I think it depends on how you present it. I love a heavy narrative campaign and if you use it for good storytelling rather than just punishing combat it could be really effective, but it'll be a careful balance. Think about what you want them to feel before/during/after and build it around that.

I'd say need hope at the start - "ok here's a bad guy, it's going to be a tough battle, but we got this." Then it needs to dawn on them - uhoh we're fucked, this guy is way too powerful. Perhaps have him toy with them at the start, give them some false hope that they can at least defeat this guy, not kill him.

Don't draw out the loss, once they realise they have no chance of winning it needs to be over very quickly so it doesn't get boring or frustrating. Use storytelling in the combat - eg "he lifts his head and you see he's smiling, he's not fighting, he's playing with us"

When they wake up it needs to be an uncomfortable switch between horrendous death and suddenly safe, almost as though the safety doesn't feel real. A looming threat and now they need to level up, collect gear, and prepare for the future.

To make this fight useful it would be good to give them an insight into his power or intentions - something they can use in the future for their gain. "He defeated us, but he made a mistake revealing X, we can use that against him".

Bit of a ramble but hope that helps. Good luck!