The phrase “from bad to worse,” may sound cliché, but it is perhaps the best way to describe the current situation with Mullen Automotive (NASDAQ:MULN). Over the past few weeks, MULN stock has kept rapidly depreciating in value.

A grab bag of longstanding risks continues to persist. If that is not bad enough, there’s one key risk, previously thought to be mitigated, that has potentially re-emerged.

Some investors still bullish on the stock may believe there’s a way out for MULN. However, taking a look at the company’s latest quarterly results, it’s hard to see how such a comeback scenario could possibly play out.

Instead, a move towards zero appears very likely, if not inevitable. Here’s why.

Two Reasons  MULN Stock Moved Lower

Mullen shares have been on a sharp downward trajectory for quite some time. However. in May, several developments have meant the stock has gone from merely sliding down to lower prices, to barreling down to lower prices.

First, the 1-for-25 reverse-split of MULN stock on May 4. On the surface this corporate action may seem like a positive development. A reverse-split enabled the stock to get back above the $1 per share mark.

This let the company to get back into compliance with Nasdaq, and therefore maintain MULN’s listing on the exchange. However, the reverse-split also opens the door for something else.

As InvestorPlace’s Thomas Niel argued on May 12, the reverse-split resulted in the company’s share count going back to significantly below its authorized share count.

This opens the door for further rounds of heavy dilution, both from the sale of new shares, as well as from the conversion of previously-issued convertible securities. The prospect of additional dilution may have driven MULN’s slide right after the completion of the reverse-split.

Second, the release of Mullen’s latest quarterly financials on May 15. Investors reacted negatively to the facts and figures from this release, and for very substantive reasons.

Latest Earnings Hurt in More Ways Than One

This EV maker’s latest quarterly financial filing has been damaging to MULN stock in more ways than one. Once again, the company reported zero revenue, high operating losses, and an extremely high net loss per share ($1.30).

As these numbers underscore many of the risks that I have long argued are part-and-parcel to the Mullen story (such as bankruptcy and dilution risk) the market has de-rated shares accordingly.

In turn, this de-rating, which resulted in pushing MULN back below $1 per share, has caused the aforementioned “mitigated key risk” to possibly re-emerge.

That would be the stock’s delisting risk. As InvestorPlace’s Eddie Pan pointed out on May 24, although MULN has, since the split, closed above $1 per share for ten consecutive trading days, that does not necessarily mean the stock is back in compliance with Nasdaq.

While not for certain, there’s a chance that Mullen has failed to meet all of the requirements to regain compliance from just 10 consecutive days of trading above $1 per share.

Delisting per se will not make the underlying situation with Mullen Automotive any worse. However, a move from the Nasdaq to the over-the-counter market would undoubtedly put pressure on the stock.

The Verdict

Admittedly, it is not a given that a “game over moment” (i.e. bankruptcy) is just around the corner for this struggling EV upstart. Remember, this company’s management has no qualms about using dilutive fundraising methods that are destructive to shareholder value.

Mullen may keep the lights on for a few more quarters. However, not only does this mean that shares will continue to rapidly depreciate in value.

Expect it to become even more difficult over time for Mullen to tap into this funding source. Convertible securities buyers will only buy if there’s a liquid enough market to sell into post-conversion.

The verdict here is pretty cut-and-dry. Now more than ever, MULN stock is a clear-cut “avoid” situation.

MULN stock earns a D rating in Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.