Friday, March 06, 2009

Dark Future for Evergreen Solar



Lux Research predicted last month that solar cell and module capacity will overshoot demand by twofold in 2009. The 10Q Detective speculates that capital-starved Evergreen Solar (ESLR-$1.05) will not survive the impending industry shakeout.

At December 31, the solar panel maker had approximately $155 million in unrestricted cash on its balance sheet. However, the first phase of its Midland factory (in Michigan)—where it plans to manufacture the unique high temperature filament used in its wafer process—and debt service interest payments will require about $120 million in cash through the 1H:09, leaving just $35 million available to fund its operations, according to its recently filed
2008 annual report with the SEC.

Chairman and Chief Executive Richard Feld told analysts on the
fourth-quarter 2008 earnings call that signed customer contracts totaled 79-megawatts in 2009, 116-megawatts in 2010, and 254-megawatts in 2011. However, operating losses are expected to continue until the Deven’s (Mass) facility reaches production capacity of about 160-megawatts, according to the 10-K filing. In addition, as the plant only shipped 8.5-megawatts in the fourth-quarter of 2008, reaching total capacity this year will not happen. Obtaining the funding for factory expansions is difficult in the current credit environment. As such, expect the company to secure the use of subcontractors to make solar cells and panels using its proprietary, thin-wafer "String Ribbon" technology.

Another obstacle to success—its German manufacturing joint venture with REC and Q-cells, called Sovello, is in financial distress, being in violation of certain of its bank loan covenants. If Sovello cannot obtain an amendment with its lenders, Evergreen would be required to provide gap funding of approximately $168 million to Sovello (in the form of a loan or an equity investment).

The company has $381.3 million in contractual obligations coming due in one to three years.

At December 31, Evergreen had an accumulated deficit of $221 million and had never delivered a quarterly profit. Albeit the company has sales contracts for approximately 80-megawatts of product to be manufactured at its Devens’ facility for delivery in 2009 at an average selling price of approximately $3.20 (assuming a U.S. dollar/Euro exchange rate of 1.25)—about 10 percent less than the average selling price of $3.55 in 2008—current manufacturing costs are approximately $3.50 per watt.

Given the existing liquidity risk and uncertainty in sales visibility and profitability, investors would be prudent to avoid this solar stock.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

11 comments:

Anonymous said...

Was that projection before or after the $60+ billion in stimulus for solar and wind energy?

Anonymous said...

Did you take into consideration the latest SEC filing to raise funds? It would appear they have found someone to purchase bonds to assist in funding needs.

Anonymous said...

Someone wants their Puts...to cash in before OPEX...

Or is shilling for FSLR...

These blogs are just tramp stamps.

Anonymous said...

Do you post on the yahoo boards as "Ohno/beastee?"

Anonymous said...

You should have contacted Evergreen Solar to find out what the real cost per watt is before printing such an article, because it is not $3.50 per watt. It's guys like you that hurt a start up business at times like these when the economy is bad. Loose lips sink ships. Too bad someone can't sink yours.

David J. Phillips said...

#1. I do not post on Yahoo Boards as ""Ohno/beastee."

#2. Why would I short a $1.00 stock?

#3. I do not front for anyone -- been accused of it many times before, usually by shareholders looking to blame their losses on someone else.

#4. My TRACK RECORD speaks for me!

DKenny said...

David,

If you ever are bearish on solar, the trolls come out. Apparently solar is the 'next new thing', and Obama is going to save everything.

Unfortunately, they should listen to Steven Chu, his energy secretary, who said recently that solar needs to become 5x more efficient before it is commercially viable.

Oh well, facts don't get in the way of solar bulls. Nor does the fact that wind and solar energy have both been around for decades, and are ALWAYS the 'next big thing'.

Jeremy Smithson said...

Evergreen Solar has had money trouble from day one, and the market in Germany has sustained them for awhile because Germans were paying more per watt for PV, but that has changed, and, in the current economy, Evergreen is vulnerable.

Whatever the future of Evergreen, solar and wind energy is not going away, unlike limited fuels - oil, coal, gas, and uranium. Anyone who cares to take an unbiased look at the future will see the value of renewable energy sources. Mr Chu is wrong, solar is cost effective NOW at the retail level in many, many places, but not so much at the wholesale level. Those of us who live with solar energy systems know this from personal experience and all the blah blah blogs in the world won't change that.

Jeremy Smithson said...

Evergreen Solar has had money trouble from day one. They have been sustained by the European market until lately, and in the current economy the company is vulnerable.

The future of Evergreen Solar aside, solar and wind energy are not going away, unlike limited energy sources such as oil, gas, coal, and uranium. Anyone who takes an unbiased look at the future will see the value of solar energy. Mr Chu is wrong, solar is cost effective NOW at the retail level in many, many places. Not so much at the wholesale level, but that is for the electric utilities to fret over. Since I actually live with solar energy systems I can personally attest to their cost effectiveness, unlike those who look in from the outside and ruminate on the blah blah blogs, so here is something for you folks to contemplate: Here in Seattle, Washington, we generate enough energy to run our Solectria Force, a freeway-capable EV, for 7,200 miles/year from 130 square feet of roof space. You don't have to leave the country, you don't have to leave the state, hell, you don't even have to leave your HOUSE to get all the energy you need for family cars. Anyone who can't see the future in that is not really looking at the future at all, but is simply, and blindly, mired in the past.

solbama said...

FYI ESLR has had a profitable quater in the past - Hey, remember AOL they couldn't grow fast enough either- I'd bet you missed that boat too- and you seem to have forgot the "billions" of backlog, not worth mentioning? Like that coal money?

Anonymous said...

Have you ever taken a look at the "ribbon" technology? Such a thin structure, with all the "wrinkles" that are in it, is supposed to last for years and thousand of expansion and contraction cycles without cracking? Silicon is not a very elastic material, paint doesn't even stand up to such stress very well and it is elastic! Another point, their entire R+D staff has bailed and went somewhere else, they've tried to fill the vacuum with the typical third world contingency found in many pump and dumps. No I don't own any stock in Evergreen.