To The Moon

At the right part of the Seeking Alpha screen, I constantly see the ticker — MULN that recently seems to be often in green. When I googled it, a nostalgic feeling seized me. Winter 2020. It’s freezing cold. But you don’t feel the cold because your mind waspreoccupied with GameStop (GME) setting a new share price record every day. It seemed that gold was here; you just needed to reach out a hand to touch it. After such a severe market selloff, there is an impression that a new golden bull is found: an automotive company called Mullen (NASDAQ:MULN). Many bloggers believe that Mullen can become the GameStop of 2022 and the recent share price drop from 13 USD in November 2021 to 0.5 USD presents a strong buying opportunity. As my subscribers already know, I love thinking critically and looking into these kinds of stories. Therefore, my team and I spent plenty of days researching the name. Unfortunately, the bulls won’t like what we have found.I am sure that even the most convinced bulls will turn into bears upon reading this article to the end.

Mullens’s communication with investors is very nontransparent. The big news is often announced without any details. It seems that the CEO passes his messages exclusively onto retail investors to stimulate the hype around the stock. Although Mullen claims that it’s very advanced in the development of the solid-state battery, there is little credibility in the company’s announcements. The recent press release about expansion to Europe and recent acquisitions have made us even more alarmed. I don’t see how the company could raise money to deliver on its strategy. Certainly, you should do your own due diligence before making investment decisions, but if I were you, I wouldn’t touch the stock. Otherwise, your fingers will bleed.

Vans or no vans?

Mullen is a small automobile player that aims to produce innovative EVs for the American market. In its2021 annual report, Mullen claimed that it was targeting to produce Mullen Five, an SUV with 325 miles at 55,000-75,000 USD. Product validation was expected to begin in the 4thquarter of 2023, with sales in late 2024.

No other vehicle production was mentioned in the annual report. But in the separatepress releasein January 2022, you can read that Mullen was also working on Cargo Vans that were promised to deliver in Q2 2022. A couple of months later, Mullen’s CEO, David Michery, proudly hinted that Mullen was about to manufacture 2 models of electric vans within months for a“major, major Fortune 500 customer.”The news caused the stock’s 35% increase intraday. However, no details were provided to investors, leaving them to wonder who the mysterious customer was. A few months later in June 2022, the company announced thepurchase orderfor 600 Mullen Class 2 Electric Cargo Vans byDelPack Logistics, LLC. The order was planned to be completed over the next 18 months, with the first vans to be delivered by November.Is it the company from the Fortune 500 announcement? Apparently not. So investors are still waiting for details of the big customer.

Unfortunately, Mullen’s communication is very opaque and it’s almost impossible to track when the company started working on the van and how it progressed. As you can see, they have not even mentioned the van in its SEC-compliant reporting Annual Report 2021. It was only announced in separate press releases. In contrast to the usual market practice, Mullen also does not set up earnings calls. The entire communication goes through press releases or the CEO’s interviews with various YouTube bloggers.Trust me, thereare really a lot of interviews.I guess it’seasier to speak with show moderators than with investment analysts who ask tricky questions.

Recent research by theHindenburg Research groupclaims that Mullen does not produce vehicles at all. Instead, it modifies Chinese ones to US standards. Given such poor communication by Mullen I tend to believe the report. The following months will tell us if Mullen resells or manufactures vehicles. We just need to wait for the first financial metrics, gross margin in particular. If it’s negative, then Mullen manufactures the vehicles itself. Before production is fully ramped up, the gross margins are negative due to low factory utilization and high fixed costs.This is even the case with Tesla. If the gross margin is slightly positive, then it would be a sign that Mullen should resell the autos. The issue is that a manufacturing company can increase profits when it works at scale, but trading companies can’t, and their profits will remain marginal.

Source: Hindenburg Research

A miracle or an empty wrapper?

The main bullish argument for Mullen’s future success is its advanced development of solid-state battery technology. Let us first start with the basics and find out how the battery works and what technologies using them are the most prevalent today.

Batteries have a positiveelectrode (cathode) and a negative electrode (anode) made out of metal. The space between them is filled with a substance (electrolyte) that conducts electricity carried by charged particles (IONs). When the battery does not work, the anode and cathode store ions. When energy is released, ions travel between the electrodes through the electrolyte. But what is the difference between lithium-ion and solid-state cells, and why is the latter considered the industry’s holy grail nowadays?

Lithium-ion batteries involve lithium used for its cathode and carbon as its anode. Among current technologies, these batteries have the highest energy density of any technology today (but not tomorrow) and are used almost everywhere, from the EVs that you drive to the mobile phones you use to connect.

If you are confused about what energy density is, let me briefly cite the paragraph from myearlier articleon Electrovaya (OTCQB:EFLVF):

Energy densitymeasures the energy a battery contains in proportion to its weight. High energy density is what allows for batteries thin enough to power the phone in your hand. Further technologic advances can expand the vehicle’s range and open new markets for electrification where the battery weight plays a crucial role. I can already imagine taking a zero-emission transatlantic flight.

In the chart below, you can see a comparison of Lithium-ion batteries with widespread technologies (excluding solid-state). We can see that its energy density significantly outpaces peer technologies.

Source:epectec.com

However, there are crucial drawbacks of the technology that can be separated intoecologicaland safety concerns.

Lithium extraction requires a lot of water, approximately500,000 gallonsper metric ton of lithium. This process could have a significant effect on local rural communities. For example, in Chile’s Salar de Atacama, mining activities consumed 65 percent of the region’s water, forcing local farmers and even entire communities to have to get water elsewhere.

Another issue is that only a small fraction of batteries are recycled. For example,only two percent of the country’s 3,300 metric tonsof lithium-ion waste is recycled. It’s estimated that between 2021 and 2030, about12.85 million tonsof EV lithium ion batteries will go offline worldwide. So progress on more efficient recycling is integral.

Another problem is that lithium-ion batteries are flammable and pose a threat to drivers. While longer-lasting batteries are more desirable, it means nothing if they can’t assure the safety of the drivers.

To address these risks, a new technology appeared on the horizon: asolid-state battery. It involves the replacement of the liquid electrolyte in lithium-ion cells with a solid-state electrolyte. This change would make the batteries more ecologically friendly, safer, and increase their energy density even further.

Source: thenextweb.com

The first positive of this new technology is the solid electrolyte’s applicability. The change from the liquid to solid state electrolyte gives producers a wider variety of manufacturing abilities, as plenty of materials can be used as a solid electrolyte.

Solid state batteries are also more environmentally friendly. They could cutemissions by up to 39%. They will still need lithium but don’t require cobalt and, thanks to a higher energy density, can be much smaller. Therefore, producers would need fewer materials per the same number of MWh. The increased stability that solid electrolytes offer means that solid-state batteries can hold up to 50% more energy than their lithium-ion counterparts. They even charge much faster, with the ability to reach a whopping 80% charge within 12 minutes.

The main disadvantage of the battery is its cost. The solid-state technology is estimated to have high cost varying in the range of ~$800/kWh (kilowatts per hour) to~$400 per kWh by the year 2026. It’s significantly higher compared with lithium-ion batteries, which cost about $100 per kWh. Besides, the cell degrades faster, which limits its recharging cycles.