Tuesday morning, Mullen Automotive (NASDAQ:MULN) announced its latest plan to try to turn its business into a viable going concern, saying it will form a new joint venture with two other tiny companies, respectively, Global EV Technology, Inc. and EV Technologies, LLC. (collectively “EVT”), with the aim of “improving energy management technology in electric vehicles for greater range and vehicle performance.”
That sounds like a laudable goal — so why did Mullen shares experience a significant decline of ~8% on Tuesday?
Well, there’s the total lack of any financial details of the transaction for one thing. Although Mullen stated that it will own 51% of the joint venture with EVT, and “will consolidate the results of its operations in Mullen Automotive,” Mullen did not say how much it will pay for this stake — only obliquely mentioning that it will “provide capital” to “grow” the new subsidiary. For EVT’s part, Mullen’s new partners appear to be contributing no money at all, but only “technology and existing contracts.”
Other details that were revealed in the press release, meanwhile, may also be giving investors pause. Of particular note, Mullen advised that Global EV Technology Inc’s founder and chief scientific officer is one Lawrence Hardge. Hardge is described both as “a successful life-long inventor with a storied career of over 30 yrs,” and particularly as the “inventor of Knock Out 360 Fire Extinguisher. One of the only extinguishers in the U.S. market that is UL approved for use in electric vehicle fires.”
Another thing that may be making Mullen investors nervous is this tidbit from the press release: “In the late 90s, Lawrence was convicted of a state crime, which was ultimately expunged.”
Now, while initially alarming, this fact that Mullen is going into business with a literal ex-con may not be quite as serious as meets the eye. According to an interview with Hardge in the February 14, 2022 issue of the Jackson Advocate, Hardge explains how in the period from 1999 to 2001 he got embroiled in the “shady business practices” of his “homies.” While vague on the details, Hardge does state clearly that he pled “no-contest” to the charges against him — so no crime was ever actually proven in court. And ultimately, after serving an unspecified time in prison, he was “cleared of all the charges” — and appears to have stayed out of trouble ever since.
All that being said, the old saw about how “Caesar’s wife must be above suspicion” does suggest itself in cases like these. If investors are having second thoughts about getting into bed with Mullen yesterday — whether based on reservations about who it’s doing business with, or based on the lack of detail about this business, I can hardly blame them for it.
In the meantime, Mullen continues burning cash at the rate of $86 million-per year (at last report). That may sound like a lot (because it is), but CEO David Michery assured shareholders that with $87.4 million in the bank at present, the company certainly has enough cash on hand to survive for another year. What’s more, Michery says Mullen has “an additional $110 million from firm commitments” coming in “by June 1, 2023”.
It’s not 100% clear what these “firm commitments” are — whether firm orders from Randy Mario Automotive Group, or others, or financing deals from Mullen’s backers. Wherever the money is coming from, though, Michery argues that Mullen now has “all the pieces in place between our product, factories and strategic expertise to execute on our plans to deliver our Class 1 and Class 3 vehicles this year.”
Overall, MULN has a Smart Score of 2 (out of 10) on TipRanks, meaning that it is likely to underperform the market. (See MULN stock analysis)
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