Shares of FREYR Battery (FREY) were plunging today, down over 38.4% in today's trading. FREYR is essentially a start-up that managed to raise money in the public markets via a special purpose acquisition company (SPAC) during the SPAC bubble-boom of 2021.
Most SPACs probably never should have gone public, to begin with, and notably busted last year. However, FREYR had actually held up better than most SPACs heading into 2023. Nonetheless, now that the electric vehicle (EV) market is slowing rapidly amid higher interest rates, FREYR, too, is now feeling the crunch of closed capital markets amid uncertain demand.
FREYR pushes out production, and its cash level is declining
It should be known that FREYR is not just unprofitable -- it doesn't even have revenues as of yet. Its operating loss was $35 million during the quarter, expanding from a $29 million operating loss in the year-ago quarter. While FREYR does have about $300 million worth of cash on hand as of Sept. 30 and no debt, that's already down from $443 million at the start of the year.
So, FREYR's earnings releases are really about monitoring losses and updates on the construction of its planned battery manufacturing plants. Unfortunately, the current high-interest-rate environment and the decline in EV demand appear to be causing uncertainty. FREYR now states it will push back some of its qualification production runs and, therefore, the start of its revenue.
On the release, FREYR management announced it would push back the timeline to start its CQP, or Customer Qualification Plant. This actually doesn't seem demand-related but rather due to execution problems. In the release, FREYR noted the company has implemented a new plan to "prevent further delays, which includes enhanced involvement of technology and battery subject matter experts, increased coordination and day-to-day involvement with vendors and partners, and the formation of a Technology Advisory Board consisting of subject matter experts."
That seems to indicate that the company has been unable to meet its own execution goals and is now seeking help from outside experts -- not exactly a vote of confidence.
Furthermore, FREYR said it would be delaying investments in its Giga Arctic factory in Norway to minimize cash burn while asking the European government for more subsidies. And FREYR is also now looking to raise project-level equity for its planned opening of its Giga America plant, which could further dilute shareholders.
FREYR is a risky play on EVs
The EV market is in a slowdown but could bounce back as technology improves and if interest rates come down, making EVs more affordable than internal combustion engine (ICE) cars. Furthermore, FREYR apparently does have a decent amount of cash. In fact, its market cap is now just below its cash level from the end of the third quarter and just above the $250 million level at which it plans to exit the year.
Still, the new capital market environment makes raising cash at any sort of decent valuation highly unpalatable. That means early-stage, loss-making stocks like FREYR are on the clock to make it to profitability and are, therefore, highly risky.
