Mullen Automotive Inc. (NASDAQ:MULN) is a Southern California-based electric vehicle (EV) company that has made significant strides in the development and production of commercial electric vehicles. However, the company is currently facing significant liquidity challenges that threaten its ability to continue operations.

Business Overview

Mullen Automotive was originally formed in 2010 as the EV division of Mullen Technologies, Inc. In 2021, the company underwent a spin-off and reverse merger, becoming a standalone public company. Since then, Mullen has strategically expanded its business through key acquisitions, positioning itself in the medium-duty truck (Classes 4-6) and electric sport utility and pickup truck markets.

In September 2022, Mullen acquired a controlling interest in Bollinger Motors, a manufacturer of electric trucks and SUVs. This acquisition allowed Mullen to leverage Bollinger's expertise and technology to further develop its commercial vehicle offerings. Additionally, in October 2022, Mullen completed the acquisition of assets from Electric Last Mile Solutions (ELMS), which included a manufacturing facility in Mishawaka, Indiana, and the necessary intellectual property to design and produce Class 1 and Class 3 electric vehicles.

Mullen's first electric vehicles, produced at its Tunica, Mississippi plant, were successfully delivered to customers in August 2023. For the six months ended March 31, 2024, the company delivered 362 vehicles valued at $16.3 million. However, the company will not recognize revenue or accounts receivable until payment is received, and the return policy for the vehicles no longer applies once the dealer sells the vehicles to the final customer.

Financials

Mullen's financial performance has been challenging, with the company reporting an annual net loss of $972.3 million, annual revenue of $366,000, annual operating cash flow of -$179.2 million, and annual free cash flow of -$287.1 million for the fiscal year ended September 30, 2023.

For the six months ended March 31, 2024, the company reported revenue of $33.3 million, a gross profit of $19.9 million, and a net loss of $235.4 million. The net loss included significant impairment charges totaling $105.5 million, primarily due to the uncertainty of future funding required to support the business and the decrease in the company's market capitalization.

Liquidity

Mullen's principal source of liquidity consists of existing cash and restricted cash of approximately $29.8 million as of March 31, 2024. During the six months ended March 31, 2024, the company used approximately $108.5 million of cash for operating activities. The net working capital on March 31, 2024 amounted to approximately $5.3 million, or approximately $18.3 million after excluding derivative liabilities and liabilities to issue stock that are supposed to be settled by issuing common stock without using cash.

The company has incurred significant net losses, with an accumulated deficit of $2.06 billion as of March 31, 2024. Mullen has stated that its available funds will be insufficient to cover its obligations for at least the next twelve months from the date of the filing of its latest quarterly report. Consequently, there is significant uncertainty regarding the company's ability to continue operating.

Liquidity Challenges and Potential Bankruptcy

Mullen has acknowledged that if it does not secure adequate funding to fulfill its current liabilities, it anticipates seeking bankruptcy protection in various jurisdictions within 30 days of publishing its latest financial statements. The company is actively pursuing additional funds, including a $50 million note and warrant financing and a $100 million financing arrangement through senior secured notes and warrants. However, there is no guarantee that the company will be able to restructure its debts and/or secure the necessary financing on favorable terms.

Operational Initiatives

Despite the significant liquidity challenges, Mullen has continued to make progress on the operational front. The company has been granted Foreign Trade Zone (FTZ) status for its commercial vehicle manufacturing and assembly facility in Tunica, Mississippi, which is expected to provide benefits such as improved cash flow, enhanced global competitiveness, reduced taxes, and increased logistical flexibility.

Additionally, in April 2024, the California Air Resources Board approved Mullen's all-electric Class 3 low cab forward, the 2024 Mullen THREE, for the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP). This program provides point-of-sale vouchers to make advanced vehicles more affordable, potentially reducing the net effective cost of the Mullen THREE to less than $17,000 when combined with the available federal tax credit.

Risks and Challenges

Mullen faces a number of significant risks and uncertainties that threaten its ability to continue as a going concern. These include the company's limited operating history, the highly competitive nature of the EV market, the need for significant capital to fund its operations and growth, and the potential impact of the COVID-19 pandemic on its supply chain and production.

Additionally, the company's liquidity challenges and the potential for bankruptcy proceedings could have a material adverse effect on its business, operations, and financial condition. The loss of key personnel, the inability to retain or attract new customers, and the potential disruption to its supply chain and manufacturing operations could all significantly impact the company's ability to execute on its business strategy.

Conclusion

Mullen Automotive is a promising EV startup that has made significant strides in the development and production of commercial electric vehicles. However, the company is currently facing significant liquidity challenges that threaten its ability to continue operations. While the company is actively pursuing additional funding and implementing cost-cutting measures, there is no guarantee that these efforts will be successful. Investors should closely monitor the company's progress in addressing its liquidity issues and its ability to secure the necessary financing to fund its operations and growth. The outcome of Mullen's efforts to restructure its business and capital structure will be critical in determining the company's long-term viability.