Evergreen Solar: Why This Overlooked Company Is a Good Investment

The market has pummeled solar stocks across the board in the recent downturn.  Many of the big names in solar have lost over 50% during the past few months.  All of this is in spite of the fact that the United States government recently extended and expanded the solar tax credit.  There is also some optimism that Japan and potentially other nations will incentivize solar soon.  Given this, it’s certainly arguable that there is a lot of value to be found in the solar sector and it may very well be worthwhile to bargain shop in solar stocks.

I recently mentioned a company called Evergreen Solar (ESLR) in my article “Seven Stock Ideas for the Impending Apocalypse.”  I briefly touched upon some of the reasons one might want to buy into ESLR in that article; however, I wanted to do a more thorough write-up on it, as I believe it is one of the more overlooked solar stocks out there. 

Background

There are two major types of solar panel manufacturers: (1) thin-film and (2) polysilicon.  (For a deeper analysis, I would suggest the Yellow Rose Street Beat article on Seeking Alpha.)  First Solar (FSLR) and Energy Conversion Devices (ENER) are examples of thin-film manufacturers.  Most of the other solar panel manufacturers use polysilicon.  Evergreen fits into the latter camp, but it is somewhat unique in that it uses a technology called “String Ribbon” to reduce the amount of crystalline silicon needed for its manufacturing process by about 50%.  Since silicon is one of the most significant costs to producing solar panels, this means that Evergreen has potential to become the most cost-effective producer amongst the silicon group.  

It remains to be seen if Evergreen can catch up to thin-film manufacturers, however.  Nevertheless, silicon-based solar products have been more thoroughly studied than thin-film technologies which could breed a potential advantage in that more knowledge about these products could result in higher quality.  Since purchasing a solar panel requires huge up-front expenditures and it is expected that the investment will only pay itself off over time, it would make sense that consumers would be very concerned about product quality. 

One trend I have noticed with solar investors is that most people are seeking out the lowest cost producers, or in essence, they want to find the Wal-Mart of solar companies. I would argue that given the nature of a solar energy investment, it might be wiser to search for the Honda of solar companies. Only time will tell whether thin film products hold up as well or better than the more traditional silicon-based panels, so I believe that while they have a (short-term?) cost advantage, there are some greater long-term risks with some of the newer technologies.  This is one reason to believe that silicon-based manufacturers might be undervalued a bit. 

Business Plan

Until recently, Evergreen had a rather low manufacturing capacity of 15 MW.  It recently opened a new facility in Devens, Massachusetts that has upped its yearly capacity by 80 MW.  There are plans for further upgrades at Devens that will add on an additional 80 MW of yearly capacity (bringing the total to 160 MW for Devens) sometime around the end of 2009.  Evergreen has plans to expand further beyond this and would like to increase its manufacturing capacity to around 620 MW by 2011 and 850 MW by 2012.  Given the credit crunch, obtaining financing for those projects might be a little more difficult, but the company is hoping that things ease up a little bit in the next year so that it can make the upgrades.

The good news is that Evergreen has a nearly $3 billion backlog and it has sold most of its production through 2012, meaning there are not many worries about a lack of demand for its product.  Additionally, as I outline below, I believe its model will start to show signs of success in the next year or so, which will make obtaining capital much easier.

It is important to note that Evergreen has a partnership (in the figurative, not legal sense) with a German-based solar manufacturer called EverQ.  Evergreen shares its “String Ribbon” technology with EverQ  and receives royalty payments from the company.  ESLR also has an equity interest in EverQ.  EverQ upgraded its manufacturing capacity a little bit ahead of ESLR and appears to be having a decent amount of success.  The fact that Evergreen’s model has proven effective at its sister company is yet another reason for optimism in regards to ESLR’s prospects. 

Margins and Expenses

For the time being, perhaps Evergreen Solar is the type of company that only a cost accountant could love.  When most investors look at earnings on the Income Statement, they can’t help but to be disappointed with ESLR.  Evergreen has, to date, never turned a noteworthy profit.  Moreover, it released 3^rd Quarter results recently that showed an 18 cent per share loss.  However, it takes a much deeper look at Evergreen’s margins, financial position, and business plan to gain an understanding of its potential. 

Evergreen’s gross margins have actually been fairly good and have only grown stronger over time. It operated with single digit gross margins for a few quarters in 2005 and 2006, before consistently producing gross margins upwards of 20% in 2007.  By the 2^nd quarter of 2008, it reported a 34.7% gross margin before its new facility’s initial production lines lowered that down to 5.7%. 

Even the overall gross margins might be deceiving since some of its revenues are coming from royalties from its business ally, EverQ.  If we ignore the royalty and fee revenues reported on ESLR’s income statements and only use product revenues, we end up with margins from Q1 and Q2 in 2008 of 42.3% and 43.6% respectively.  All of this is important because it gives us some insight as to where ESLR’s profitability could eventually be headed. 

