The big, make-or-break, moment for Mullen Automotive (NASDAQ:MULN) has finally arrived. In this article, I will outline 5 major catalysts that make Mullen extremely well-positioned for success. Before going into more detail, let's start with the negatives.
Please note all dates in this article are for 2022.
In April, Hindenburg Research published a hit piece on Mullen. One of the main arguments was centered around Mullen's battery testing. Specifically, on 28 February, Mullen announced that it made progress on its next-generation solid-state polymer battery technology, which is a significant advancement over today’s current lithium-ion batteries. Hindenburg argued that this news appears to be "a rehash of testing the company had already announced in 2020". Hindenburg went as far as claiming that "Mullen apparently misrepresented the test results, according to the CEO of the company that performed the tests". However, this allegation was dismissed by the exact same person, Mr Tom Gage, CEO of EV Grid, who was at the heart of Hindenburg's report. Mr Gage was interviewed a few days after the Hindenburg report was published by Milton Todd Ault. Mr Gage confirmed that Mullen’s representations of its battery are correct and confirmed that "it was legit test". Essentially, Mr Gage set the story straight. In my view, this puts this matter to bed. Big win for Mullen. Now, let's focus on the more exciting stuff.
Mr David Michery, Mullen's CEO, in a March interview on Benzinga, pleasantly shocked the market by announcing that Mullen has struck a deal with a “major, major Fortune 500 customer” for its electric vans, and that we will learn more about the deal within Q2. The news sent Mullen's stock up ~35% and sparked a new wave of optimism.
The good news on this front doesn't stop here. During a June interview, again on Benzinga, Mr Michery doubled down on the deal with the Fortune 500 customer. He announced that Mullen officially initiated the pilot program by making "the delivery on May 12", after working for more than 1 year on this deal, and the customer has reported that "they are pleased with the performance to date". He concluded that "everything is moving along exactly as planned". When asked about the timeframe, Mr Michery reiterated the Q2 timeframe: "we made a statement that we would announce this within the completion of the second quarter and we fully intend on doing that". Mr Michery also mentioned that "we are actually working on the PR [press release] with them [Fortune 500 customer] as we speak", and that investors will learn "all details in the PR". In other words, stay tuned for an informative press release within June.
The first time we learnt about the order with the Fortune 500 company, in March, Mullen's stock skyrocketed by ~35%. However, the gains didn't last for too long since, at the time, investors had to wait for 3 months until the end of Q2. We also had the headwinds from the Hindenburg report. Now, the end of June is just around the corner, and investors are expecting a press release really soon. If the press release contains promising details about the order, or if there is a hint that there might be a second Fortune 500 company lined up, or other exciting unexpected news, the upside potential is substantial.
On 31 May, Mullen announced the results of its solid-state polymer battery testing with BIC (Battery Innovation Center) in Indiana. Testing results from Battery Innovation Center were impressive and in line with test tolerance from previous EV Grid test results. This is another important piece of information reaffirming Mullen's technology, showing an impressive outcome and future for solid-state batteries. The President and CEO of Battery Innovation Center Mr Ben Wrightsman stated:
We are pleased to see that the results from ongoing testing are in-line with those previously notated...the cell thus far has performed as stated, and we will continue to test additional parameters to characterize the overall capabilities and performance.
With this technology, when scaled to the vehicle pack level, a 150-kilowatt hour solid-state battery can deliver over 600 miles of range on a full charge for the Mullen FIVE EV Crossover. This is game-changing news. In short, the battery test results translate into greater mileage and faster charging time, and Mullen is well-positioned to become a notable player in both the energy as well as EV space.
As a result of the impressive battery results, outlined above, Mullen dropped some even more game-changing news. During the June interview on Benzinga, Mr Michery mentioned:
Because of our amazing test results on the battery, earlier this week we started negotiations with a couple of major OEMs regarding our battery technology. We commenced preliminary discussions with these parties.
This is huge news that the market has yet to digest, as it opens up a brand new revenue stream. In fact, the big OEMs were so impressed by the battery results that Mr Michery is "talking to them at the CEO level". Mr Michery portrayed his excitement by saying "stay tuned, it's going to be pretty good".
