Mullen Automotive (NASDAQ:MULN)

Shares of California-headquartered electric vehicle start-up Mullen Automotive (NASDAQ:MULN) shed 23% of their value this week as its share price dipped back into the single digits again.

So what’s the problem with Mullen stock? Management attempted to address this very question on Friday, April 28, publishing a press release addressing “concerns regarding recent stock performance.” According to Mullen, the problem with its stock is actually a problem with its stock’s traders — and specifically, with short selling traders who are creating “extraordinary trading volume” that is pushing the price to the downside.

Mullen even suggests that it has “evidence of unusually high levels of failure to deliver on short sales as reported to the U.S. Securities and Exchange Commission,” suggesting there may be some sort of “potential market manipulation and illegal short selling” going on.

But the truth may be simpler than that.

You see, according to data from Yahoo! Finance, the short-selling of Mullen stock isn’t actually all that “extraordinary” at all. In fact, barely 9% of the company’s shares are sold short. Compare that to the short interest percentages of such famed meme stocks as GameStop (21%), Bed Bath & Beyond (24%), or AMC Entertainment (26%), and the short-selling activity surrounding Mullen looks relatively benign.

Rather, the problems plaguing Mullen are problems of its own making.

Start with the company’s revenues: It doesn’t have any, and it won’t have any until it actually starts making some electric vehicles that people want to buy.

Move next to its profits: Mullen doesn’t have any of those, either. And it can’t have any profits, until it has some revenues to earn profits on.

Free cash flow? Perish the thought. Mullen burned through $85 million in negative free cash flow over the past 12 months. What’s more, Q1 alone saw cash burn of $34 million, implying a forward cash-burn run-rate of more than $135 million.

In other words, cash burn is accelerating. And with Mullen’s cash reserves down to just $68 million at last report, that means Mullen probably has only about six months’ cash remaining before its bank account is completely drained, leaving nothing but debt — more than $100 million of it — on the balance sheet.

At that point, Mullen will have only two choices remaining to it (aside from declaring bankruptcy): Take out more loans and add more debt to try to keep the doors open and the lights on, or sell more stock. And considering that its shares are fetching less than $0.08 apiece right now, Mullen would have to sell a lot of stock to finance its growing cash burn — probably in excess of 400 million shares, or more than 10% of its current share count… per quarter.

This is the real reason why Mullen stock is rapidly approaching a $0.00 stock price.

Overall, MULN has a Smart Score of 2 (out of 10), meaning that it is likely to underperform the market.

Smart Score is  proprietary quantitative stock scoring system that evaluates stocks on eight different market factors. The result is data-driven and does not involve any human intervention.