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Mullen Automotive (NASDAQ:MULN) listed on the Nasdaq Exchange last November after completing a special purpose acquisition company (SPAC) reverse merger with Net Element. After the closing of the transaction, there were 51.17 million shares of MULN stock issued and outstanding on a fully diluted basis. As of Aug. 10, there are 509.29 million shares outstanding, which means that shares outstanding have increased by 895% since the SPAC merger.

MULN has declined by about 95% year to date, as each share becomes less valuable with further dilution.

Dilution occurs when a company issues more shares to the market. If an investor owned 10% of a company and the company decided to double the amount of shares outstanding, the investor's ownership would fall to 5%. Each share becomes half as valuable. This is different from a stock split, where shares outstanding increases, but ownership and value remain the same.

Dilution Is a Major Problem for MULN Stock Holders

Building electric vehicle (EVs) is a costly process. To cover this, Mullen has issued hundreds of millions of shares, mainly through the conversion of warrants, to raise capital. However, the EV company hasn't been spending much capital to boost its core business.

Instead, Mullen has acquired assets of Bollinger Motors and Electric Last Mile Solutions (OTCMKTS:ELMSQ). This has cast doubt on the sustainability of Mullen's core business. In addition, the automaker has yet to release a proprietary vehicle to the markets, although it has stated that deliveries for the Mullen FIVE will begin during the second quarter of 2024.

In September, Mullen paid $148.2 million in cash and stock to acquire a 60% controlling interest in medium-duty truck maker Bollinger. This was the company's first EV acquisition — and another one would follow shortly after.

Earlier this week, investors learned Mullen had technically won the ELMS bankruptcy auction, as there were no other bidders. The company had previously issued a stalking-horse bid of $92 million to receive assets such as a plant in Indiana and remaining inventory.

CEO David Michery's Performance Award Package

While shareholders have been suffering, Michery has been collecting free stock. On Sept. 21, Michery received 9.62 million shares priced at $0 as part of a CEO performance award package, which was approved at the Annual Meeting of Stockholders. The following day, he sold 750,000 shares at an average price of 39 cents. The transaction marked the CEO's seventh separate sale of MULN stock this year.

Michery is slated to receive even more shares upon completion of tasks highlighted in the CEO performance award package. These include:

1. 5% of all shares issued and outstanding if Mullen enters into an agreement with a "manufacturer or provider of equipment, accessory, feature or other product" that sets the company or its vehicles apart from competitors or provides it with a first-mover or disclosure advantage by the end of 2023.
2. 2% of all shares issued and outstanding if Mullen delivers its Class One Van to customers for a pilot program "under the captured fleet exemption by the end of December 2022."
3. 2% of all shares issued and outstanding if the Dragonfly RS sports car receives USA certification and homologation by August 2024.

This package can be seen as a positive, as it may inspire Michery to work harder to complete these tasks. On the other hand, if Michery were to successfully complete all of the tasks highlighted in the package, he would receive 148 million newly issued shares based on shares outstanding as of June 2. This would subsequently dilute existing shareholders even further.

On the date of publication, Eddie Pan 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.

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