Mullen Automotive Inc., a meme stock and retail investor favorite in the electric car industry is facing criticism for its heavy reliance on issuing shares to fund its operations. According to recent financial filings, there are now almost 1.7 billion Mullen shares outstanding, a significant increase from the 25 million reported a year ago, with the potential for the authorized total to reach as many as 5 billion. This has led to concerns about creeping shareholder dilution and the potential for retail investors to be taken for a ride as the tech bubble bursts.
Mullen, which reported losses at the end of September and has around 120 employees, is currently in the process of developing its first proprietary SUV, with plans to begin manufacturing next year. Despite this, the company has already gained a significant following among amateur investors and is frequently discussed on online forums such as Stocktwits.
The company’s financials have also been the subject of scrutiny, with a critical report from Hindenburg Research in April and a warning from auditor Daszkal Bolton LLP on Mullen’s ability to remain a going concern included in the company’s latest accounts. Additionally, Mullen held only $54 million of unrestricted cash at the end of September and has secured $340 million in convertible debt and preferred stock financing, but this is not considered sufficient to fund its vehicle programs. Comparatively, rival electric vehicle maker Rivian Automotive Inc. has over $13 billion in cash.
As a result of these financial concerns, Mullen’s shares have declined more than 90% in the past year, currently valuing the company at around $465 million. However, as the company continues to experience financial struggles, it may need to issue more shares in order to stay afloat.
It is important for retail investors to exercise caution when considering investing in companies like Mullen Automotive Inc. While the company’s ambition to join the electric car industry and its potential lineup of vehicles may seem exciting, it is crucial to thoroughly research and understand a company’s financials before investing. In this case, Mullen’s heavy reliance on issuing shares and lack of cash reserves raises red flags about its ability to sustain its operations and fund its vehicle programs.
Furthermore, the increasing dilution of shares for existing shareholders can also be a concern as it dilutes the value of their investment. Additionally, the company’s warning from an auditor regarding its ability to remain a going concern and the critical report from Hindenburg Research should be taken into consideration.
Investors should also be aware of the potential risks associated with meme stocks and the potential for market manipulation and hype to drive up stock prices without any fundamental basis. It is crucial to do your own research and not rely solely on information and hype found on online forums and social media.
As always, it’s important to diversify your portfolio and not put all your eggs in one basket. It’s also important to consider your risk tolerance and investment goals before making any decision.