It’s been quite a rollercoaster ride for Mullen Automotive (NASDAQ:MULN) lately, as the California-based electric vehicle (EV) newcomer has made significant market updates that have caught the attention of investors. As someone who has been closely following the company’s trajectory, I feel it’s important to share my perspective on these developments.

Mullen’s decision to initiate a stock buyback of $25 million worth of its common shares has triggered a notable uptick in its stock price over the past few days. This move comes after a period of struggle, during which the company’s shares have plummeted by 90% since my last update in February. This dramatic price action indicates that market confidence in Mullen’s sustainability as a going concern has eroded significantly. This concern was further exacerbated by the disappointing aftermath of the 1-for-25 reverse stock split the company undertook in May.

Now, Mullen is once again embarking on a reverse stock split, this time at a ratio of 1-for-9. This means that shareholders will receive one share for every nine they currently hold. However, despite these maneuvers, Mullen’s fundamental issues still remain largely unaddressed.

One of the most glaring problems is the company’s dilution and cash burn. Since February, there has been no meaningful effort to tackle these challenges. The decision to buy back shares is particularly puzzling given that the number of outstanding shares has surged by 147% over the past year. To put this in perspective, Mullen had 82.4 million shares outstanding at the end of its most recent reported fiscal quarter, up from 54.4 million just a quarter before.

The company’s heavy reliance on stock monetization to cover a trailing 12-month free cash outflow of $206.8 million is concerning. While Mullen argues that its buybacks are driven by its undervaluation relative to its cash position, the significant cash burn from its operations raises questions about the wisdom of this approach.

In terms of finances, Mullen’s cash and equivalents, including restricted cash, stood at $86.3 million at the end of its last reported fiscal quarter. This marked a sequential decline of $20.75 million from the previous quarter. What’s even more worrying is that operating cash flow during that quarter was negative at $34.3 million, a significant increase from $33.2 million in the previous quarter, and a substantial 238% year-over-year rise from a negative operating cash flow of $10.2 million. Given this precarious cash situation, it’s puzzling why the company would allocate around 29% of its available cash for share buybacks.

However, this move seems more like a short-term boost to a struggling stock rather than a sustainable solution to the underlying challenges. We’ve seen how other EV peers, like Lordstown Motors, have faced serious financial troubles leading to Chapter 11 bankruptcy, and companies like Canoo and Arrival are also on shaky ground.

Another key concern is Mullen’s revenue generation. The company essentially recorded zero revenue for the last reported quarter, with a negative gross profit of $200,000. While Mullen has secured purchase orders, including a substantial $63 million order from Randy Marion, it’s essential to note that actual sales have been limited. Randy Marion, a car dealership, purchased 22 EV cargo vans in late June, but the revenue from these sales won’t be recognized until the third quarter ending June 30, 2023.

Mullen’s recent efforts to counter Chapter 11 speculation are noteworthy. The company managed to increase its cash position to $116.1 million post the reporting period and announced access to up to $45 million in committed capital. While these developments are positive, they must be weighed against the company’s declaration of having sufficient capital for at least 12 months. However, it’s crucial to acknowledge that Mullen’s market capitalization is now less than half of its cash position, although this valuation loses significance in the face of escalating cash burn.

With projected revenue of just $310,000 for the third quarter and the commencement of vehicle production from its manufacturing center, Mullen’s cash position is likely to face ongoing challenges. The consecutive quarters of cash burn could make further equity sales a more formidable task, especially considering the decline in the company’s stock price.

In conclusion, while Mullen Automotive’s recent buyback announcement has caused a stir in the market, it’s essential to approach these developments with caution. The company’s fundamental issues, from cash burn to revenue generation, remain largely unresolved. As a concerned observer, I advise investors to carefully consider the risks before jumping on the Mullen bandwagon. The road ahead for this EV upstart appears to be filled with hurdles that demand more than just short-term fixes.