FREYR Battery SA (NYSE: FREY) has seen its share price climb this week after Morgan Stanley analyst Adam Jonas highlighted the stock as one of his top US automotive picks.
Jonas’s research note offered a high-end potential valuation of $60 per share for FREY stock, though his worst-case scenario saw the company’s stock dropping to $4 per share. The report galvanized investors, sending the company’s share price sharply higher on Wednesday.
But what are the ins and outs of FREYR and is FREY stock a good investment?
What Does FREYR Battery Do?
FREYR Battery is a Norwegian business which is targeting the production of environmentally friendly battery cells.
The company says it is aiming to achieve this through a business model intended to maximize long-term value creation and unlock sustainable, superior returns to its stakeholders.
FREYR plans to develop up to 43 GWh of battery cell production capacity by 2025, which it says will position it as one of Europe’s largest battery cell suppliers.
Its batteries are produced with a reduced carbon footprint thanks to low-cost hydro and wind energy, and are targeted to serve rapidly growing global markets for electric mobility, stationary energy storage, marine and aviation applications.
FREYR has commenced building the first of its planned factories in Mo i Rana, Norway and announced the potential development of industrial-scale battery cell production in Vaasa, Finland and the United States.
How Does FREYR Battery Make Money?
As of 30 June 2022, the company had not yet initiated manufacturing or derived revenue from its principal business activities.
However, the company reported in late August that a new partnership with Nidec included a firm sales contract to supply 38 GWh of next-generation clean LFP Lithium-Ion battery cells from 2025 - 2030 combined with a Joint Venture Agreement to develop, manufacture, and sell integrated, low carbon energy storage system (ESS) solutions.
Based on projected raw materials prices, FREYR estimated that the gross value of this contract to the company was in excess of $3bn from 2025 to 2030, which it said represents one of the largest ESS battery cell contracts globally to date.
FREY Stock Financials
FREY stock currently sits at $15.82, with the share price having climbed by more than 33% across the year to date. The last 12 months have seen the share price hit a high of $15.95 and a low of $6.42.
As of 30 June 2022, the company had cash and cash equivalents of $484.2m and total current liabilities of $43.7m. Additionally, its most recent quarterly earnings saw the business achieve a net income of $4.7m despite operating expenses tripling following a change in fair value of warrant liabilities.
FREYR does not provide its shareholders with a dividend.
FREY Growth Potential
The company has a strategic plan that it says leaves it well-positioned to become a market leader.
FREYR is using 24M lithium-ion battery production technology for its gigafactory projects in Europe and the US. The business states that this requires less materials than traditional manufacturing, as well as being less energy and labor-intensive. This is expected to help the business gain a competitive advantage when it comes to costs.
Additionally, the business believes its emphasis on decarbonization will yield meaningful cost savings that competitors might not enjoy.
In short, FREYR anticipates that its lower CO2 footprint relative to conventional producers, as well as a commitment to further decarbonize, should generate a substantial carbon advantage per KWh.
The company believes these factors and more leave it well placed to take advantage of rapidly increasing demand for battery technology. This demand can be seen across multiple industries, with electric vehicle sales more than doubling in 2021 even as the industry faced supply chain and COVID-19 related challenges.
FREY Investment Risks
The primary risk of investing in the business is that it is not yet at the commercial stage. While FREYR’s strategy and preparations might sound exciting, the company could encounter unexpected difficulties when it actually comes to bring its products to market.
On a similar note, projects like the currently ongoing construction of its new Giga Arctic battery production facility in Norway could encounter difficulties, potentially delaying ramp ups in production which are currently slated for Q1 2023.
Furthermore, excitement surrounding the stock and other EV manufacturers or battery technology developers could lead to the stocks becoming fundamentally overvalued.
Additionally, the company could face fierce competition from other battery manufacturers, particularly other manufacturers who license the 24M process technology that the company will utilize.
Is FREY Stock a Good Investment?
When you add up everything FREYR has to offer, the company looks like an exciting opportunity. The business appears exceptionally well prepared to take advantage of increasing intensity of demand for battery technology and its emphasis on decarbonization could give it a cutting edge.
Of course, there are risks to investing in FREY stock. Primary among these is that the company has not yet returned significant revenues or brought its battery technology to market.
Analysts covered by the Wall Street Journal gave FREY stock a consensus Buy rating.