Are The Solar Stock Plays Dead?

Check out the Bloom Energy “Bloom Box” video if you have not watched it yet.

The following email below is from my Dad’s friend Bob. In Bob’s email he points out that solar stock plays might not be the best idea right now.

First off I have to say not only am I not an expert in solar, I have even less of an expert when it comes to solar stocks.

But I can’t help but to weigh in my thoughts about solar stocks. I kind of agree with what Cramer has to say. But since this article was written before the Bloom Energy “Bloom Box” was announced on 60 minutes last Sunday, it is missing another piece of information. Watch below if you have not seen the 60 minutes piece – it’s totally worth the 13 minutes of your time.

Since I have not installed my solar panels yet, I have a unique perspective here. If it is possible to buy a Bloom Box for my house in 5 years for only $3,000 (if it works like they claim it does), I am not sure if I want to go solar at all. Even if the Bloom Box was $10,000 I would buy it.

So if there are other people like me that were thinking about going solar and see this 60 minutes piece they might be thinking it would be smart to hold off, and that’s why I think the solar stocks might even take more of a hit.

Yes I am a bit of a critic when it comes to the Bloom Box (anything fuel cell related really) because I can remember about 8 years ago when I invested money in Ballard Power and loss my shirt.  I knew at the time when I made that fuel cell purchase that I might never see that money again, but I felt that it would help move the fuel cell market forward.

I wish and hope the Bloom Box actually works and they can make it as cheap as they say, but something about K.R. Sridhar was a little too slick, a little too polished on 60 minutes that makes me worried for some reason. Yes I am leery, but I must say after I watched the video I was thinking of buying the domain FuelCellDave.com (LOL). I will definitely watching the launch tomorrow of the Bloom Box to see what other info they provide.

( I think this might be the one you wanted for Dave. )  ( The Street .. Cramer’s site )
Jim Cramer recently said he’s not a believer in solar plays because they require government subsidies, and governments around the world are out of “moola.”

Back on Sept. 3 I wrote that the solar industry was headed for crisis in 2010 and that as many as half of the more than 200 solar manufacturers, who at the time were mired in red ink with selling prices above $2.00 per watt, might not survive. Prices have dropped since then, erasing already razor-thin margins.

Late last year, a few announcements supported my prediction:

  • General Electric said it planed to close its only U.S. solar panel factory because production costs had exceeded sale prices. The factory can produce 34 megawatts
  • Evergreen Solar said it would move panel production from its factory in Devens, Mass., to China in 2010 in order to cut costs.
  • BP solar unit announced it would close its solar panel factory in Maryland and outsource that work to a contract manufacturer. In October, BP said it had hired Jabil Circuit to assemble panels at a Jabil factory in Poland.
Then this month, China-based Jinko Solar withdrew its IPO plans due to “poor market conditions.” Just weeks before, another China-based polysilicon manufacturer, Daqo New Energy, pulled its $80 million IPO.

Meanwhile, a lot of companies are losing money:

  • Evergreen Solar reported a fourth-quarter net loss of $98.1 million after an $82.4 million loss in the third quarter.
  • Renewable Energy reported a fourth-quarter net loss of 1.05 billion Norwegian kroner ($177.5 million), compared with a net profit of 1.11 billion kroner a year earlier.
  • China’s JA Solar reported a fourth-quarter net loss per diluted American depositary share of 0.80 yuan (or 12 cents), compared with a net loss per diluted ADS of 2.31 yuan (or 34 cents) a year earlier.
  • Akeena Solar reported a fourth-quarter net loss of $3.7 million, or 11 cents a share, compared with a net loss of $9.2 million, or 31 cents a share, a year earlier.
  • Energy Conversion Devices reported a fourth-quarter loss of $39 million, or 92 cents a share, compared with earnings of $13 million, or 31 cents a share, a year before.
  • MEMC Electronic Materials (NYSE:WFR) swung to the red in the fourth quarter on a plunge in gross margin and weaker sales.
These are just a few examples. In some cases business was better last quarter, but that’s before changes in German incentive programs (feed-in tariffs) expire in 2010. Also, these are large publicly traded companies, and many are Chinese with government stimulus packages assuring their survival. What about the plethora of small, privately held companies?
In fact, I suspect the Chinese will attempt to dominate the solar industry by increasing supply on the market at low prices to drive out competition. Already, JA Solar, despite a loss in the past quarter, announced it will increase capacity from 875 MW in 2009 to 1100 MW in 2010. In 2010 the solar industry will exhibit capacity utilization of 25.7%, and inventory will be stretched to 133 days.
Meanwhile, amorphous silicon solar cell manufacturers are in trouble. With polysilicon so cheap, why would someone want to purchase amorphous silicon panels with efficiencies half those of polycrystalline panels, which can now be purchased from China for $1.65 per watt?
Solar start-ups a few years ago that purchased turnkey equipment have no intellectual property, and every other customer of the equipment suppliers became an instant competitor selling the same product using the same process and equipment. Companies need to differentiate themselves.
Venture capital money has dried up in the solar market. Solar companies and suppliers are not investing in new technology that will enable them to compete against low-priced product coming out of China.
For example, a company I founded last year, SolarPA, announced that its room-temperature spin-on nanoparticle antireflection coating can increase efficiency by up to 10%, thereby reducing manufacturing costs by up to 10%.
Companies such as Applied MaterialsAir Products and Covidien all expressed interest, but none followed through. Instead of investing outside the company, they prefer to do in-house research and development.
In fact, Covidien even sent out press releases last week announcing that its new process will increase efficiency by 0.7%, yet it never moved forward with an opportunity from SolarPA for a 10% increase. Does it come as a surprise that Chinese solar companies have expressed an interest?
Clearly there is a lot of anticipation in the solar industry, but programs related in the U.S. stimulus package are misguided. We need money to manufacture here and create jobs here. Last March, I wrote an article in Seeking Alpha titled, “Which Is Worse: Buying Solar Panels from Eurasia or Oil from OPEC?” A year later, I ask the same question, because nothing has changed.