Mullen: The Back-Handed Slap Of Good News

Key Points

• Mullen Automotive completed its series D obligations and is working on its capital structure. 
• The prospect of future dilution is dimming, but current dilutive actions still weigh on the market. 
• The cash position is good and may be enough to get the company into production. 

Mullen Automotive NASDAQ: MULN announced the completion of obligations under its series D investor agreement. The agreement, amended numerous times, has been a source of contention among investors at all levels of the company’s structure, so this is good news. Ultimately, it and the recent moratorium on new financing suggests an end to the dilution common stock shareholders have suffered, but it is already too late for some.

The stock is down nearly 90% from its post-split open, and the current dilutive actions are still working through the market. 

Mullen Automotive filed a registration on 6/26 for the resale of up to 2.335 billion more shares on a split-adjusted basis. This means more shares are available than disclosed on the February 2023 prospectus filing, about 10X what was available to the market after the May 4th split. Some of the dilutions have occurred, that is certain, but some of the warrants have yet to be exercised, and the company is registering those shares for sale, although it won’t receive those funds directly.

Completing the series D financing agreements resulted in another $100 million cash infusion which is good news, but common stock shareholders are paying the tab. 

Worse news, there is another reverse split on the horizon. That could be up to 1:100, which is not the kind of split that NASDAQ likes to see. At such a level, the company would exceed the tolerances and open the door to an immediate delisting contrary to the company’s goals. Whether that split comes is yet to be seen and may be mitigated by events over the summer. 

Mullen Raises Capital; Relatively Debt Free 

The good news and it is good news for the company, is that series D obligations are met, it has raised another $100 million in capital and it is relatively debt free. The company could win if it can transition from pre-revenue to revenue as expected over the summer.

The capital infusion brings the available cash and equivalents up to $235 million, which CEO David Michery says is sufficient for 2 more years of operations. If correct, that is sufficient to get the company into producing and ramping up the production of class 3 and class 1 vehicles so it can begin filling orders for Randy Marion. It should also help accelerate the Mullen 5 and Mullen GT programs.

“We are in the best financial position in our Company’s history and remain fully committed and highly focused on producing, selling and delivering our vehicles to our customers prior to the end of 2023,” said David Michery, CEO and chairman of Mullen Automotive.

Headwinds Remain For Mullen Shareholders 

Mullen appears to be getting its ducks in a row, but headwinds remain for the stock price and the business. Assuming the company can get into production, the stock price still faces an exodus of institutional money due to its delisting from the Russel family of indices, the ETFs, and funds pegged to them.

That support may return to the market but will not soon. The company has to get its share price back above $1.00, which is unlikely without another reverse split. The strike prices for warrants yet to be exercised are between $0.16 and $0.17, so any upward movement will likely attract sell-side attention. A move to $0.32 would double their value and makes a prime target for resistance. 

The share price, coincidentally, fell more than 10% on the news and is below $0.16. This is largely due to short sellers who have the short-interest up to 16%. With these forces in play, Mullen stock may rebound with good news, but it won’t get far and is more likely to trend sideways over the summer than stage a rally.