Mullen Automotive’s (NASDAQ:MULN) reverse stock-split may have been necessary in order to keep its Nasdaq market listing, but it hasn’t been a positive for investors in MULN stock prior to the split.

Since announcing a 1-for-25 reverse split on May 3, completing the split on May 4, shares in the early-stage electric vehicle (or EV) maker have tumbled from a split-adjusted $2.15 per share, to around $1.37 per share today.

However, even after this more-than 36% drop in price over a period of less than two weeks, further high downside may remain for Mullen as a longstanding issue with the company is likely to continue. This will keep shares on a downward trajectory.

A move back to $1 per share may not be far away. A return to even lower price levels isn’t out of the question. Here’s why.

MULN Stock Is Still a EV Also Ran

While a split or reverse split changes a stock’s trading price, it has no bearing (positive or negative) on the fundamentals of the underlying business. Hence, while MULN may not have a different share count because of the split, it remains the EV “also ran” it has been for quite some time.

Mullen has raised and spent a lot of money, with not a whole lot to show for it. Sure, the upstart appears to have reached the production/sales stage with two of its commercial EV models. As InvestorPlace’s Eddie Pan reported last week, both of these models even qualify for the new U.S. federal tax credit.

However, the company’s major project, the Mullen Five electric SUV for the passenger market, remains a work in progress. A material amount of revenue is still many years away. In the meantime, cash burn is likely to stay very high, pointing to more declines ahead of MULN stock.

How so? With just $68 million in cash on hand as of Dec. 31, 2023, Mullen will continue to destroy shareholder value, by raising money on terms extremely dilutive to existing investors.

Why a Further Slide is Likely

Besides enabling MULN to keep trading on the NASDAQ, there is perhaps another reason the company’s management executed a reverse stock-split. With an authorized share count of just 1.75 billion, and a pre-split share count of 1.74 billion, a reverse split was necessary. Mullen could not issue additional shares.

With the reverse split now complete, the company can now raise more funds through the sale of additional common shares. It can also now facilitate the conversion/exercise of previously sold preferred stock and warrants. The conversion of these existing securities alone will increase the share count.

Pre-split, these securities were convertible into as many as 2.115 billion shares of MULN stock. Assuming it plans to sell more of these types of securities, to raise more money, the share count is likely to keep skyrocketing.

With little to indicate that Mullen is just about to strike big success, chances are that the company will burn through newly-raised cash, once again with little to show for it. Increasing the share count dramatically, with little-to-no increase to its underlying value, will push shares down to new split-adjusted lows.

Down to Below a Dollar (or Even Below a Dime)

Dilution spiral risk with this stock is nothing new. Back in February, I argued this reason alone made the MULN bear case pretty cut-and-dry. However, this risk doesn’t seem to be scaring off all potential buyers.

Per some reports, Mullen has been the subject of renewed popularity in the meme stock community. This could help shares find support in the immediate-term, but could cause tears for anyone left holding it in the months ahead.

The aforementioned conversion/exercise alone may be enough to send MULN back to sub-$1 per share price. If the company raises a few hundred million more in financing, and cannot improve its operating performance, a return to prices below a dime per share isn’t out of the question.

With extremely heavy potential losses within the realm of possibility, run, don’t walk, as far as you can from MULN stock.

On the date of publication, Thomas Niel did not hold (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.