What happened
Shares of Freyr Battery (FREY 5.70%) are tumbling 15.1% from where they closed last Friday, according to data provided by S&P Global Market Intelligence. The stock started the week off on a high note with shares rising from their Friday close, but then turned south on Tuesday and continued heading lower from there.
On Wednesday, Morgan Stanley (MS 0.29%) analyst Adam Jonas downgraded the stock to equal weight from overweight while also slashing his price target for the electric car battery maker in half. Jonas cut his one-year price target to $13 per share from $26 per share.
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So what
The EV market has been in a slump, and no stock more so than Tesla's (TSLA -1.11%), which has lost about 60% of its value from recent highs amid concerns about keeping pace with the deliveries the EV maker has seen in recent periods.
And it's not just EV makers, but all automakers. Most are not only down from their yearly highs but sharply lower in the last 12 months as pricing, energy costs, ongoing supply chain problems, and rising interest rates that make buying a car more expensive have all taken a toll on sales and consumer confidence.
Jonas suggests the EV industry may be undergoing a "reset" from a market in which manufacturers had an undersupply problem to one flooded with too many EVs, which may be a sign the industry is entering a "'shake-out' phase."
Now what
The outlook for Freyr Battery is a marked U-turn from just a few months ago when Jonas saw the small Norwegian battery start-up as his top auto pick, one that would become "a real player in the global battery economy later this decade."
While it's possible that could still happen, the industry's reversal now means the analyst is telling investors to reduce their exposure to the entire EV segment. Now Jonas puts Tesla as his top pick for electric vehicles even though he's trimmed his target price on its shares from $250 to $220.
There's a lot of speculation built into Freyr Battery, as the company is not producing any revenue yet and it has been producing growing operating losses -- something to be expected in a start-up. But especially now with the EV market potentially in a "reset" and faced with an oversupply of vehicles, the financial situation could quickly spin out of control for Freyr, as it has invested in new factories at a substantial upfront cost.
The outlook may not be pretty for the EV battery maker's immediate future.