Reverse Stock Splits in Electric-Vehicle Startups: A Cautionary Tale for Long-Term Investors

The electric-vehicle (EV) sector, once hailed as a beacon of innovation and growth, has become a battleground for survival. Over the past two years, a wave of reverse stock splits has swept through EV startups, with companies like Mullen Automotive, Lucid Motors, and Faraday Future resorting to these maneuvers to avoid delisting from major exchanges. While these actions may temporarily inflate share prices, they often mask deeper operational and financial challenges. For long-term investors, the implications are clear: reverse stock splits in volatile tech sectors like EVs are not signals of strength but red flags demanding rigorous risk-rebalance strategies.

The Reverse Split Trend: A Desperate Lifeline

Reverse stock splits—where a company reduces the number of outstanding shares to increase the per-share price—have become a common tactic among EV startups struggling to meet Nasdaq's $1 minimum bid price requirement. Mullen Automotive, for instance, executed a 1-for-100 split in June 2025, slashing its shares from 80 million to 800,000. Despite this, its stock plummeted 32% in the first post-split session, underscoring investor skepticism. Similarly, Lucid Motors proposed a 1-for-10 split in 2025, aiming to attract institutional investors, yet its shares traded near $2.29, far below its peak of $26.50 in 2021.

These moves are not isolated. From 2023 to 2025, over a dozen EV startups, including Volcon and Envirotech, have adopted reverse splits. However, the underlying issues—cash burn, weak sales, and operational inefficiencies—remain unaddressed. For example, Mullen reported a $47.1 million net loss in Q2 2025 despite a $5 million revenue spike, while Faraday Future's stock has traded near $1.93, teetering on the edge of delisting.

Investor Reactions: A Mixed Bag of Caution and Speculation

Market reactions to reverse splits in the EV sector have been polarized. A 2019 study in the Journal of Applied Business and Economics found that reverse splits often trigger negative risk-adjusted returns, as investors interpret them as signals of distress. This aligns with recent trends: Mullen's stock surged 198% briefly after a $13.58 million capital raise but collapsed shortly thereafter. Similarly, Lucid's partnership with Uber briefly boosted its shares to $3.69 in July 2025, only to see a 25% decline in the following weeks.

The volatility reflects broader sector dynamics. EV startups, with their high capital expenditures and unproven business models, are inherently risky. Reverse splits amplify this risk by signaling desperation rather than strategic clarity. For instance, Fisker's delisting from the NYSE and subsequent OTC trading highlight the fragility of companies relying on procedural fixes over substantive reforms.

Risk-Rebalance Strategies for Long-Term Investors

For investors navigating this turbulent landscape, the key lies in proactive risk management. Here are three strategies to consider:

1. Diversification Beyond the EV Sector
   While the EV industry holds long-term promise, its current volatility demands diversification. Investors should balance EV exposure with more stable sectors like renewable energy or AI-driven logistics. For example, Tesla's stock price has shown resilience despite sector-wide headwinds ().

2. Hedging with Derivatives
   Options and futures contracts can mitigate downside risks. Short-term put options on EV stocks or sector ETFs (e.g., XLK) can protect against sudden declines. For instance, a put option on Lucid's stock could limit losses if its share price breaches $1.00.

3. Sector Rotation Based on Fundamentals
   Investors should rotate into EV companies with strong balance sheets and clear revenue streams. Lucid's recent $1.67 billion capital raise from Saudi Arabia's Public Investment Fund (PIF) offers a glimmer of hope, but its reliance on PIF's continued support remains a risk. In contrast, companies like Rivian, which reported positive free cash flow in 2024, may present more sustainable opportunities.

The Beta Coefficient: A Tool for Assessing Volatility

Quantitative tools like beta coefficients can help investors gauge EV stock volatility. A beta above 1 indicates higher volatility than the market. For example, Lucid's beta of 2.3 (as of August 2025) suggests it swings 230% for every 100% market move. Monte Carlo simulations, which model thousands of price scenarios, can further refine risk assessments. These tools are critical for investors seeking to balance high-risk EV bets with lower-volatility holdings.

Conclusion: Navigating the EV Maze with Caution

Reverse stock splits in EV startups are not a sign of recovery but a symptom of systemic stress. While these maneuvers may delay delisting, they do not resolve cash-flow crises or operational inefficiencies. For long-term investors, the lesson is clear: prioritize fundamentals over procedural fixes. Diversify portfolios, hedge against downside risks, and rotate into companies with sustainable business models. In the EV sector, as in any volatile tech market, patience and discipline are the ultimate safeguards against speculative folly.