Evergreen Solar Too Slow to Shine

Longtime Motley Fool readers know that I've stood by Evergreen Solar (Nasdaq: ESLR  ) for a long time now, but it's getting harder for me to muster enthusiasm.

I thought the company's foreign joint venture EverQ (since renamed Sovello) foreshadowed future prosperity here at home. As a silicon skeptic, I considered Evergreen's string ribbon technology a key competitive differentiator compared to more traditional PV players like Yingli Green Energy (NYSE: YGE  ) and Trina Solar (NYSE: TSL  ) . Later, my concerns about financing were largely allayed by a successful capital raise in the midst of what I thought was a tough capital market.

But I've long noted that Evergreen needs to hit an adequate scale in order to beef up margins and really compete with fast-growing firms like SunPower (Nasdaq: SPWRA  ) (Nasdaq: SPWRB  ) and First Solar (Nasdaq: FSLR  ) . It will be extremely difficult for Evergreen to get there without a more cooperative credit market.

Sure, the long-term capacity plan sounds super:

Year	Capacity (in megawatts)
2009	130
2010	300
2011	600
2012	850

Figures cited on company's Feb. 5, 2009 conference call.

However, this expansion would require many hundreds of millions of dollars that Evergreen does not have. The cost of raising these funds in the market remains prohibitively high.

If Evergreen wants to hit even its 2010 sales goals, it seems that the most viable option would be to outsource cell and panel production to a contract manufacturer, while keeping the wafer process in house. This new model would cut spending requirements on the next expansion by about 75%, from $225 million to $56 million -- a much more reasonable outlay, given the firm's somewhat stretched balance sheet.

Evergreen may become a sizable solar player some day. Given the rapidly falling price of polysilicon (now available on the spot market at $120 to $150 per ton, versus $500-plus in 2008), I'm just becoming less convinced that the company will sport a decisive cost advantage when it does hit a meaningful scale. A $1.50-per-watt install cost just isn't as compelling as it once was.