The shares of electric-vehicle maker Mullen Automotive (NASDAQ:MULN) have tumbled to less than 10 cents. This clearly indicates that institutional investors seem to have lost confidence in Mullen and MULN stock.
In another indication of large investors’ lack of confidence in the automaker, several such investors have been given the right to sell large shares in exchange for a relatively paltry sum. Moreover, the company’s CEO sold much of his MULN stock earlier this year. At the same time, the automaker has a tiny amount of cash left. This has led to Mullen’s capital raise, via promissory notes that carry an exorbitant interest rate.
Given the automaker’s history, I have little confidence in its latest initiative. I will explore each of these points in more detail in the paragraphs below.
Institutional Investors Have Lost Confidence in MULN Stock
Earlier this month, Mullen announced that several of its largest shareholders would be allowed to resell 2.11 billion shares of MULN stock they had obtained. In exchange, the investors agreed to pay the automaker a relatively small sum of $90 million. The investors had previously committed to pay the company the sum but had never done so.
Additionally, the investors will receive “Series D preferred stock and warrants.” InvestorPlace’s Eddie Pan explained that “the warrants are equal to 185% of the Series D preferred stock purchased while the Series D preferred stock can be converted into common stock.” The warrants can be turned into shares for as little as 10 cents each.
The deal appears to boil down to the investors forking over the $90 million they owe the company, in exchange for being able to sell most of their MULN stock. These investors will then be allowed to buy back shares for a bit over 5 cents each.
Of course, these investors’ desire to unload their shares in exchange for the right to repurchase them for slightly over 5 cents each does not suggest that they have much confidence in the outlook of MULN stock.
CEO Sells Shares, and the Company Has Little Money Left
Meanwhile, in February, the company’s CEO, David Michery, sold nearly 15 million shares of MULN stock for an average price of 32 cents each. Of course, Michery’s decision to unload the shares does not inspire confidence in MULN or MULN stock. However, after the transactions, the CEO still owns nearly 114 million shares of MULN stock.
Further, as of the end of last year, Mullen had only $68 million of cash left. Let’s’ add the $90 million Mullen looks poised to receive from its investors, and another $20 million it’s borrowing. This still means Mullen has less than $200 million of cash. That’s a meager sum for an EV maker looking to ramp up production.
To show how little cash that is for an EV startup, consider Rivian (NASDAQ:RIVN). The Street has been concerned about the company’s cash-flow situation. That’s despite Rivian holding $11.6 billion in cash, as of the end of its most recent quarter.
It’s also worth noting is that Mullen is borrowing the $10 million through promissory notes with an incredibly high interest rate of 15%.
Mullen’s Latest Initiative Should Not Thrill Investors
On Apr. 18, Mullen disclosed that it had launched an entity that “will focus on improving Mullen’s energy management technology before moving on to other applications.” Two other firms are partnering with Mullen on the venture.
But Seeking Alpha columnist Bashar Issa reports that Mullen’s EVs “depend heavily on Chinese tech and design.” Two other EV makers that I followed closely, Ayro (NASDAQ:AYRO) and Electramecchanica (NASDAQ:SOLO), were forced to stop using Chinese contract manufacturers, because the quality of the EVs the manufacturers made reportedly did not meet the U.S. companies’ standards. In several past columns, I’ve discussed why I doubt Mullen’s technological acumen; given all these points, I’m not hopeful about the automaker’s newest venture.
The Bottom Line on MULN Stock
Mullen’s CEO and institutional investors showing an apparent lack of confidence in Mullen. This, combined with bare company coffers, suggests this is a company that isn’t on the right road. In fact, I’d argue that Mullen is probably headed for bankruptcy sooner or later. Consequently, I strongly recommend that all investors sell MULN stock.
As of the date of publication, Larry Ramer owned shares of RIVN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.