That brings us to the next important element of ESLR’s income statement: operating expenses.  The two major operating income items reported on its income statement are R&D and SG&A expenses.  These charges are a bit more fixed in nature and have not increased as rapidly as its cost of revenues line item.  In fact, R&D has stayed in a fairly consistent range since Q4 of 2006.  The same has largely held true for SG&A, however, the opening of Evergreen’s new Devens facility has slightly increased that figure.  While I expect that these expenses will increase some as Evergreen Solar grows, they will not increase nearly as quickly as the cost of revenues line item.  This brings us to a major insight about Evergreen -- if production dramatically increases, profits should follow. 

Forecasting ESLR

While it is difficult to create accurate forecasts for a company going through as significant production changes as Evergreen, simply playing around with the numbers and attempting to create some possible forecasts can give us some insight about Evergreen’s potential.

First off, I constructed a two-year forecast spanning through the end of FY 2010.  I assumed gross margin would be 25% in Q1 of 2009 (which might be a bit high) and would gradually increase to 40% by Q4, before dropping back down to 20% in Q1 of 2010 (as Devens II becomes operational) and then gradually increases back to 40% by the end of the year. 

Revenues are $70 million for Q1 and gradually increase to $108 million by the end of ’09.  By the end of ’10, they hit $198 million. I generated revenue projections by taking product revenues from Q2 of 2008 and multiplying by the factor that capacity was increased.  For instance, ESLR had 15MW annual capacity originally, but added an additional 80 MW at Devens; I take this to mean, there is a total capacity of 95 MW (even if I’m wrong about this, it won’t make much difference in our later calculations).  Thus, I multiply revenues by 6 in order to get a result. Since most of these projections seem extremely uncertain to me, I try to be reasonably conservative. I ignore royalty revenues completely since I have no information suggesting that line item will increase significantly over time (and it become more negligible as ESLR’s product revenues increase anyway). 

I increase R&D and SG&A slightly over the two-year horizon until in Q4 of ’10, R&D equals $7.5 million and SG&A equals $9 million.  Since I find it difficult to give its other operating expenses without precise guidance, I will ignore that particular item and simply compare the results to similar results from prior periods. Finally, I ignore equity income from EverQ despite the fact that this item would be somewhat significant. I also assume further dilution in the stock, particularly during 2010 (when I assume the market might be in better shape than at the present).

Hence, based on these rather conservative guidelines, I end up getting earnings per share of about 43 cents per share for FY ’09 and 62 cents per share for FY ’10.  Other expenses would probably reduce that further, but remember I cut out equity income and royalty revenues, as well, which might offset that to an extent.  It’s also worth noting that those figures are somewhat distorted as the profits were lowest during the ramp-up stages in Q1 of each respective year.  For Q4 of 2010, I had EPS of 26 cents per share. 

The Ideal Quarter Method

It was difficult enough forecasting for two years forward so I decide to use what I term “the Ideal Quarter” method to try to ascertain Evergreen’s future potential five years down the road.  With this method, I look at historical costs and margins and attempt to ascertain what an average quarter might potentially look like at a future time.  Currently, ESLR has plans to expand capacity to around 620 MW by 2011 and 850 MW by 2012, so my goal is to get an understanding of its potential profitability at that point. 

Based on the “ideal quarter”, I end up with results of $0.70 EPS once ESLR has a manufacturing capacity of 620 MW per year.  I end up with $1.02 EPS for 850 MW of capacity.  These projections assume ESLR sells all “authorized shares” of common stock.  If we multiply these results by four (to extrapolate yearly results), we end up with $2.80 EPS for 620 MW and $4.08 EPS for 850.  While these estimates will probably end up being substantially off from the actual results, it does at least give us a clue as to ESLR’s potential and why there should be reason for some optimism for this stock.  Even based on a rather low P/E of 10, that would seem to suggest that if things worked out well, this stock could have a ceiling around $40-45 by the beginning of 2013. 

The Balance Sheet and Cash Flows

What makes Evergreen particularly attractive right now is that it is selling below the book value of its equity interest, which is roughly equal to $4.30 per share.  ESLR produced marginal positive cash flows from operations [CFOs] in Q2 of 2008 and should begin producing positive CFOs on a more permanent basis in FY ’09.  Given its depreciation charges and high start-up costs, its cash flows will probably tend to be somewhat higher than its earnings, as well, for any periods where it is not ramping up manufacturing capacity.  Hence, the current price of the stock (under $4) would seem to assume it is simply breaking-even over the long haul. 

Other balance sheet indicators suggest Evergreen is in solid financial shape.  Its total debt-to-value is about 40% and it has a working capital ratio of 5.3.  Even discounting “restricted cash”, it has a quick ratio of 4.9. 

The Case for Evergreen Solar

This is a cheap stock with huge potential.  The market has largely overlooked this company because it hasn’t turned a profit yet, but the only reason it hasn’t turned a profit is because operating expenses are eating away at its much more impressive gross margins.  Once production is ramped up, this will no longer be the case and this company has very strong potential within the next 3 – 10 years. 

