Why one (big) solar bankruptcy won't trigger meltdown

The bankruptcy of Evergreen Solar is causing some media consternation about the solar industry, but it’s a stretch to imply that the company’s demise is the sign of an industry meltdown.

On Monday, Evergreen Solar said it was reorganizing under Chapter 11. Evergreen Solar’s plan is to shed some debt, sell some assets and ramp up manufacturing capacity in China. Evergreen Solar made its wafers with its proprietary “String Ribbon” technology and never hit critical mass. Evergreen is trying to make its String Ribbon wafers an industry standard. The bet: String Ribbon technology can bring down manufacturing costs and be a standard.

The Wall Street Journal noted that Evergreen Solar was run over by Chinese rivals. On the opinion pages, the Journal linked Evergreen Solar’s business to politics and tax subsidies and dubbed it Nevergreen Solar.

Comical headlines aside, both takes only represent a slice of the story. Evergreen Solar, like many businesses in an emerging industry, benefited from an initial surge, failed to adjust to market conditions and failed. Evergreen Solar may hang around after restructuring, but the company is akin to those early hard drive and PC companies. The industry consolidates and some players die. Other bankruptcies in the industry will occur. CNET noted that Solon is also closing facilities amid global competition.

You can’t have more than 300 companies—a stat via Solarbuzz—playing in the solar panel market and not expect a few to flop. In its most recent annual report, Evergreen Solar cited BP Solar, First Solar, Kyocera, Mitsubishi, Sanyo, Sharp, SunPower, Trina Solar and Yingli. While some of those competitors are Chinese, most of them aren’t. Evergreen Solar wasn’t run over just by China outfits, but companies from around the world too.

Other reasons Evergreen Solar had to file for bankruptcy:

• It focused on off-size solar panels. Evergreen said in its annual report that “historically, we have produced non-standard size rectangular wafers that were then processed into Evergreen Solar branded solar panels.” Those panels were assembled in its Massachusetts facility.
• The company made a move to focus on industry standard size wafers, but ran out of time and funding. Was it China that derailed Evergreen Solar or the fact it was Betamaxed?
• Evergreen Solar failed to raise enough cash when times were good. In the stock’s glory days, Evergreen Solar could have raised cash via stock sales. It could have used that currency to build a war chest. Perhaps Evergreen could have used its inflated stock to acquire more companies and assets. It didn’t buy its way into a company that could weather a storm.
• There was simply too much debt on the books. Evergreen Solar needed more capital, but you raise debt when you DON’T need it. Not when you’re desperate.
• The company doesn’t make money. Evergreen Solar’s net loss for 2010 was $465.4 million. In 2009, the company lost $266.2 million. In 2008, Evergreen’s net loss was $228.6 million. In 2007, Evergreen lost $16.5 million, which was an improvement on the $26.7 million lost in 2006. Obviously, the profit trends weren’t in Evergreen’s favor.

When subsidies ended in Europe for solar power installations this year, it was clear the industry was going to go through some changes. SunPower seems like it’s navigating the curve. It has issued profit warnings, but now counts oil company Total as an investor as big oil meets solar. On its most recent earnings conference call, SunPower said it is thinking small—rooftop installations—as a way to keep demand going. SunPower also cut a co-marketing and sales deal with Ford.

That thinking was sorely lacking at Evergreen, which focused on off-size wafers for too long. Sure, Evergreen could have had more manufacturing in China. Sure, the company may be the first signs of consolidation or tough times. And there are questions about whether solar power can have grid parity with fossil-fuel generated counterparts. But the bottom line is that Evergreen Solar never handled the industry’s turns well.

Here’s a look at Evergreen Solar’s stock chart over the years.

And here’s SunPower.

Both companies are obviously taking hits and when that happens some entity is going to take a fall. SunPower seems to be making solid business decisions. Evergreen Solar didn’t deliver. Headlines linking Evergreen to politics and China aren’t going to change that reality.