To The Moon

A lot has happened since my previousarticleon Mullen Automotive, Inc. (NASDAQ:MULN) dated 14 June 2022. The good news is that the positive catalysts keep on piling up. The bad news is that things are moving slowerthan investors want.

Please note that all dates in this article are for 2022 unless otherwise stated.

In my previous article, I outlined a number of positive catalysts regarding Mullen including the Fortune 500 order, impressive battery test results, deals with OEMs (Original Equipment Manufacturers), progress on fundraising efforts, and inclusion in the Russell 2000/3000 Indexes. Let's see where we stand regarding the aforementioned catalysts and also go over some new ones.

Fortune 500 Order

In a March interview on Benzinga, David Michery (Mullen's CEO)announcedthat he struck a significant deal with a "major, major Fortune 500 customer" regarding its electric vans. We were told that we would learn more about the order within Q2 (i.e., by the end of June).

Subsequently, during a June interview, again on Benzinga, Mr. Michery doubled down on the Fortune 500 deal. He announced that Mullen officially initiated a "pilot program" by making "the delivery on May 12." Mr. Michery added that they have been working for more than a year on this deal, that the customer has reported "they are pleased with the performance to date," and that "everything is moving along exactly as planned."

What's more, Mullen's annual meeting of stockholders will take place next week, on 26 July. Mullen representatives are reaching out to investors to explain the importance of voting in favor of certain matters including to increase the authorized number of shares of common stock to 1,750,000,000, the authorized number of shares of preferred stock to 500,000,000 (more on this below). In one of thecalls, published yesterday, it was revealed that Mullen has successfully made the modifications requested by the Fortune 500 customer. This is positive and it suggests that the annual meeting next week will not be just a routine meeting. My guess is that we will get another update about the Fortune 500 order.

New Order with Amazon Delivery Services Partner

In addition to the Fortune 500 order, just a few days ago we became aware of a new deal. Mullen signed a bindingagreementwith DelPack Logistics, an Amazon Delivery Services Partner, to purchase up to 600 Mullen Class 2 EV cargo vans over the next 18 months. Interestingly, the first 300 vans can be delivered by 30 November, at the request of DelPack Logistics. This suggests that Mullen is ramping up production. Perhaps this, along with the Fortune 500 order and progress on the Mullen Five, provides a good explanation why Mullen is on a hiring spree right now. What's more, the DelPack deal is relatively small, but I wouldn't be surprised to see a lot more of those in the coming weeks. They add up. In any event, it is a nice little revenue boost for Mullen which is still in its very early stages.

Battery Technology, OEMs & Patents

On 31 May, Mullenannouncedimpressive results of its solid-state polymer battery testing withBattery Innovation Centerin Indiana. When scaled to the vehicle pack level, a 150-kilowatt hour solid-state battery can deliver more than 600 miles of range, on a full charge, for the Mullen FIVE EV Crossover. As a side note, talking about the Mullen FIVE EV Crossover, it is important to highlight that Mullen hasfiledover 130 patents in 24 countries in support of the Mullen FIVE EV Crossover. This implies that Mullen has global ambitions.

Back to the battery, having a solid-state battery that can deliver more than 600 miles of range on a full charge is game-changing news. This is exactly why Mullen has already started negotiations with several major OEMs. In fact, the major OEMs were so impressed with 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." Positive developments on this front will open up a brand new revenue stream, something that the market has failed to realize. Taking this one step further, Mullen's vision is to share this technology with everybody, for all types of devices/equipment (e.g., cell phones and power tools); "to be like Bluetooth."

Stockholder Meeting on 26 July & Major Concerns

What investors are most concerned about right now is destructive dilution by issuing shares at rock-bottom prices. Before we analyze the issue of dilution further, it is important to understand the context.

Right now, Mullen has maxed out the number of shares it is allowed to issue. In other words, it has reached the authorized share limit, meaning that Mullen is prohibited from raising additional equity, unless the authorized share count increases. To achieve an increase in the authorized share count requires shareholder approval. However, many shareholders fear that this will mean irreparable dilution.

One could argue that there are other financing mechanisms such as theATVM loanapplication. The application was submitted on 29 April for the Mullen ONE EV Cargo van program. But this is a time consuming process that can take up to 18 months, if not longer. Mullen expects to receive an update from the U.S. Department of Energy in August, but there are no guarantees that the application will be successful. In other words, Mullen cannot rely on this.

Therefore, a balanced scenario is for Mullen to raise the $275M today, meaning an approximate 50% increase in the share count, and commit to raise additional capital only when its share price is trading much, much higher. In other words, it's all based in trust. Even if there is a Fortune 500 deal, eventually the authorized share count will need to increase in order to finance production.

The ideal scenario is to vote against the increase in authorized shares, and tie any increases in the share count to various events that benefit shareholders. However, if management plans to be shareholder friendly, and this is the directions they are working towards, then even if the vote turns in favor of increasing the authorized shares it is up to management to use this weapon wisely.

Looking into the future, it is no secret that Mullen has a core plan which requires raising at least $1.2 billion to start production. Therefore, Mullen will ultimately be required to raise more capital for 2023 and beyond. And Mullen's greatest tool to raise capital is its share price. But to be able to use this tool effectively, the stock price must eventually go up. Even Mr. Michery himself acknowledges this; he wants to be in a position to "make better deals" as Mullen's "stock strengthens." Instead of having 2 sides on the annual meeting on 26 July (retail investors versus management) its best for shareholders and management to find common ground, and be on the same page. All this requires is effective communication and transparency. For instance, Mr. Michery can commit that the $275 million earmarked will be raised at share price not below $X per share, and then commit that future capital will be raised at much higher prices, and looking at things on a per-share basis.

This is something that AMC-backed Hycroft Mining (HYMC) seems to be doing. As Hycroft's CEOstatedat 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. It is of vital importance for David Michery to play the game of financial engineering in a smart way, to raise capital in an accretive manner. Only then will Mullen investors feel very comfortable. But for this to happen, good communication is required right now, since the stockholder meeting is just around the corner.

As things stand, Mullen has enough cash to get through 2022. As announced in apress releasedated 30 June, Mullen is set to report the strongest balance sheet in its history, expecting to end Q2 with more than $61M in cash and cash equivalents. A few days later, on 5 July, Mullenannouncedthat it has eliminated $17.5 million in company debt and reduced its overall indebtedness from more than $30 million last year to an estimated $11 million currently. In other words, Mullen is on the verge of becoming debt free.

Lastly, many investors are still skeptical since they have not seen Mullen cars in action. As of this fall, starting in Southern California and working its way throughout the U.S., covering 19 cities, interested parties can place a reservation and experience first hand driving the Mullen FIVE EV Crossover. I think this will be a great moment to build momentum, as a lot of exciting and valuable content involving Mullen cars will emerge. We are at an inflection point.