Management gives the impression of being very forthcoming and honest.  This is a US-based manufacturer, which means that those championing “energy independence” will find this company attractive.  Unlike one of its major American competitors, First Solar, Evergreen does not rely on a rare Earth element (tellurium) to make its product.  Evergreen uses higher quality silicon to produce its panels and there is more knowledge about silicon-based solar products than alternatives.  All the same, Evergreen has developed technology that helps reduce the amount of silicon usage, thereby lowering costs.  Evergreen also has an equity interest in a sister company, EverQ, which is using the same technologies and has already had some success manufacturing on a larger scale than Evergreen. 

Overall, if things come together for this company, this stock could be priced in the $20-60 range five years from now.  Even if it doesn’t achieve this high potential, will the company really be worth less than $3.50 per share?  

The Case Against Evergreen Solar

Given the value of its equity, its massive backlog, its earnings and cash flow prospects, and other competitive advantages, there are a limited number of cases I can make against ESLR.  However, there are three that come to mind.

Some have argued that solar power in general is doomed to failure.  If this is the case, then Evergreen will probably tank with the rest of the bunch.  However, I do not believe this is a very strong argument given the general public’s shift towards alternative energy sources.  Moreover, with all the solar incentive packages we are seeing from various governments and all the capital invested in solar companies, it has become apparent that there is widespread institutional support for solar power.  This makes it seem unlikely that solar will fail completely at this stage. 

A more convincing argument against ESLR might be that silicon-based solar manufacturers will lose out to other technologies and that companies like Nanosolar, First Solar, and others that will eventually crush Evergreen.  I can’t see the future so there’s no way for me to refute this argument, and it must be considered a possibility.  However, for the time being, there seems to be room for the various types of technologies, and lower silicon prices should help make the silicon-based manufacturers more competitive in the long run.  Additionally, there are legitimate reasons for consumers to prefer solar panels manufactured using silicon. 

The final substantive argument I can make against ESLR is that due to the fact that many of its sales are in Euros, continued erosion in the value of the Euro versus the US Dollar could harm its operating results.  It is unclear to me, however, how significant this harm would be and it seems unlikely that this would be so detrimental that it would offset the company’s current valuation. 

Conclusions

Evergreen appears to be a good bargain to me.  Its current earnings create a distorted picture of its future potential.  If its gross margins from its original 15 MW of capacity are any indication, it could have a very bright future ahead.  I’ve also been consistently impressed with management and believe this company is more concerned about product quality than others.  If nothing else, ESLR has impressed many of its customers given its massive backlog.  In an industry as volatile as solar, there is always downside to every stock, but given the immense upside with Evergreen, it seems worthwhile to me. 

This is not a stock I would recommend purchasing for the short-term.  In fact, it’s possible that the price will decline even more through the end of this year.  Evergreen’s guidance for the 4^th Quarter of FY 2008 suggests an expected loss of roughly 14 cents per share, so investors will likely punish the company even more once that time comes.  This does seem to be a great long-term buy, however, and I would recommend being prepared to hold onto the stock for at least 2-3 years, if not longer. 

I would set a 3-year target price for ESLR at $15 based on the information available to me.  Upside potential in the next five years could range anywhere from $60 - $80 if impressive operating results are achieved and solar stocks are back en vogue again.  Downside risk is that the stock drops all the way to $0. 

Stock position: Long ESLR.

Comments

[Investutopia:]

Evergreen solar, I'm looking for something like Nanosolar.

2008 Oct 22 09:23 AM

[longtermstocks:]

Good article very detailed. I am long ESLR too. What do you think of SATC & MAG that make the inverters for the different solar, wind, and fuel cell products?

2008 Oct 22 10:19 AM

[vitamin_j:]

I think you miss several boats:
-EverQ is a legal, not a figurative partnership. You don't get licensing revenue from a figurative partnership. EverQ is a joint venture between Evergreen, Q-Cells, and the Norwegian company REC. There's talk of making EverQ a separate company (could be a good IPO), but it hasn't happened yet.
- You don't mention Evergreen's involvement in Lehman's collapse. Lehman had borrowed 30 million ESLR shares as part of a hedging agreement. When Lehman went BK, suddenly it became possible that these shares might be sold off, not recovered by ESLR, and dilute the price. That's why the price lost 2-3 dollars recently. Lawsuit's in progress.
- You should take a closer look at world silicon supply. The more silicon supply comes on line, the cheaper regular panels get, the closer to a commodity they become, and the less compelling the ESLR technology becomes.

2008 Oct 22 10:37 AM

[number2son:]

Good analysis. As I write, the Euro has plunged, adding yet more weight to ESLR's share price. And the Barclays lawsuit, while the absolute right thing to do from management, underscores how little banks care about smaller companies. It also reveals in its bald ugliness, the ethical vacuum at Lehman.

Analysts have also cited oversupply being a risk in 2009. Another risk is an extended recession that leads governments and business to scale back on solar projects.

