Mullen Automotive faces make-or-break decision on reverse stock split

Mullen Automotive, an emerging electric vehicle (EV) manufacturer, announced the results of its special meeting of shareholders. The company reported that all proxy proposals were approved, but has no plans at the current time to effect a reverse stock split.

The company is currently facing a minimum bid requirement of $1.00 from Nasdaq, and has until March 6, 2023 to meet this requirement.

If the share price of Mullen's stock falls short of the $1.00 threshold, the company intends to seek an extension from NASDAQ to meet the requirement. This extension could be granted for a further 180 days, until September 6, 2023. If the company still falls short of the minimum bid requirement, it will effect a reverse stock split at that time to maintain its Nasdaq listing compliance.

Mullen is also a member of the Russell 2000 Index, which requires a minimum stock price of $1.00 for inclusion. The Russell Index will rebalance in June 2023, at which time, if Mullen's share price falls short of the $1.00 threshold, the company will evaluate whether or not to initiate a reverse stock split to maintain inclusion in the Russell 2000 index.

Inside The Company

The company is based in Southern California, and is currently building the next generation of electric vehicles that will be manufactured in its two United States-based assembly plants.

Mullen's EV development portfolio includes the Mullen FIVE EV Crossover, Mullen I-GO Commercial Urban Delivery EV, Mullen Commercial Class 1-3 EVs, and Bollinger Motors.

On September 7, 2022, Bollinger Motors became a majority-owned EV truck company of Mullen Automotive. On December 1, 2022, Mullen closed on the acquisition of all of Electric Last Mile Solutions' (ELMS) assets, including all IP and a 650,000-square-foot plant in Mishawaka, Indiana.

The short interest in the company is currently listed at 13.83% via official channels, with volume up 30% from the prior month. Fintel lists the short interest at 14.8% (official), but off-exchange short interest is closer to 50%. This is an incredibly high figure, and it is being done in dark pools.

This is one of the reasons why a recent shareholder petition to combat illegal short-selling was given to CEO David Michery.

Despite a promising start, Mullen Automotive is now facing its toughest time. The company is currently working to start production and deliver cars, but is facing mounting opposition. Short sellers have been selling into each rally and have increased volume steadily over the months.

With the company on track to sell shares, the combined weight of short-selling and company sales could keep the price action capped, if not moving lower, in the near-to-short-term.

The Near Future of the Industry

The automotive industry is no stranger to volatility, and Mullen Automotive is no exception. Recently, the company has faced some significant challenges, including the approval of an increase in share count. This move has boosted available shares from 1.75 billion to 5 billion, an increase of nearly 200%.

While this may be seen as a positive development for the company, as it provides an avenue to raise capital that is not linked to the debt market, it is bad news for shareholders.

The increase in share count opens the door to significant dilution of value should the company sell even a portion of the new shares. At the time of writing, there were 1.70 billion shares outstanding, so it is likely that the company will begin selling shares in the near future.

This could be a cause for concern for shareholders, as it would decrease the value of their existing shares.