Stocks to sell

Don’t Try and Catch a Falling Knife With Mullen Automotive

  • Mullen Automotive’s (MULN) stock continues to fall despite several recent positive announcements.
  • The company’s share price has fallen nearly 50% in the past month.
  • The steep and sudden selloff should be a warning sign to investors.
Source: Ringo Chiu / Shutterstock

Mullen Automotive (NASDAQ:MULN) is still in start-up mode and not without risk, but the electric vehicle maker is making some encouraging moves lately that could help its stock over the long-term.

To be sure, Brea, California-based Mullen automotive is a fledgling electric vehicle (EV) company that trades at the depths of the penny stock league tables. Currently changing hands at $1.41 a share, MULN stock is down 71% year-to-date (YTD). In the past 12 months, the company’s share price has deflated 84%. However, the company has drawn attention lately for a series of positive developments that may help Mullen Automotive get on track.

MULN Mullen Automotive, Inc. $1.52

Battery Development

The most recent news out of Mullen Automotive to garner headlines was that the electric vehicle company has started construction on its long gestating battery plant.

In a news release, the company said it has begun building electric vehicle battery packs to be used in its upcoming vehicles, including an electric cargo van, crossover vehicle and sports car. The company plans to use a voltage battery research and development center based in Monrovia, California to create the batteries that will power its EVs and other EVs.

While it comes with significant costs and risks, Mullen says it is developing its own battery supply to lessen its reliance on third-party suppliers and reduce risks associated with material and supply shortages that have hobbled more established automakers such as Ford (NYSE:F) and Tesla (NASDAQ:TSLA) over the past year. The company has named its battery development center “Mullen Energy.”

Executive Hiring

In addition to breaking ground on its battery development plant, MULN stock jumped 7% in a single trading day recently after the company announced that it hired a former Tesla executive in a key leadership position. John Taylor has joined Mullen in the role of senior vice president of global manufacturing and strategic planning.

Taylor is a veteran of the automotive industry and was one of the first 50 employees hired at Tesla. He rose through the ranks and eventually led Tesla’s advanced manufacturing engineering group. He played a major role in developing Tesla’s first manufacturing plant in Fremont, California, and helped develop several of Tesla’s electric vehicles, including the Model S.

Taylor also worked for several years at General Motors (NYSE:GM). Hiring an experienced automotive industry leader such as John Taylor is good news for Mullen Automotive and shows the company is serious about ramping up production and beginning to sell its electric vehicles.

Worrying Decline

While Mullen Automotive has issued some positive news lately, the company’s stock has continued to decline, and at a worrying pace. In the past month alone, MULN stock has fallen nearly 50%, including a 42% drop in a single week following the aforementioned announcements. Such a steep selloff in a short period of time should be cause for concern among investors.

The company is a small startup that is unprofitable, spending money at a rapid rate and is not yet in production with any vehicles. These factors are likely dissuading many investors from taking a position in the stock. Regardless of the reasons, the rapid depreciation of the share price is alarming.

Don’t Risk Your Money on MULN Stock

Mullen Automotive has made some big announcements lately that should have moved its share price in positive directions. That the stock continues to fall deeper into penny stock territory is a worrying trend that should keep investors on the sidelines.

In time, the situation with Mullen Automotive’s shares may improve and the price might bottom and move higher. But right now, the company is too risky an investment. MULN stock is not a buy.

On the date of publication, Joel Baglole held a long position in GM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.  

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.