This pessimism in the markets, this sector, and this company, in particular, is at its highest pitch right now.

The only positive is that Evergreen continues to ramp Devens (they produced a bit over 1MW in the first two weeks of October per their earnings report).

I'm not sure we're at the bottom yet. But here's wishing we're somewhere close.

2008 Oct 22 10:44 AM

[H.J. Huneycutt:]

Vitamin_j,

When I say that EverQ is a partner to ESLR in a figurative sense and not a legal sense, I'm simply delineating between legal terminology and the everyday use of the word. ESLR does not operate in a partnership or a limited partnership with EverQ (to my knowledge). It is a corporation and has an ownership interest in another corporation (EverQ). ESLR receives royalty payments and owns a stake of EverQ's equity. This is neither here nor there really --- merely an example of me trying to be precise with legal terminology so as not to confuse anyone.

I didn't specifically mention the Lehman deal in the article (though, I probably should've); however, I factored it into most of my own future projections. In fact, for most of my more long-term calculations, I might have gone overboard on the share dilution based on the assumption that ESLR would eventually sell off all authorized shares. To be sure, recovering the shares from Barclays would make each share worth more, but that's not the sole reason for ESLR's price drop. It's certainly something to keep an eye on, though.

As far as silicon prices goes, lower prices benefit ESLR. It's true that they benefit other polysilicon based solar manufacturers moreso than they do ESLR since others use even more silicon; however, cheaper silicon prices make ESLR more competitive with lower-cost solar technologies, as well as other energy sources.

2008 Oct 22 11:36 AM

[TeaLeaves:]

Evergreen is not responsible for EverQ's debt-- as it would be in a legal partnership. Evergreen has a legal relationship with EverQ but not a legal partnership.

2008 Oct 22 11:40 AM

[H.J. Huneycutt:]

Longtermstocks,

I haven't looked into SATC or MAG so I couldn't say much about them, unfortunately.

2008 Oct 22 11:40 AM

[H.J. Huneycutt:]

number2son,

Everything about the Lehman collapse was ugly, wasn't it? It seems like we learn more and more every day that exposes Lehman.

2008 Oct 22 11:46 AM

[vitamin_j:]

In the spirit of being truly anal (while not having legal expertise):

I would say that "Evergreen is a partner IN EverQ" would probably be the most accurate statement. I would say that it's germane to this discussion because Evergreen shares in EverQ losses as well as providing it financing. Perhaps this is what Honeycutt is trying to tell me.

Under German law:

German Regulatory Authorities Approve EverQ Partnership Agreements
21/12/2006 - 22:04

Evergreen Solar, Inc. (Nasdaq: ESLR), Q-Cells AG (FSE: QCE) and Renewable Energy Corporation ASA (OSEAX: REC.OL) (REC) today announced that regulatory authorities in Germany have approved previously announced partnership agreements that make the companies equal partners in EverQ, which manufactures solar modules in Thalheim, Germany. Effective December 19, 2006, all three partners will share equally in the net income generated by EverQ.

From the June 28 10-Q:

The Company is currently a one-third owner of EverQ GmbH (“EverQ”), a joint venture with Q-Cells AG (“Q-Cells”) and Renewable Energy Corporation ASA (“REC”), and licenses to EverQ its wafer manufacturing technology used to manufacture solar panels. The Company accounts for its ownership interest in EverQ using the equity method of accounting in accordance with APB 18 “Equity Method of Accounting for Investments in Common Stock.” Under the equity method of accounting, the Company reports its one-third share of EverQ’s net income or loss as a single line item in its condensed consolidated income statement and its investment in EverQ as a single line item in its condensed consolidated balance sheet.

EverQ Debt Guarantee
On April 30, 2007, the Company, Q-Cells and REC entered into a Guarantee and Undertaking Agreement in connection with EverQ entering into a loan agreement with a syndicate of lenders led by Deutsche Bank AG (the “Guarantee”). The loan agreement provides EverQ with aggregate borrowing availability of up to 142.0 million Euros. Pursuant to the Guarantee, the Company, Q-Cells and REC each agreed to guarantee a one-third portion of the loan outstanding, up to 30.0 million Euros of EverQ’s repayment obligations under the loan agreement.

2008 Oct 22 12:15 PM

[User 136884:]

I think you, and the CFO, drastically under estimate just how difficult it will be for ESLR to raise the $400m needed to expand beyond Devens. As I write ESLR marcap is now only $500m.

2008 Oct 22 12:42 PM

[H.J. Huneycutt:]

User 136884,

It might be fairly difficult --- I'm not denying it. However, if their operating results show significant improvements from production at Devens, I would imagine that would make things a bit easier than they would be otherwise. Even based on the full ramp-up at Devens at the end of '09, the stock seems undervalued to me at this point.

