Shares of Mullen Automotive (NASDAQ:MULN) tumbled another 50% this week after one of the firm’s most vocal promoters aired second thoughts.

“I didn’t sign up for this,” said Mullen’s Lawrence Hardge in a Facebook Livestream. “I ain’t gonna let what I invented be the death of me. I’m sick of people calling me. I’m sick of the death threats.”

At first glance, Mullen’s cause-and-effect chain seems straightforward. The founder and chief technology officer of Global EV Technology had previously touted a potential $10 billion deal with Saudi Arabia. If angry shareholders cause Mr. Hardge to withdraw from Mullen, surely the EV firm would be worse off?

However, a closer examination of Mullen’s finances shows that its sagging share price is entirely balance-sheet related. The company has long relied on “death spiral financing” to stay afloat, and a recently announced moratorium on new financing would end this significant source of liquidity.

Financing a growing EV company is hard. Mullen’s management could soon find out that doing so without external financing is next to impossible.

EV Bankruptcies: The Tesla Experience

In 2008, Tesla (NASDAQ:TSLA) found itself “3 days away” from bankruptcy. “A car company is desperately trying to go bankrupt at any given time,” CEO Elon Musk later said in an interview with 60 Minutes. Mr. Musk’s firm only “narrowly escaped” after securing a $40 million loan. The world’s most valuable carmaker would face near-bankruptcy again in 2017. Only some well-timed bond issuances saved the firm from extinction.

Carmakers are constantly facing cash crunches because of their capital-intensive nature. Factories can cost billions to outfit, and new car models take years to develop. Even at scale, the average Ford (NYSE:F) vehicle costs roughly $33,500 to produce. Advertising and overhead costs make the final figure even higher.

The problem is even more acute for high-growth companies like Tesla that rely on in-house production. Building a car requires stocking inventories and raw materials, which add up quickly. According to data from Thomson Reuters, Tesla currently has $14.2 billion sunk into working capital, or roughly two months of revenues. Its inventory alone was worth $12.8 billion in December 2022, almost as much as the entire market capitalization of Nissan Motors (OTCMKTS:NSANY)

Mullen and its peers have similar cash requirements, at least in relative terms. Workhorse (NASDAQ:WKHS), a producer of commercial vehicles, has $21.9 million in inventory — an enormous amount for a firm generating only $6.7 million in trailing-12-month revenues. And even “successful” companies like Rivian (NASDAQ:RIVN) have found themselves trying to sell excess inventory outside their factory gates. Opening a dealership like a lemonade stand seems pretty reasonable when you need the cash.

Mullen’s $279 Million Problem

Mullen will soon find itself in the same situation. In December 2022, the EV firm announced it had reached a 6,000-vehicle deal with Randy Marion, a commercial vehicle dealer group based in North Carolina. The $200 million deal would have been a game-changer for Mullen, and a follow-up press release updated the purchase order value to $279 million.

The good news, however, comes with some significant concerns.

First, the payment terms involve cash on delivery, meaning that Mullen will receive no prepayments for any work in progress. The EV maker must find enough cash reserves to produce the 6,000-vehicle order.

Second, the agreement allows Randy Marion to return all unsold inventory to Mullen after 12 months for a full refund. That means the cash received from successful deliveries cannot be 100% counted as available cash on Mullen’s end. Accountants will likely want to see a significant portion squirreled away in escrow.

Finally, Mullen’s small scale means its 6,000-vehicle order could take far more than $279 million to produce. A recent back-of-envelope calculation suggests that producing even 1,000 vehicles could cost the EV startup as much as $196 million. The full 6,000-vehicle order will approach a billion dollars of required capital.

What Is MULN Stock Worth?

The math obviously doesn’t add up. Mullen’s most recent update revealed that the firm only has $135 million of cash — far short of the amount required for fulfilling its deal with Randy Marion.

The company also has significant ongoing cash requirements. Its two oversized factories require constant upkeep, and Mullen spent $47.4 million in operating expenses during Q1 2023 alone.

Mullen’s use of dilutive share issuances also means its cash value per share is constantly dwindling. According to its latest quarterly filings, the number of common stock rose from 126.3 million in March 2023 to 172 million by mid-May. A June 15 update suggests that figure could be as high as 355 million shares, and an updated share count due later this week could raise that figure as high as 548 million.

That means the firm is probably worth far less than the 38 cents of cash per share that Mullen’s management suggests. The firm has generated no significant revenues — which means it will constantly bleed cash — and Louis Navellier’s team believes that its “game over” moment will soon arrive.

End of the Road for Mullen?

This suggests that Mullen will have to break promises to someone. If the company follows through with its moratorium on fundraising, its remaining $135 million of cash will only produce a fraction of the Randy Marion vehicle order. It will either have to break its delivery timeline to Randy Marion (a breach of contract) or turn to contract manufacturing to fill the gap (another breach of contract).

On the other hand, if Mullen follows through with its numerous projects and aggressive launch timelines, management will need to fundraise just as Tesla and other growing EV firms did. Their statement that Mullen “has sufficient capital on hand for at least the next 12 months” will be extremely difficult to meet.

This month, a recall notice revealed that Tesla may have produced as few as 36 trucks in 3 months as it tackles production issues. And if one of the world’s top EV makers already has trouble bringing products to market, don’t believe for a moment that an upstart will find it any easier.

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As of this writing, Tom Yeung 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.