Mullen Automotive (NASDAQ: MULN) is a manufacturer of electric vehicles. Valued at a market cap of less than $100 million, this penny stock surged over 65% on July 5th, 2023, at the time of writing. Despite its recent gains, MULN stock trades over 99% below all-time highs.
Let’s see what drove Mullen Automotive stock higher and if it can sustain this momentum in future trading sessions.
Mullen Automotive aims to combat “naked short-selling activities”
According to the company’s press release, Mullen partnered with law-firm Christian Attar to combat naked short-selling activities. Its press release states, “The company believes it may have been the target of a market manipulation scheme involving illegal naked short selling of its common stock and has decided to investigate and expose any potential wrongdoing.”
Christian Attar has successfully prosecuted and collected millions of dollars on behalf of clients from multiple broker-dealers, hedge funds, and asset-based lenders who have previously been accused of market manipulation schemes.
This disclosure may have driven MULN stock significantly higher on July 5.
Is this penny stock a buy or a sell?
Mullen Automotive has been among the worst-performing stocks on the NASDAQ exchange in the last two years, wiping out significant shareholder wealth. MULN stock traded at $50 in early 2020 and touched a record high of $400 three years back. Today, it's trading at just $0.17 per share.
Mullen Automotive is part of a capital-intensive industry and will have to raise significant cash to expand its manufacturing capabilities to benefit from economies of scale. It reportedly had a cash position of $135 million at the end of March 2022. This number fell to $60 million in Q1 of 2023.
In the six months before March 2022, the company’s operating expenses stood at $141.5 million, suggesting massive shareholder dilution is on the cards.
Due to its falling share price, there is a chance for Mullen Automotive to be delisted from the Nasdaq exchange. According to regulatory requirements, companies trading on the Nasdaq need to be priced at more than $1 per share. It recently underwent a reverse stock split to artificially inflate share prices to above $1, but the sustained sell-off soon resulted in a price drop.
Due to its low share price, Mullen Automotive also faces a potential delisting from the Russell 2000 index. Similar to the Nasdaq, the Russell 2000 index requires share prices to trade over $1 in the last 30 days.
What next for MULN stock price and investors
Mullen Automotive is a beaten-down penny stock that is wrestling with massive losses and shareholder pessimism. The company recently announced it sold 22 EV cargo vans to Randy Marion Automotive, a U.S.-based distributor of commercial EVs. This sale will allow Mullen to post revenue for the first time, which will be reported in Q2 of 2023.
The EV deal with Randy Marion Automotive will bring in revenue of $308,000, which is quite negligible.
In a recent press release, Mullen claimed, “The company is reporting that the vans will start shipping today from Mullen's Mississippi-based assembly plant to Randy Marion Automotive Group in North Carolina.”
Mullen Automotive emphasized it is in process with six campus EV pilot programs across four different industry categories: aviation, healthcare, utilities, and universities. In fact, Mullen believes its campus van is a good fit with closed-campus commercial applications.
MULN is a high-risk bet, and the penny stock is not positioned to deliver outsized returns to shareholders, despite the recent surge in share prices.