Mullen Automotive (NASDAQ: MULN) stock price continued its downtrend this year, making it one of the worst performers in the electric vehicle (EV) industry. MULN has tumbled by 83% this year as the S&P 500 and Nasdaq 100 indices have soared to their record highs.
The company has also underperformed other American and Chinese EV companies like Rivian, Lucid, and Tesla.
Short sellers are thriving
Mullen Automotive’s collapse has hurt many investors who have hoped of a rebound. At the same time, it has benefited many short sellers since the company is one of the most shorted companies in Wall Street.
MULN has over 10 million outstanding shares, with over 3.5 million being shorted. That gives it a short interest of 35.3%, meaning that a substantial number of holders have benefited from its collapse.
The short-selling frenzy has continued even after the company sued IMC Financial Markets, Clear Street Markets, and UBS Securities. In its lawsuit, the company alleged that these firms failed to design a risk management platform to prevent stock market manipulation.
The lawsuit is still continuing even as analysts argue that the company has a weak case since it is unclear whether they deliberately did that.
Further, the short selling has accelerated even after the company started buying back its shares, a move that we criticised. In most cases, companies repurchase their shares using their free cash flows.
Mullen does not have cash flow since it is burning substantial sums of money as it continues building its vehicles. In 2023, the company’s auditor’s raised going concern issues in its filing.
Mullen Automotive’s business
Meanwhile, Mullen Automotive’s business is going through headwinds. The most recent financial results showed that its net loss stood at over $235 million in the six months to March, an improvement from the $495 million it lost in the same period a year earlier. It also spent $120 million in this period.
As with other EV companies like Nio, Mullen Automotive will likely continue generating substantial losses in the foreseeable future. In most cases, EV companies spend a few years in the loss-making territory after starting vehicle deliveries.
All this is happening at a time when Mullen’s balance sheet is not all that good. It ended the last quarter with about $30 million in cash and short-term investments.
Fortunately, the company raised $100 million financing from a family office and then sold $50 million of convertible debt. In a statement, the company said that these funds will help it run for the next 13 months. The statement said:
“With the $150 million funding commitment, the Company has enough cash and cash equivalents to fund operations over the next 13 months for both Mullen and Bollinger Motors, which includes Bollinger Motors B4 vehicle production.”
MULN stock price forecast
Mullen Automotive implemented a stock split in December last year in a bid to maintain its Nasdaq listing. Since then, it has crashed by over 80% and is at risk of falling below $1.
On the daily chart, we see that the stock has dropped below the crucial support level at $2.53, its lowest swing in April this year. That is a sign that bears are now in control.
The stock has retreated below the 50-day and 100-day Exponential Moving Averages (EMA), which is a sign that bears are in control. Therefore, the stock will likely continue falling as sellers target the next key support level at $1.50.
In the long term, there is a likelihood that bears will make money as the stock drops below the psychological point at $1.
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