issuing its fiscal first quarter 2023 business update. That sounds like bad news. But why, exactly, did the stock crash?
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Well, you shouldn’t have much difficulty figuring out what’s going on here. Start with revenues: Mullen has none. Still pre-production on its planned Bollinger B1 electric SUV, B2 electric pickup truck, and Mullen Five electric crossover — as well has its family of commercial electric vans and delivery trucks, Mullen has set to score a sale. Accordingly, all of its production, operating, and other costs drop straight to the bottom line and become net losses for the stock.
Result: Mullen racked up $376.9 million worth of losses for fiscal Q1 2023, or $0.28 per diluted share.
How serious is this for Mullen’s future? Not quite as bad as it sounds, because as it turns out, Mullen still had $107.4 million worth of cash, cash equivalents, and restricted cash at the end of the quarter. And the company burned through less than $34 million in negative free cash flow for the quarter, meaning that at its present burn rate, the company still has nearly three quarters to go before it will need to think about taking on more debt, or selling more shares, to raise cash to tide it over until it begins producing trucks to sell.
Still, flip that coin over, and the other side shows you a real worry for investors: The fact that the company only has enough cash for about three more quarters.
Another concern is that Mullen recently received authorization to conduct a reverse share split, in order to get its stock price over the $1 threshold needed to maintain its listing on the Nasdaq. Mullen noted that it does not want to conduct such a reverse split, and will not, if it is able to organically get its price up past $1 on its own. However, the farther Mullen’s stock price moves in the wrong direction — as it did after this business update — the greater the chance Mullen will be unable to avoid doing a reverse split.
And as much as investors love share splits, they really don’t like to see their companies do reverse splits.
Long story short, Mullen Automotive has more than its fair share of problems to work through right now. In the absence of analysts murmuring reassurances to smooth over news of the big net loss Tuesday, it makes sense that Mullen’s stock would slump. (See MULN stock analysis)
