The ongoing volatility surrounding equity markets has allowed investors to buy quality growth stocks at a steep discount. In recent months, growth stocks across sectors have been pummeled due to a variety of reasons.
For example, companies part of the electric vehicle (EV) space such as Mullen Automotive (MULN) and Lordstown Motors (RIDE) are currently trading 90% below all-time highs. While the electric vehicle industry is well poised to expand at an enviable pace in the upcoming decade, investors have to brace for a roller-coaster ride as most companies are still pre-revenue and burning cash at exorbitant rates.
Keeping these factors in mind, let’s see which between Mullen Automotive and Lordstown Motors should be part of your growth portfolio today.
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Mullen Automotive
In the last month, shares of Mullen Automotive gained pace as news reports claimed the company will soon begin manufacturing its electric crossover vehicle called the Mullen Five. However, since March 22 its shares have slumped by more than 60% for a variety of reasons.
Last week, a short report from Hindenburg Research claimed that Mullen is just another “fast-talking EV Hustle”. According to Hindenburg Research, Mullen has misrepresented its battery test results. The report also claimed Mullen’s joint venture does not exist and it is yet to gain approval from the Environmental Protection Agency to sell its battery-powered vehicles. Moreover, Mullen allegedly does not have the required equipment to manufacture its EVs.
In its press releases, Mullen informed investors of the ground-breaking technology of its EV vans that allowed it to bag a Fortune 500 customer. The company spent just $3 million on research and development for its battery technology which will hit the markets within the next two years.
Lordstown Motors
In the last two years, Lordstown Motors has been impacted by short-seller acquisitions, faced an investigation by the SEC as well as experienced a CEO exit. It also issued a going-concern warning to investors last June. Lordstown Motors recently sold its manufacturing facility to Foxconn but is partnering with the latter via a contract manufacturing agreement.
However, the company expects to deliver 500 units of its EV truck called Endurance in 2022. A lot will depend on the quality and safety performance of these trucks which will also define the sustainability of Lordstown Motors.
Moreover, Lordstown Motors will also face competition from legacy manufacturers such as Ford (F) and new entrants like Rivian (RIVN). Ford’s EV pick-up truck is scheduled to begin shipments this spring while deliveries for Rivian’s R1T have already begun.
Further, Rivian is backed by Ford and Amazon (AMZN) which provides it with the required financial flexibility to navigate a sluggish macro-environment.
The verdict
Lordstown Motors is valued at a $477 million market cap and its forecast to increase sales from $24.6 million in 2022 to $141 million in 2023. Comparatively, Mullen Automotive is expected to focus on product development going forward.
Both Mullen Automotive and Lordstown Motors will have to raise capital multiple times to expand manufacturing capabilities and support cash burn rates, which is likely to result in shareholder dilution.
The rapid decline in the share prices of Lordstown Motors and Mullen Automotive might make them attractive to contrarian investors. However, I believe investors should avoid both the stocks as there are better EV companies that trade on the bourses.
MULN shares were trading at $1.72 per share on Tuesday morning, down $0.12 (-6.52%). Year-to-date, MULN has declined -67.11%, versus a -7.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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