Stocks to sell

It’s perfectly fine to believe in the clean energy movement. However, this doesn’t mean you should invest in California-headquartered electric vehicle (EV) manufacturer Mullen Automotive (NASDAQ:MULN) right now. Mullen Automotive has multiple problems that make MULN stock a no-go in 2023.

Mullen Automotive offers impressive-looking EVs, but can the company offer value to its shareholders? Lately, Mullen’s investors have suffered losses, and they may be looking for reasons to stay in the trade.

Yet, sometimes the best strategy is just to cut one’s losses and move on. If you’re not convinced of this, take a look at these three reasons not to touch MULN stock with a 10-foot pole.

Mullen Automotive’s Lawsuit Settlement Will Be Costly

Not long ago, Mullen Automotive bragged about its distribution deal with Chinese automotive manufacturer Qiantu Motors. That’s all fine and well, but the press release didn’t mention that Mullen had previously engaged in a prolonged legal battle with Qiantu.

The legal wrangling between the two companies involved a complex series of contract disputes. Reportedly, Mullen Automotive finally settled its breach-of-contract lawsuit against Qiantu Motors. However, the terms of the settlement involved Mullen paying Qiantu $6 million, “plus warrants that allow the purchase of up to 75 million shares of MULN at 110% of the price of the common stock,” according to dot.LA.

Plus, Mullen Automotive will pay “an additional $2 million for ‘deliverable items under the IP Agreement,’” as well as a “royalty fee of $1,200 for each K-50 it manages to sell in the United States over the next five years.” Bear in mind, Mullen Automotive is a deeply unprofitable business that can’t easily afford to make multimillion-dollar payments.

Mullen Automotive Has a Credibility Problem

There are reasons to question the judgment of Mullen Automotive’s management. For example, the company recently amended an agreement with financier Acuitas Group on March 2 even though Acuitas’s CEO had just been charged with insider trading by the Securities and Exchange Commission (SEC).

In another example, Mullen Automotive compromised not only its judgment but also its credibility. In June of 2022, Mullen Automotive CEO David Michery promised to reveal “everything” in an announcement in the second quarter of that year, regarding an order for Mullen’s electric cargo vans from a “major, major Fortune 500 company.” That quarter came and went, but there was no update.

To this day, Mullen’s management still hasn’t revealed who this alleged Fortune 500 client is. It’s a shame that Mullen Automotive had plenty of time to provide a progress update or at least an explanation but chose not to do so.

MULN Stock Is in Danger of Being Delisted

Last year, the Nasdaq exchange issued a noncompliance warning to Mullen Automotive. This happened after MULN stock had closed below $1 for 30 consecutive business days.

Later, the Nasdaq exchange granted Mullen Automotive a 180-day extension to comply with the exchange’s minimum bid price rule. Still, the outlook isn’t good. Shares of Mullen Automotive recently traded at 11 cents apiece, which is far below $1.

The delisting threat for MULN stock is imminent, and Mullen Automotive’s investors shouldn’t count on a miracle. Sure, Mullen could enact a reverse share split as a temporary fix. This move wouldn’t enhance the stock’s value to Mullen’s shareholders, though, and the company’s other problems wouldn’t magically go away.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.