TOP CONTRIBUTORS

Amit Amin

Avinash Gandhi

Isaac Middendorf

ESLR AT A GLANCE

P/E ► -1.77   EV/EBITDA ► 16.4 AVG ROA ► -15.6% AVG ROE ► -31.2% AVG Debt to Equity ► 0.755 AVG Current Ratio ► 5.64 AVG Interest Coverage Ratio ► 0.440 AVG

 

 

 

 

 

 

Evergreen Solar is a vertically integrated solar panel manufacturer that uses String Ribbon technology to produce solar cells with 50% less silicon^[1] than is needed by its competition. Growth in solar panel efficiency from less than 10% before 1980 to more than 40% in 2009^[2] has made the sun an increasingly appealing source of power; but the global recession of 2008 and 2009 has put the industry, and Evergreen into a slump. Germany and Spain, where the company earns almost one-third of its revenues,^[3] have cut their solar subsidies by 10%^[4] and 30%,^[5] respectively, with plans to cut even more in the future. With subsidies on the decline, electricity prices falling because of the drop-off in demand for natural gas and coal,^[6] and the price of CO2 emissions allowances in Europe falling by almost two-thirds from mid 2008 to February of 2009,^[7] demand for solar power has been falling. Worse, the financial crisis has cut Evergreen's access to capital, forcing it to close its Marlboro plant and delay construction of its $800 million plant in Asia in 2008.^[8] However, in 2008 Evergreen Solar entered into seven multi-year solar panel supply agreements and as of the third quarter of 2009 the company had a backlog of 851 MW remaining with deliveries scheduled through 2013.^[9] At the end of the second quarter of 2009 the company announced that it had finalized agreements with Jiawei Solarchina Co., Ltd. and Hubei Science & Technology Investment Co., Ltd. to expand manufacturing operations into China.^[10]

Within the solar industry, Evergreen Solar competes on the basis of cost - minimizing the cost of buying a solar system by lowering manufacturing costs, and minimizing the cost of running a system by increasing the conversion efficiency of its cells. At the end of 2009, the company expects to manufacture cells for $1.50-$2.00 per watt, which is still behind competitor First Solar, with costs of 98 cents per watt.^[11][12] At the end of 2008, Evergreen's cells had a conversion efficiency of approximately 15%,^[13] lower than many of its competitors, like 21.4% for Sanyo in Q1 2009,^[14] and the average producer of single crystal cells in 2007, with an efficiency of 17%.^[15] The solar sector is becoming more and more competitive; among ESLR's competition are such powerhouses as SunPower, SunTech, BP Solar, Sharp, Kyocera, and Q-Cells.

Business Overview

Evergreen Solar is a vertically integrated company that operates through four stages of the solar power industry. The company produces multicrystalline ribbon silicon wafers from refined silicon. Evergreen's string ribbon PV technology lets the company form photovoltaic wafers with less silicon than the mono- and multicrystalline wafers made by other solar manufacturers - almost making them silicon versions of thin film. These wafers are then made into photovoltaic (PV) cells, that turn light energy (usually from the sun) into electricity. Evergreen's PV cells are put together into modules, which generate up to 190 watts of power.^[16] Finally, Evergreen takes these modules and wires them together into solar power systems, which can generate thousands of watts of electricity. The company sells to installers in Europe, North America and Korea.

For the third quarter of 2009 product revenue was $75.5 million up 324%, as compared to the same quarter of 2008. The rise in revenue was due primarily to increased sales volume generated from its new Devens facility, which began shipping product in the third quarter of 2008. The company shipped 31.3 MW, which was offset by continued price declines in the market of up to 33.6%. 57% of revenue was from the United States, 27% from Germany and 16% were from the rest of the world.^[9]

The company has six active solar panel supply agreements and approximately 851 MW of backlog remaining with deliveries scheduled through 2013. Wafer cost at its Devens facility was $0.75 per watt in the third quarter of 2009.^[9]

In 2009 Evergreen Solar, Q-Cells and REC were one-third partners in a Sovello joint venture. The companies have since agreed to have Sovello market and sell products under its own brand. With an independent sales and marketing team in place Evergreen's involvement in selling Sovello products will decrease.^[9]

Revenue for the second quarter of 2009 increased by 246% to $62.7 million, as compared to the same quarter in 2008. This was primarily due to increased sales volume generated from its new facility in Devens, Massachusetts, which started shipping product in the third quarter of 2008. However, the increase in volume was offset by lower average selling prices and a 75% drop in royalty revenue and marketing selling fees to $1.1 million, as compared to the same period in 2008.^[19]

