With Mullen Automotive (NASDAQ:MULN) once again making headlines, you may be “mulling” whether now’s the time to make MULN stock a buy. Yet while this risky electric vehicle stock may at first glance seem worth adding to your portfolio as a small, speculative position, a closer look suggests otherwise.

Sure, maybe you don’t have any delusions about this EV upstart being another Tesla (NASDAQ:TSLA) in the making.

Instead, perhaps you believe that, with its low stock price, and low market cap (around $500 million), the “worst case scenario” is already baked into its valuation. Hence, any sign of progress or improvement will send shares “to the moon” once again.

However, if you consider three things (red flags, really) with Mullen, chances are you’ll quickly change your tune. Two of these are long-standing issues, but a third issue is something that’s been far less discussed.

Two Established Issues to Consider

Investors in MULN, who have bought it based upon fundamentals, rather than as a “meme trade,” have for quite some time had to accept two key risks with this speculative growth stock.

First, the prospect of continued high unprofitability for this company. During Mullen’s last fiscal year (ending Sep. 30, 2022), the EV maker reported operating losses of around $97 million, a more than four-fold increase compared to the prior fiscal year.

If that’s not bad enough, as InvestorPlace’s Josh Enomoto discussed in a recent article about MULN stock, management has issued a going concern warning, as the company is expected to continue incurring heavy losses “for the foreseeable future.”

Second, is the company’s history of shareholder dilution. Leaning on convertible debt and the sale of new shares to cover losses and fund acquisitions, MULN’s share count has ballooned from around 23.4 million, to nearly 1.7 billion, over the past year.

Even as this has resulted in shareholder lawsuits, management is still pushing for further dilution, with its proposal to increase the authorized share count, although this proposal is still pending shareholder approval.

A Third Factor Destroys the Bull Case

The two factors mentioned above should dampen anyone’s view on MULN stock. Heavy losses point to more shareholder dilution. Shareholder dilution decreases the value of existing shares and limits future upside. Nevertheless, many believe the odds are on their side.

In the view of investors still bullish on MULN, the success of the company’s various EV endeavors, in particular its planned Mullen Five electric SUV for the “mass affluent” passenger vehicle market, will far outweigh near-term losses and dilution.

However, this is a flawed argument. Mainly, because it’s highly unlikely Mullen can obtain the capital necessary to scale up production from the sale of additional convertible securities and from additional at-the-market equity offerings. Mullen needs billions in additional capital to scale up production.

EV upstart rivals like Lucid Group (NASDAQ:LCID) and Rivian (NASDAQ:RIVN) have obtained such high levels of capital via high-profile institutional investors and strategic partners. The capital sources Mullen taps into simply do not have these kinds of deep pockets.

Instead of diluting its way to profitability, the company will likely raise enough additional funding to keep the lights on, but not enough to make massive progress with its goals.

There’s Only One Takeaway

Far from being an asymmetric wager, Mullen is merely a cheap stock poised to become even cheaper over time.

Even if the share count amendment passes, which, besides opening the door to more dilution, will enable the stock to reverse-split and therefore stay listed on the Nasdaq exchange, don’t assume this will improve the situation.

In fact, as Louis Navellier argued earlier this month, a post-split MULN may become more vulnerable to a sell-off driven by short-sellers. A stock price above $5 per share will make it easier to short.

Cash raised by future dilutive capital raises will likely burn up quickly, with little to show for it. This too will keep this stock on track to hit new split-adjusted lows.

With the three aforementioned things (all red flags) in mind, there’s only one takeaway. The best move is to stay away 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.