2008 Oct 22 01:47 PM

[H.J. Huneycutt:]

vitamin_j,

My basic point is what you just said --- ESLR shares in profits and losses and entered a guarantee agreement on EverQ. Whether or not they are defined under the laws of some jurisdiction as "partners" wasn't that terribly important in my analysis (so long as I'm not a "partner", I can't lose more than my initial investment --- and if EverQ fails, ESLR most likely does for similar reasons).

I am unsure as to the differences between partnership law in Germany and the US, however. My understanding was that they had a "joint venture", which isn't a legal term:

en.wikipedia.org/wiki/...

So theoretically, they could be operating under a variety of legal organization forms; a "limited partnership" (which differs from a general partnership) is one of them.

Or in sum, I believe we're on the same page; we're just using different terminology. My only real point was not to mislead anyone into believing that ESLR and EverQ were defined under the laws of an American state as a "partnership".

2008 Oct 22 02:00 PM

[anand:]

Good article.

Some dumb questions since I haven’t done my homework on this company yet:

1) What is the solar efficiency on string ribbon (what percentage of sunlight energy is converted into electricity)? How much solar efficiency is lost by converting string ribbons into modules?
2) Is there another website other than www.evergreensolar.com... that describes the process?
3) What is the thinkness of the string ribbons, especially after they transition to second generation furnace technology which will grow four ribbons at the same time?
a. Presumably it is less than 180 microns (typical for solar cell PV)
4) What is the silicon wastage in the production process (I am trying to determine the amount of silicon that is needed per square meter of string ribbon module. The typical solar cell module needs about 7 grams of polysilicon per 150 by 150 cm cell, or about 350 grams of silicon per square meter of module.)
a. Who does ESLR plan to buy the silicon from? WFR? Dow Corning? How much of ESLR’s silicon supply is locked into long term polysilicon contracts? In practice, these long term contract prices can be negotiated downwards if the price of poly falls. How much flex could ESLR negotiate in its existing long term contracts? With falling poly prices, the more ESLR can buy in spot markets, the better.
5) How much string ribbon solar efficiency is lost by combining 80 mm wide strips into modules? (Typically 2% points of solar efficiency is lost by combining solar cells into modules)
6) Does ESLR only buy poly silicon, rather than wafers?
7) What other raw material costs does ESLR have other than polysilicon?
8) What is the cost of goods sold for creating a square meter of string ribbon module excluding the cost of silicon?
9) Will Devon II use the 4 ribbon at a time second generation furnace technology? How much will it cost (in additional CAPEX) to upgrade Devon to the 4 ribbon technology (which will presumably be a high ROI investment if it reduces the cost of goods sold for string ribbon modules)?
Sorry for so many questions, but I haven’t talked to the ESLR guys at a conference yet, and haven’t done due diligence on it.

Is ESLR your favorite solar company right now? You mentioned that you also like LDK. Maybe I can ask you some similar questions on LDK at some future point in time. LDK plans to build wafers with diameters of 180 cm next year, and 200 cm the year after. {The highest in production now by LDK or the industry is 150 cm.}

2008 Oct 22 03:40 PM

[longtermstocks:]

anand,

www.youtube.com/watch?...

hope that helps.

2008 Oct 22 04:40 PM

[Chris B:]

Um, what about that elephant in the room?

Prices for solar panels are projected to drop like a rock in coming years as dozens of factories are being built worldwide, which will obviously affect those high margins.

Plus, if we are entering a Japan-style deflationary environment as some people claim, customers will have even more incentive to hold off on buying solar products, along with everything else. Do a present value calculation on future utility payments in a deflationary environment. Does a huge up-front investment in solar make sense in those circumstances?

Finally, why invest in a manufacturing company in the US, where labor costs are prohibitive? Solar panels are light and stackable, perfect for the boat from China.

2008 Oct 22 04:58 PM

[anand:]

longtermstocks, thanks for that. Any other presentations anyone would recommend?

This was quite useful:
www.evergreensolar.com...

Looks like ESLR buys processed polysilicon and sells solar PV modules. Fully vertical integrated. Efficiency seems very high at the module level. What is kerf loss? Cost of goods sold? Is thickness = 180 microns? Cost of converting square meter of polysilicon (other than kerf loss) into modules (inclusive of combining the string ribbons into modules)?

I need to do more research. Any help would be appreciated.

2008 Oct 22 05:27 PM

[gebby:]

global warming is real and should be considered when assessing future demand. currently most analysts dont consider the need to combat global warming and what that may mean for demand.

2008 Oct 22 08:44 PM

[el prospector:]

Tellurium is not a "Rare Earth Element".

2008 Oct 22 09:02 PM

[longtermstocks:]

Tellurium is extremely rare, one of the nine rarest metallic elements on earth.

en.wikipedia.org/wiki/...

2008 Oct 22 09:26 PM

[longtermstocks:]

Have a Product or Technology Question?

You have a question regarding our products or technology that you would like answered by our customer care team.

products@evergreensola...