In 2008 Evergreen Solar entered into seven multi-year solar panel supply agreements and as of the second quarter of 2009 the company had a backlog of 935 MW remaining with deliveries scheduled through 2013. Also, at the end of the quarter the company announced that it had finalized agreements with Jiawei Solarchina Co., Ltd. and Hubei Science & Technology Investment Co., Ltd. to expand manufacturing operations into China.^[10] During an investor conference in December 2009, Evergreen executives commented that they expected to expand other parts of their business beyond manufacturing into China, citing the 65% subsidy they received from the Chinese government. While the Devens, Massachusetts plant will remain open, the labor cost savings between the two locations is huge, with labor costing 90% less in China. Their expansion of business operations into China is an attempt to keep up with the competition which has already been following similar practices ^[20] At the beginning of September 2009 the companies began construction of a 100MW manufacturing plant in Wuhan, China.^[21] Evergreen Solar expects manufacturing costs of its panels in China to be in the range of $1.40-$1.50 per watt.^[22] Additionally, the company expects manufacturing costs to drop to $1.00 per watt by the end of 2012 by further expanding production in China to 500MW.^[21] From 2007 to 2008 product sales increased by 63%, as new production from the companies Devens facility boosted sales by 61%.^[23] At the same time, costs in setting up the new facility brought down net income from -$16 million, to -$85 million.^[17]

Sovello

Sovello is a German solar company that produces 30 megawatts of power per year and has a stated goal of increasing production to 300 megawatts by 2010.^[24] In 2007 Evergreen reduced its ownership from two thirds to one third. Per accounting rules it is no longer consolidated on Evergreen's financial statements. In October 2007 Evergreen announced a plan for Sovello's IPO. In December of 2008 Evergreen re-affirmed it's intention for Sovello to have an IPO, at which point the company would generate much needed capital but lose primary access to the fast-growing German solar market.^[24]

Evergreen Has Been Using Equity To Finance Expansion

Evergreen has lost 33% of its equity to stay competitive in 2007 and 2008. In order to lower costs the company has to create economies of scale by enlarging its manufacturing capacity. To raise and save money in order to do that, Evergreen has done two things. First, the company paid for its silicon contract with DC Chemical with a 13% equity stake in April of 2007.^[25] Second, the company lent Lehman Brothers 30.9 million shares in order to raise capital.^[26] When Lehman went bankrupt, it did not return the shares as it was supposed to, and so is facing legal action. If Lehman were to return the shares, Evergreen would have essentially completed a free buyback of 30.9 million shares. In absence of that, Evergreen's shares have been diluted approximately 20%, in addition to the 13% it gave to DC. These are not the first times the company has used equity to raise capital, and given its projected continued operating losses, will likely not be its last.^[27] As long as Evergreen gets something of equal value in return that doesn't matter, but with both DC Chemical and Lehman the company lost out. The company's silicon contract with DC Chemical has lost value, as the price of silicon fell in late 2008 and early 2009, and Lehman went bankrupt before its transaction with Evergreen could be completed. (Read More about Evergreen Solar's Key Trends and Forces...)

References

1. ↑ ESLR 2007 Earnings Call Transcript, Page 1
2. ↑ Solar Dave - How has Solar Efficiency Changed Over the Years?
3. ↑ ESLR 2008 10-K, Item 6, Page 39
4. ↑ Bloomberg - Germany Accelerates Cuts to Solar-Energy Subsidies
5. ↑ Scientific Alliance - The reality of wind power and green-collar jobs in Spain
6. ↑ USA Today - Electricity bills fall as cheaper natural gas lowers rates
7. ↑ FT: "Carbon price fall bad for green investment"
8. ↑ ESLR, 2008 10-K, F-7
9. ↑ ^{9.0 9.1 9.2 9.3 9.4} ESLR 10Q 3Q 2009
10. ↑ ^{10.0 10.1} Evergreen Solar 2Q 10Q 2009 Pg. 27
11. ↑ Evergreen Solar 2Q 10Q 2009 Pg. 40
12. ↑ Pv-tech - First Solar first to US$1 per watt manufacturing cost
13. ↑ Evergreen Solar - FAQ
14. ↑ TechOn - JSAP Sanyo Makes Hit Solar Cell Thinner While Keeping High Efficiency
15. ↑ Energy Information Administration-Average Energy Conversion Efficiency of Photovoltaic Cells and Modules
16. ↑ Evergreen Solar Inc. Company Profile, Reuters.com
17. ↑ ^{17.0 17.1} ESLR 2008 10-K, Item 6, Page 33
18. ↑ Evergreen Solar 2Q 10Q 2009 Pg. 4
19. ↑ Evergreen Solar 2Q 10Q 2009 Pg. 33
20. ↑ Evergreen Solar Shares Now Under $1.50, Wallstnation.com December 17, 2009
21. ↑ ^{21.0 21.1} Osborne, Mark "Evergreen Solar and Jiawei Solar start construction of 100MW ‘String Ribbon’ plant," PV-tech.org, September 1, 2009
22. ↑ Evergreen Solar 2Q 10Q 2009 Pg. 28
23. ↑ ESLR, 2008 10-K, Item 6, Page 38
24. ↑ ^{24.0 24.1} PV-Tech - Hello Sovello, goodbye EverQ: Solar company changes name, goes indie, delays IPO
25. ↑ ESLR, 2009 10-K, Item 1, Page 27
26. ↑ Boston Globe - Lehman failure dogs Evergreen Solar
27. ↑ The Stock Masters - In Your Face with Evergreen Solar (ESLR)