Mullen Automotive Inc (NASDAQ: MULN) is up 70% in premarket even though there hasn’t been any particular news that could have catalysed such a meaningful rally in shares of the electric vehicles company on Tuesday.
None of the Wall Street analysts issued a research note in Mullen’s favour today – neither did the company itself post a press release or file with the Securities and Exchange Commission.
Still, Mullen stock has rallied a whopping 80% this week.
Mullen stock could pare gains just as quickly
While those invested in Mullen shares, say, last week, have generated enormous profits over the past 48 hours – holding this EV stock for the long term remains a risky venture.
That’s because the Nasdaq listed firm is far from reaching financial stability. It continues to burn cash every month and has a history of diluting its existing shareholders.
Additionally, Mullen Automotive continues to struggle with meeting production targets and scaling its operations that raises questions about its ability to deliver on its promises.
And it’s not like Mullen stock pays a healthy dividend to incentivize loyalty in the meantime.
MULN insiders seem to be losing conviction
Rising competition from larger peers like Tesla and Rivian is and will likely continue to make it incrementally more difficult for Mullen Automotive to gain market share in 2025.
Plus, the possibility that Donald Trump may choose to rescind at least some parts of the Inflation Reduction Act that offered incentives to EV manufacturers doesn’t paint a rosy picture of what the future may hold for Mullen stock moving forward.
Moreover, one of the company’s directors, Ignacio Novoa, has unloaded about $114,000 worth of MULN just days ago that suggests even insiders have started to lose conviction in this EV stock.
Wall Street analysts see Mullen stock as too risky or unprofitable to warrant coverage as well.
Mullen runs the risk of bankruptcy
Rising costs of raw materials like lithium, nickel, and copper are meaningful headwinds for the cash strapped Mullen Automotive as well.
The electric vehicles company ended its latest reported quarter with just north of $6.0 million in cash and short-term investments. Simply put, Mullen runs a significant risk of bankruptcy at writing.
Mullen stock price rally this morning is not particularly exciting also because it’s a penny stock. So, it’s conceivable that traders may be manipulating its share price today before they dump it all back to make a profit.
All in all, Mullen Automotive’s financial instability, production challenges, and intense market competition make it a highly risky investment.
With ongoing cash burn and looming bankruptcy concerns, investors should at least approach MULN with caution. Our market expert Crispus Nyaga is currently bearish on Mullen stock as well.
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