2008 Oct 22 09:39 PM

[10Q Detective:]

You excluded one important risk consideration: In order to meet manufacturing targets for 2010 - 2013, however, Evergreen will need to improve operating efficiencies, expand capacity at the Devens facility, and build a planned new factory — which will require additional working capital.

industry.bnet.com/ener.../

2008 Oct 22 10:23 PM

[H.J. Huneycutt:]

10Q,

I am a big fan of your work.

I actually mentioned all of those factors. Perhaps I could have been more explicit in the way I laid them out, but early in the article, I mentioned the proposed expansions to capacity and the need for financing.

2008 Oct 23 08:59 AM

[H.J. Huneycutt:]

Chris B,

I actually linked to an article that stated exactly what you claim and addressed that issue. However, my basic thought is that those claims are (a) exaggerated, (b) somewhat offset by the fact that polysilicion prices will decline, and (c) ignore the likelihood of increased demand as a result of an expanded US solar incentives package and proposed solar incentive packages in other nations.

I do not believe we will enter into a highly deflationary cycle. Instead, with various governments throwing tons of money at the current financial crisis, there is a greater likelihood of inflation in my view. If we enter into a deflationary cycle, however, nearly all stocks will be bad investments and hording cash might be your best bet.

As far as ESLR's choice to employ labor in the US, I'm not sure how huge of a factor that is in their overall costs. I'd have to look into it. However, your proposal would seem to undermine their strategy to some extent. If ESLR is considered a reputable company with a high quality product, high ethical standards, and a strong environmental record (and I believe they have been cited as the most environmentally friendly solar company by at least one study), then turning around and employing people under dismal labor standards and using less educated employees who will likely make an inferior product would not be the way to maintain that reputation and might undermine them.

2008 Oct 23 09:08 AM

[H.J. Huneycutt:]

Andand,

All great questions! I'm not sure how many of them have already been answered. I'm definitely a financial guy, as opposed to a technical guy, and while I've read a lot about various solar technologies; I'm probably not the best person to articulate the details of them. I vageuly recall the answer to some of your questions, but I would have to look up everything again to answer and that might take some time. I might try to answer as much as I can over the weekend.

2008 Oct 23 09:12 AM

[H.J. Huneycutt:]

One more thought here --- there are a lot of negatives being brought about ESLR. Obviously, I can't mention everything in the space of an article or it quickly turns into a rehash of their financial statements. However, my thought on many of the negatives (e.g. potential financing difficulties, need for greater efficiences, downturn in the market, etc) is that most of these are already factored (or even overfactored) into the current market price.

2008 Oct 23 09:15 AM

[H.J. Huneycutt:]

My apologies Chris B.,

I mentioned analyst forecasts for oversupply issues, but it was actually in my last article, "Seven Stocks for the Impending Apocalypse", as opposed to this one.

2008 Oct 23 09:21 AM

[NOWHEREMAN:]

Bye, Bye ESLR. The Public was enamored with Solar, No Longer. They have other things to worry about. National Governments on the Federal and state Levels won't invest their own money, they are printing money like crazy but it won't be spent on something piddly like Solar. What Institutional interest? Lehman was the Prime mover in this area.

Solar was yesterdays FAD, find another.

2008 Oct 23 11:30 AM

[H.J. Huneycutt:]

Paultaut,

What does demand from national governments have to do with anything? There are already incentives to purchase solar power products in a few major nations. So long as those are in place, there will be interest in the private sector.

There is a lot of money invested in the solar sector by major institutional investors:

finance.yahoo.com/q/mh...
finance.yahoo.com/q/mh...
finance.yahoo.com/q/mh...
finance.yahoo.com/q/mh...
finance.yahoo.com/q/mh...

Perhaps I'm a little bit cynical, but I tend to believe those with entrenched financial interests in the outcome of something are more likely to do everything they can to try to make it succeed. I think one would only be fooling their self if they believed there are no parties other than a bunch of environmentalists who are interested in seeing solar succeed long-term.

For that matter, read one of California Gov. Arnold Schwarzenegger's speeches about keeping and growing "green jobs" in the state:

news.cnet.com/8301-111...

For that matter, environmentalism has become such a huge issue that even those with the absolute most despicable environmental records humanly possible now feel pressure to at least pay lip service to it. Witness this bit from the Norilsk Nickel, the company responsible for one of the biggest environmental disaster areas known to man:

www.nornik.ru/en/devel.../


I don't think it's a "fad" any more than computers were a "fad"

2008 Oct 23 12:44 PM

[anand:]

What is the best solar stock to buy today?

I am thinking
1) LDK (better than WFR?) in the Poly and wafer/ingot space
2) STP (best of breed pure play in traditional 14% to 16% solar efficiency solar cell PV that buys wafer/ingots to make solar modules)
3) SPWRA (best of breed in the solar cell PV space with 19% to 22% solar efficiency panels)
4) AMAT or SOLR in the solar equipment manufacturer space
5) ESLR in the String Ribbon solar cell space

Which technologies will survive longer term? Probably SPWRA and ESLR because they have the highest solar energy capture efficiency?