Interestingly, Mullen's vision is to share this technology with everybody, for all sorts of devices and equipment, including cell phones and power tools. Mullen explicitly mentioned that it wants "to be like Bluetooth", licensing the technology to everybody. This is a vision that I like, and, if implemented successfully, we are talking about a different league in terms of valuation.
In the June interview on Benzinga, Mr Michery also mentioned that he is working "tirelessly" on a "significant transaction", and that "something very impressive is coming down the pipe" (referring to this "significant transaction"). Shortly thereafter, on 10 June, Mullen filed a Form 8-K with the SEC disclosing that on 7 June, Mullen entered into a securities purchase agreement with certain investors, subject to stockholder approval. The investors will be required to purchase an aggregate of $275 million. Mullen plans to use the proceeds to support the development of The Mullen class one, class two, class three, and Mullen five and Mullen five RS vehicle lineups. As such, I view this as very positive news as I believe that it relates to the "significant transaction" Mr Michery was talking about. It might have to do with the OEMs, Fortune 500 order, or something new. In any event, I expect that a press release will be coming out soon providing us with more details about this sizeable investment made by a group of investors into Mullen. They must see something exciting on the horizon. All in all, lots of things are happening, and they are happening very quickly.
Mullen will be joining the Russell 2000 and 3000 Indexes on 27 June, after the market opens. Mullen's inclusion will bring greater visibility within the institutional investment community, which will provide increased liquidity and investor awareness. This will inflate demand for Mullen's shares even more, being mindful that Mullen is in the top 5 of the mostly held stocks by retail investors.
In this article we have gone through 5 major upcoming catalysts. I have left out other more long-term catalysts such as the ATVM loan application, submitted on 29 April, for the Mullen ONE EV Cargo van program (as this is a process that can take anywhere from 12 to 18 months; Mullen expects to receive an update from the U.S. Department of Energy in August). One thing is for sure, there are plenty of announcements coming up and a lot of good things are happening here all at the same time. In fact, never in my career have I seen so many game-changing catalysts being bombarded within such a short period of time (essentially within a month). That said, it is very difficult to value Mullen right now as the company is in transition mode. Until we get more color on the Fortune 500 order, OEM licensing deals, production timeframes for the Mullen Five, etc, it is virtually impossible to model the cash flow generation potential. That said, by looking at the evolution of similar companies like Rivian Automotive (RIVN), Lucid Group (LCID) and NIO (NIO), which currently command multibillion market cap valuations, one could argue that there is tremendous potential for Mullen, perhaps even more than some of the aforementioned companies. As things stand, Mullen has enough cash to get through 2022. As announced in a press release dated 28 March, after making progress on various financing transactions, Mullen had in excess of $65 million in cash and cash equivalents, which is sufficient for 2022. As the CEO stated:
We’ve made tremendous progress in key areas over the past three months...With the financing we received, we now have more than enough capital to execute on our commitments for 2022, including the start of the Mullen FIVE EV Crossover program and continued development on the Mullen ONE EV Cargo Van program. The Company's balance sheet is the strongest it has ever been in our history.
