While solid EV demand and favorable government incentives are significant tailwinds for the EV industry, EV manufacturer Mullen Automotive (MULN) is still far from starting its deliveries. The company is expected to struggle amid high inflation, supply chain issues, rising raw material costs, and stiff competition. Thus, is it worth buying the stock just because of its low price? Read more….
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As the world moves toward a cleaner and greener future, electric cars will play a pivotal role in reducing greenhouse emissions. The growth prospects of electric vehicles have drawn the interest of the existing automakers and several new-age automobile manufacturers. Electric cars have seen demand soaring over the past few years, with people increasingly dumping IC-engine vehicles.
Analysts at BCG estimate that worldwide battery-powered EVs will amount to 20% of global sales by 2025 and 59% by 2035. The U.S. President has set an ambitious target: Half of the car sales will be EVs by 2030. Electric vehicle (EV) manufacturers like Mullen Automotive, Inc. (MULN) are expected to benefit from the demand increase.
However, MULN has had a difficult 2022, with the stock declining 96.1% in price year-to-date and 97.6% over the past year to close the last trading session at $0.20.
The company operates in various verticals of businesses within the automotive industry. The company owns some synergistic businesses, including CarHub and Mullen Energy. It is developing Mullen FIVE, a fully electric SUV, and Mullen DragonFLY, an electric sports car.
During its “Strikingly Different” EV Crossover Tour, MULN received higher-than-expected pre-bookings for the Mullen FIVE. On September 8, 2022, the company announced the acquisition of a 60% controlling interest in EV truck innovator Bollinger Motors. The acquisition will help MULN enter the medium-duty truck classes 3-6 and B1 and B2 sport utility trucks.
On November 2, 2022, MULN announced eliminating $13 million in company debt. The company has reduced its debt from more than $30 million last year to a current estimate of less than $10 million. Also, on November 17, 2022, MULN announced that it had received $150 million, a part of which will be used to close ELMS assets and accelerate EV production and delivery.
On September 21, 2022, MULN CEO David Michery received 9.62 million shares as part of its performance stock award agreement. However, Michery sold 750,000 shares at an average price of 40 cents per share the very next day. Michery has sold shares on seven different occasions this year, bringing the total sold shares to 2.53 million.
Although the demand for automobiles recovered significantly after the pandemic restrictions were lifted, automobile demand has been affected this year by high inflation, supply chain disruptions, and lingering chip shortage.
However, the soaring gasoline prices this year led to many prospective car buyers shifting to EVs as the operating costs of gasoline-powered vehicles rose substantially.
The third quarter of 2022 saw EV sales of over 200,000 in the United States, setting a new record. Electric car sales grew faster than any other auto industry segment. According to the Electrified Light Vehicle Sales Report, Americans bought 67% more electric vehicles in the third quarter than in the year-ago period.
However, the high borrowing rates may deter prospective EV customers. Also, despite the investments, charging infrastructure still needs to be improved. Moreover, the proposed tax credits for EVs under the Inflation Reduction Act come with various restrictions, proving counterintuitive.
Here’s what could influence MULN’s performance in the upcoming months:
Weak Financials
MULN’s loss from operations widened 184.5% year-over-year to $18.22 million for the second quarter ended June 30, 2022. The company’s net loss widened 289.9% year-over-year to $59.47 million. Moreover, its net loss per share narrowed by 94.5% from the prior-year quarter to $0.16.
Weak Profitability
MULN’s trailing-12-month ROTC is negative compared to the 6.65% industry average. Likewise, its trailing-12-month ROA is negative compared to the 4.45% industry average.
POWR Ratings Reflect Bleak Prospects
MULN has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MULN has a D grade for Quality, in sync with its weak profitability.
MULN is ranked #57 out of 64 stocks in the D-rated Auto & Vehicle Manufacturers industry. Click here to access MULN’s Growth, Value, Momentum, Stability, and Sentiment ratings.
Bottom Line
MULN is trading below its 50-day and 200-day moving averages of $0.34 and $1.05, indicating a downtrend. Although the company has reduced its debt, it is still far from profitability, as its Mullen FIVE vehicle is slated for delivery in 2024.
Despite the bright prospects of the EV industry, MULN is unlikely to capitalize on the industry’s tailwinds due to its poor financials and weak profitability. Moreover, given the uncertain macroeconomic environment, investors should avoid buying MULN.
How Does Mullen Automotive, Inc. (MULN) Stack up Against Its Peers?
MULN has an overall POWR Rating of F, equating to a Strong Sell rating. You might want to consider investing in the following Auto & Vehicle Manufacturers stocks with an A (Strong Buy) or B (Buy) rating: Subaru Corporation (FUJHY), Isuzu Motors Limited (ISUZY), and Volkswagen AG (VWAGY).
MULN shares were trading at $0.19 per share on Friday morning, down $0.01 (-5.51%). Year-to-date, MULN has declined -96.37%, versus a -14.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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