AMAT will also survive because many new solar technologies require difficult to replicate AMAT equipment. How difficult is it for competitors to replicate SOLR's solar portfolio?

OK, way too many questions, and not enough answers. Any ideas here?

2008 Oct 23 01:52 PM

[longtermstocks:]

It sounds just like just before the last innovation boom.

The energy innovation boom will have many components.

Solar
Fuel Cell
Wind
Wave
Turbine
NG
Clean Coal
Energy Storage
Energy Conservation
Energy Transition
??????

It does not matter if it is solar, fuel cell or wind they all need inverters.
www.satcon.com/
alternative-energies.c...
alternative-energies.c...
alternative-energies.c...

The more I read / research about this stuff the more I see it all coming together. It is only a matter of time.

I remember in the late 80's hearing about the internet and people said "who would ever pay for the internet and it will take 20 years to build the infrastructure."

“In the business world, the rearview mirror is always clearer than the windshield.”-Warren Buffett

Big money is in the game alternative energy will not be alternative much longer. Do your research. 2 years, 5 years, 10 years - it is going to happen. It is also one of the only ways we can grow the world economy.

2008 Oct 23 09:40 PM

[NOWHEREMAN:]

I am so sorry, Computers are now a commodity. They are advertising instruments for various Application Companies and ISPs, for consumers. For corporations, computer applications no longer need more computing power, unless we are talking about Graphic intensive Digital Video or CAD.

I was one of the first users of the internet, 300 baud connection, CompuServe, Black and white screen, typing only communication, Thermal Printers. Pre-windows Atari, TI, Commodore, Apple before The first IBM desktops arrived.

It was a Fad until computer makers and corporations learned how to exploit it. After that it was the transition of Arcade games onto desktops, "Pong". Greater Computing power for Gamers was necessary.

Solar is a Fad as are all the Green initiatives. They will stay or go dependent on Financing. Is California looking for Handouts to survive the current Crisis? Will they then will provide funds that they will give away for Solar Structures or is this an "Incentive"? The Same goes for all of the other Alternatives. They all look great on paper but without Financing, Many will not survive.

The Government on all levels, Federal, State, Local must aid in their development and deployment, provide grants in both areas, The present Financial situation has aborted the spread of Aid to all of the Various Alternatives mentioned above. Instead of a Shotgun approach, it will probably be approached via a Sniper rifle for some time to come.

I do not know what the final selection will be, I do know that Atari, Commodore, Texas Instruments and even IBM no longer make desktop computers. Those with Deep pockets and low short term debt are likely candidates for survival.

The Technology has to be more than a Viable alternative, it has to have outside Financial support.

2008 Oct 24 12:33 AM

[H.J. Huneycutt:]

Paultaut, a portfolio of IBM, TI, Apple, Atari, and Commodore would have earned you very magnificent returns over the past two and a half decades, even with the recent market downturn:

IBM = $14 to $84 = +500%
Apple = $2 to 98 = +4800%
TXN = $1.60 to $17 = + 963%

Assuming you got nothing out of Atari and Commodore and you invested in all equally in March '82, a $10,000 total investment would be worth roughly $130,000 today. You'd be making an annualized return of over 45%.

You can view it as a three decade "fad" if you like, but I'll take those returns any day.

2008 Oct 24 05:33 AM

[NOWHEREMAN:]

Let me give you an even bigger return, The Current BP was a $0.50 stock when I bought it in the 70's. It was involved in a legal asset dispute with the UK. After years of wrangling BP finally won and became what it is today.

Did I hold on to it for 30 years? Hell no, I got out with a 500% profit before the judgement and was very happy at the time ($3.00). I also bought something Called Coastal Caribbean at $1.00 another legal dispute regarding Fertilizers in Florida, it went belly up. Isn't Hindsight wonderful.

Atari's Amiga, a Computer Technology way ahead of its time went belly up before Atari remerged many years later as a software company. NO backing.

However, in the Present unfolding scenario, you have had the fortune to see Solar companies, LNG companies, Ethanol, Agricultural companies at their respective Bubble Peaks. Now you will have the opportunity to pick and chose amongst the rubble for Tommorows Winners.

I have no desire whatsoever to try to pick a bottom on any of them. They were all energy related plays with the Momentum players driving them up. I will stick with oil which will continue to generate positive cash flow. And then when it starts to rise again, I will look at the Alt. Energy plays without a Jaundiced Eye to see who survived. Then and only then will I start to cherry pick.

2008 Oct 24 08:50 AM

[longtermstocks:]

www.independent.co.uk/...

2008 Oct 24 10:24 AM

[NOWHEREMAN:]

that's almost two weeks ago. A lot has changed since then, throughout the world, find something issued today.

But best of all, Buy something today.

2008 Oct 24 01:38 PM

[H. T. Love:]

For those concerned about falling silicon prices: recall from quarterly conference call 2 back, the string technology gives a 20% cost advantage to ESLR. As oversupply takes effect, this advantage will help ESLR prosper while others suffer.