That said, Mullen has a core plan which requires $1.2 billion to start production, so ultimately it will need to raise more capital for 2023 and beyond. Also, in addition to Mullen's core plan, more capital requirements are likely to arise e.g. for deals such as the "significant transaction" discussed above. As such, Mullen's greatest tool to raise substantial capital is its share price. It is no secret that Mullen has been using its share price to raise capital via ATMs (at-the-market offerings). To be able to use this tool effectively and accretively, the stock price must eventually go up. As stated by Mr Michery, he wants to be in a position to "make better deals" with his share price as Mullen's "stock strengthens". This suggests that he is confident that the catalysts outlined in this article, as well as more positive news coming out over time, will lift the share price going forward, which in turn will allow Mullen to raise additional capital in a much more accretive manner (i.e. raising more capital by issuing less shares). To this end, on 9 June, Mullen's Board unanimously adopted resolutions approving the proposed Amendment to increase the number of shares of Common Stock Mullen is authorized to issue from 500,000,000 to 1,750,000,000 and increase the number of shares of Preferred Stock Mullen is authorized to issue from 58,000,000 to 500,000,000. This is something taken from the playbook of AMC-backed Hycroft Mining (HYMC). As Hycroft's CEO had stated at the time:
We also disclosed we would be authorizing an additional 1.0 billion shares of common stock under our charter. The Company’s authorized share capital did not provide us with the necessary flexibility to improve our capital structure and it was prudent to increase the authorized share capital for a variety of corporate purposes. These purposes may include financing transactions as well as adopting additional stock plans or reserving additional shares for issuance under existing plans. While the Company has sufficient cash on hand to conduct our planned activities at the Hycroft Mine thanks to our successful recent financings, we need to have the flexibility to move promptly should opportunities arise as we develop Hycroft for the long term.
I view Mullen being in a similar situation as Hycroft. In short, it is of paramount importance to be able to play the game of financial engineering in the right way, so that you can be in a position to raise accretive capital via ATMs. This is something that AMC (AMC) managed to do for a while, but then ran out of shares to issue, as it maxed out its authorized share capital, just like Mullen right now. Specifically, in its last ATM round, AMC sold 11.55 million shares at an average price of approximately $50.85 per share. AMC's CEO Mr Adam Aron wanted to be in a position to raise even more capital at $50+ per share, but investors were not excited about this prospect. If investors had been more accommodative to increase the authorized share capital, then AMC could have raised more capital at inflated prices well above fair value (e.g. above $30), and AMC would have been debt free. I have no doubt in my mind that AMC's share price would be way higher in such a scenario versus $12.43 currently. I believe this is exactly what Mr Aron wants to achieve with Hycroft, and this is what Mullen is trying to do as well. If Mullen's investors embrace this strategy, then the odds of Mullen succeeding are raised dramatically. At present, Mullen has almost maxed out its ability to raise additional capital and the vote on this matter will be held on 26 July at the annual meeting of stockholders. To summarise the strategy: the company must authorize to issue additional shares, positive news keeps on coming out reflecting the progress made by Mullen, the share price ultimately increases on heavy volume, and, as the share price rises, the company raises more and more capital via ongoing ATMs. This contradicts conventional wisdom that when you raise capital the share price drops. This new way of thinking, enabled by ATMs, requires that you have a very supportive investor base, just like AMC and GameStop (GME).
In any event, June will be an eventful month for Mullen. A plethora of positive news is anticipated and, if everything plays out, we are looking at a new EV and energy powerhouse that will be in a position to compete against established industry titans. A lot depends on speed and execution, and a lot depends on how Mullen will monetize its game-changing battery technology. By licensing the technology to OEMs the valuation of Mullen goes beyond that of a car / EV company. I am convinced that Mullen is in a sweet spot.
It goes without saying that there are many company-specific risks, in addition to the intense competition from established players like Toyota who are in a race for the solid-state battery. Most notably, if Mullen fails to raise the $275 million, which is subject to shareholder approval, then the company will struggle to pursue its strategic priorities. Add into the mix that Mullen only has enough cash to make it through 2022, then 2023 could prove to be a disaster if Mullen doesn't manage to raise additional capital. In such a scenario the only solution would be the ATVM loan; however, as mentioned earlier, this is a process that can take anywhere from 12 to 18 months, and there are no guarantees that the application will be successful. Therefore, timing is of the essence. Another risk is that of destructive financial engineering. For instance, if shareholders authorise Mullen to increase its share count to 1.75 billion common shares, but then Mullen raises the capital recklessly via its ATM program at prices well below $1, this will cause massive dilution, which will put a lid on the upside. The ideal scenario is for Mullen to raise capital when its share price is on the rise. However, easier said than done. Lastly, Mullen's investors are eagerly waiting to see actual cars on the road. This will take a couple of years. Right now, we only have prototypes. We will get there, but this requires flawless execution.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of MULN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.