High-Risk Mullen Automotive Continues To Build Momentum

Key Points

• Mullen Automotive remains compelling despite risks, dilution, and liquidity fears. 
• A growing number of orders has the company approaching a critical mass. 
• Production is expected to begin over the summer and transition the company from pre-revenue to revenue. 

The only thing that can be said with certainty about Mullen Automotive NASDAQ: MULN is that it comes with high risk. Dilution and liquidity fears aside, the deal with Lawrence Hardge is a wickedly unknown factor, yet the story still has compelling aspects. A growing number of orders, its position in the EV market, and the hopes that production will begin over the summer keep the bulls just as interested as the bears.

The short interest is hovering around 12.5% on a split-adjusted basis, keeping the market from gaining traction, but new lows are getting harder and harder to come by. One reason for that is the institutions.

Marketbeat.com’s institutional trading tools have picked up a growing number of new buys that suggest one thing: the institutions think the risk is worth taking, if only with a minimal position. They own only 6% of the stock collectively, and the buying picked up conspicuously after the reverse split, but it is a telling indication.

Among the 9 buyers are Barclays, BNY Mellon, Goldman Sachs, and Charles Schwab, which owns nearly 2.0% of the company as of the last report. Another telling factor is that positions were increased by triple-digits almost across the board, with Goldman Sachs lagging at up 76% and Schwab leading with an increase of more than 200%. 

Mullen Automotive: Production And Capital, A Race To The Finish 

The hope is that Mullen will begin production by July 2023, which is on track. The company has been investing in production capabilities and has built an impressive backlog of orders for its class-3 truck cab/chassis combination. We know of orders for 1,250 class-3 trucks, but more are expected. The class-3 production line should go online in July, with deliveries starting in August. 

The class-1 vans that have been delivered are coming out of existing stock with no timeline for production as yet. The takeaway is that revenue should be booked as soon as the 2nd calendar quarter of 2023 and should ramp in the 3rd. The question is whether roughly $260 million in confirmed orders is enough to get the company to the finish line.

Add that to the recently reported $116 million of operating capital, and it sounds like a fair amount, but it won’t last. Lucid Group NASDAQ: LCID is further along in the production process and has more than $4 billion in liquidity, which analysts fear is insufficient. 

But other potential catalysts for Mullen are brewing. The company has deals with Rapid Response Defense Systems to provide EVs to the government, the I-Go should begin sales in the EU soon, and the test run with Menzies may also bear fruit. The deal with RRDS is most likely a back-burner deal, the government is unlikely to sign a contract until production is proven, but that may be around the corner.

The question on the bulls' minds is how many orders Mullen needs to have on the books to reach the critical mass that capital opportunities begin to materialize.

The Technical Outlook: The Fight Over Mullen Continues 

The chart is interesting because the volume has increased even as the price edges lower. Given the right catalysts, the stock is still in a downtrend but is building a firm support base that could lead to a short-covering rally or squeeze. That is evidenced by bullish momentum and stochastic, deep in oversold territory, showing a slightly weaker selling level than in March and April.

This may lead to a temporary relief rally, but based on the evidence, there is potential for a reversal that may be sparked soon. Mullen should release its calendar Q1 report next week, which could come with new and exciting details.