Mullen Automotive (NASDAQ:MULN), a company based in Southern California that wants to make electric vehicles more accessible to consumers, has announced several important pieces of news lately. A couple of months ago, in March 2022, I had been very bearish on MULN stock.
Is the recent news enough to start buying the shares of this EV maker, despite it having no sales yet and with production being two years away? I think not based on the fundamentals. But before we get into why, let’s have a look at the positive news.
Mullen’s Update Showed Positive Momentum
When a company updates its shareholders on critical information, then investors should pay attention — but it may not be wise to rush in and buy its shares. There is a need to filter and evaluate the actual news.
The latest company highlights include successful tests of the solid-state polymer battery cell technology, delivery of its first EV van to a telecommunications provider under a pilot program and an agreement to get $275 million in additional funding, pending shareholder approval.
The firm also announced the start of the development of its Mullen FIVE RS, a “a high-performance version of the Mullen FIVE EV Crossover.”
All this news is important but there is also another item not to neglect. In a release, the company said, “Mullen has filed over 130 patents in 24 countries in support of the Mullen FIVE EV Crossover”
Mullen Automotive has the bold mission to make its crossover FIVE available globally. There is nothing wrong with this but is it realistic for a firm that probably won’t start official production for another two years? I argue it is not easily achievable.
Mullen Automotive shows that it is committed to succeeding with its EV crossover. But this goal to launch its model worldwide is too risky and should take quite some time. Why? Capital expenditures and economies of scale, plus the sheer amount of cash that will be needed.
Mullen is burning cash. As the production phase gets closer, there will be more capital expenditures, fine-tuning and research and development costs needed. All of these will probably harm its profitability.
MULN Joins the Russell 2000 and 3000
The addition of MULN to the Russell 2000 and Russell 3000 will probably cause some short-term volatility, but it should be short-lived.
It is questionable why this inclusion will occur. The statement says that “FTSE Russell determines membership for its Russell indexes primarily by objective, market-capitalization rankings and style attributes.”
I do not have anything against the company, but I do not see the reason for it to be included now in these indexes.
MULN Stock Remains Highly Speculative
The company is generating zero sales, and for me that is enough to avoid its stock for now.
As expected, there is a cash burn problem that should get even worse as Mullen Automotive speeds up the process or reaches the production phase. So is the stock a buy now? If you consider fundamentals and valuation as the cornerstone of investing, the answer is no. But if you have a high risk tolerance and can risk severe losses in your position, you can keep an eye on MULN stock.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.