Long ESLR

2008 Oct 25 07:32 AM

[anand:]

156 by 156 mm wafers use about 7 grams of poly (including kerf loss and other wastage) per watt.

At $200 per kg for poly, that is $1.40 per watt in poly costs
At $100 per kg for poly, that is $0.70 per watt in poly costs
At $50 per kg for poly, that is $0.35 per watt in poly costs
At $40 per kg for poly, that is $0.28 per watt in poly costs.

The cost of goods sold to make poly is about $30 per kg. Some poly manufacturers have a cost of goods sold of $20 per kg of poly.

I am trying to calculate how many grams of poly are needed per watt of solar module peak capacity for ESLR. Any suggestions here for how to compute it?

2008 Oct 25 02:26 PM

[31October:]

Issues:
1. Changes in silicon price will not significantly affect L/T gross margin - It is a commodity, and input prices will get passed on to the customer.
2. Operating expenses are terrible. The plant in MA that everybody is excited about is in the most highly taxed, low quality, union state in the nation. Good luck closing the margins gap there.
3. Revenue is flat, operating income is negative, cash from operations is negative, net income is negative, and the cash in the balance sheet comes from a tripling of long-term debt.

As far as I can tell, increases in revenue would just mean that it would lose moeny at a faster rate. Maybe share dilution is a good thing.

If anybody wants to purchase all the ESLR I bought with solar euphoria, I will sell it all to you - at cost.

2008 Oct 30 10:16 AM

[H.J. Huneycutt:]

31October,

I'm going to take a wild stab in the dark that you didn't actually read the article since that was already addressed in the article. In fact, that was the major point in the article --- the losses are deceiving because fixed costs eat away at their profits right now, but once production is ramped up considerably, that will no longer be the case.

2008 Nov 02 06:03 PM

[31October:]

Increased utilization does reduce losses. If production, however, ramps up from a plant with high operational expenses, the operating margin will not get much better. ESLR needed to increase utilization of existing capacity. They increased capacity [fixed costs] and have plans to increase it further. Your statement "By the 2nd quarter of 2008, it reported a 34.7% gross margin before its new facility’s initial production lines lowered that down to 5.7%" supports my concern.
The huge order backlog may be deceiving, because that assumes there will be no cancellations, delays, capital problems with the buyers. Many industries are starting to get hit with cancelled orders.
EverQ is located in a country with massive subsidies, which may be reduced. They have had competitive advantages that ESLR itself will not receive. Subsidies in the USA will be currently renewed for political reasons, but states' and USA debt levels mean that something will get pummelled- either subsidies or the dollar itself.
Your Ideal Quarter Method makes predictions. But what happens if the ideal quarter does not occur, and then you multiply the reduced prediction by 4, and then another disappointing quarter occurs? Where is ESLR if customers delay $300M of orders? They still have to pay debt interest, factory, salaries, taxes, and benefits. The quick ratio is great, and I have no fear of solvency, but I would not loan them money.
I disagree with the consensus that massively increased capacity [fixed costs] is the answer. Let's assume that I am wrong. Who will loan them the money? "At September 27, the company owed about $449 million in long-tem contractual commitments and contingencies — more than eight times nine-months 2009 aggregate product sales."
industry.bnet.com/ener.../

String-ribbon is technology is not disruptive enough for me to assume that they will be the Apple of solar.

I did read the article - It was a good one. I apologize for not explaining my issues well enough.

2008 Dec 08 11:58 AM

[JoeJoe:]

anand,

Evergreen's silicon usage was 5 grams/watt as of Q2 2007. EverQ reported silicon usage as "less than 5 grams/watt" in their Q4 2007 report. See

www.accessmylibrary.co...

Silicon usage (including kerf loss) varies over a relatively wide range. Sunpower is down to 6-6.5 grams per watt. Trina and Suntech are down around 7-7.5 grams per watt. See this primer for industry average estimates of 8.3 g/W for 2008 and 7.9 g/W for 2009.

www.jefferies.com/pdfs...

At $400/kg the difference between 5 g/W and 8 g/W is 120 cents. The fact that Evergreen has struggled to make a profit despite their silicon advantage tells me to stay away from this company in the future because the silicon bottleneck is over. Next stop $40/kg? $30/kg? I don't know but going forward there will continue to be a tremendous incentive to drive down silicon costs.
At the speculative end of things, UMG could bring costs below $20/kg.

There's are other parts of the chain to consider. LDK is currently running trials with 180 micron wafers and you can bet they'll be working on 140 micron wafers before too long. Solaicx is tight-lipped about their technology but it appears their continuous process will all but eliminate tops and tails. At the wafering end of things the guys at Fraunhofer are working on a laser-jet system that produces smoother, thinner wafers and simplifies kerf recycling by eliminating SiC contamination. IIRC EverQ uses a similar process to dice their wafers.

www.ise.fhg.de/veroeff...

I don't see much hope for ESLR...

2008 Dec 23 04:47 PM