Mullen Automotive (NASDAQ: MULN) stock price pumped hard on Tuesday as EV companies rebounded. The shares surged by more than 36%, pushing it to a high of $0.3262. It has jumped by more than 35% from its lowest point this year.
Why did MULN stock jump?Mullen Automotive is a small company in the electric vehicle (EV). The firm is building EVs as it seeks to become a major competitor to Tesla and companies like Rivian and Lucid.
Like other companies in the industry, Mullen Automotive is not doing well. Its shares have collapsed by more than 90% this year, turning it into a penny stock. It has also burnt millions of dollars in research and development.
Mullen Automotive recently sued a group of broker-dealers for the collapse of its stock. It has sued companies like TD Ameritrade, Charles Schwab, and National Finance Services. It alleges that these firms helped to manipulate its stock. On Tuesday, the company provided an update about the lawsuit, including an order by Judge Analisa Torres.
MULN stock price also surged as the company prepared to execute a reverse stock split. The firm wants to execute between 1-for2 to 1-for-100 split. It has already called for its stockholders to vote on the measure.
A stock split is necessary now that the shares have collapsed to $0.3262. NASDAQ rules state that a company’s stock must remain above $1 for a certain duration to comply with listing requirements.
The shares’s short-squeeze is also because of expectations that the NASDAQ will extend its listing requirements ahead of the split.
Is Mullen Automotive stock a good buy?
I believe that Mullen Automotive is not a good investment for several reasons. First, lessons from Rivian and Lucid mean that the company will continue burning cash for a while. Rivian and Lucid are still losing thousands of dollars for every car they sell. Therefore, this means that Mullen will also incinerate cash as it starts manufacturing and vehicle deliveries.
Second, Mullen Automotive will ultimately raise capital in the next few quarters. While its balance sheet is strong, Mullen is buying back its stock at the worst time. For one, it is not repurchasing its shares using its free cash flow (FCF).
Instead, it is buying back the stock using cash in its balance sheet. Investing these funds in short-term money market funds makes more sense for the company. These MMF are yielding over 6%.
Third, Mullen Automotive is in an industry that is slowing as we saw with last week’s Tesla earnings. As interest rates rise, there is a likelihood that vehicle demand will start to dwindle in the coming months.
Tesla is not the only EV company in turmoil. In a statement on Wednesday, LG Energy Solution warned that the EV industry was slowing dramatically. The management has now decided to slash output at its plant in Poland.
I believe that the MULN stock price will remain under pressure for a while because of these factors. It will, nonetheless, have regular pops because it is a penny stock that sees regular short squeezes.
The post MULN stock price soared: 3 reasons to avoid Mullen Automotive appeared first on Invezz.
