It may not happen today or tomorrow, but one day First Solar (FSLR) and its peers will go bankrupt.
That’s because, to quote (at length) an engineer friend:
“Solar technology does not work, and will never work. You can’t mess with Newton. Unless someone discovers some magical way to transform solar energy to electricity and then conduct it efficiently, which involves discovering something that does not conform to all known laws of physics, thermodynamics, electrodynamics, radiation theory, or even common sense.”
I’ve written about why the science does not work before, quoting this same engineer. Plus, there are lots of other problems with solar.
Do you know how badly shade affects solar cells? According to the National Renewable Energy Laboratories: “The reduction in power from shading half of one cell is equivalent to removing a cell active area 36 times the shadow’s actual size.”
Zoinks! That’s a problem, considering how few places are always in direct sunlight.
How about cleaning those panels? Well, unmonitored panels can degrade by up to almost 10% per year, according to the U.S. Department of Energy.
And now comes the clincher. Of all the greatest companies in the world, you would think that the legendary General Electric (GE) would figure out how to make the darn things work. Instead, it gave up.
Yes, General Electric sold its technology to First Solar in exchange for about 2% of the company’s shares. Read that again. General Electric gave up on solar.
It sold its solar portfolio to different company, and plans let that company figure it out. If by some chance First Solar does figure it out, then General Electric earns big money without having to invest another stinking dime into the business.
But I wouldn’t count on it, and I doubt GE is counting on it either. Heck, in the most recent quarter, First Solar’s revenue fell 46% and net income fell 70%. Management cut full-year revenue and earnings guidance by 6% each as well.
The one relatively bright spot? At the moment, the company’s balance sheet looks just fine. First Solar has over $1 billion in cash and short-term equivalents. And while the company usually has negative free cash flow, so far it’s managed about a hundred million in positive flow this year.
But how long will all that last … and at what point will investors realize the company just keeps blowing through money?
Take a look at the income statements since 2010. Revenue has been constantly increasing. But then look at the first six months of this year. Revenue is more than 12% behind where it was at the same time a year ago and on pace to total $2.5 billion — about 26% behind last year’s full-year results.
Now look cost of revenue: constantly increasing. In fact, from 2010 to 2012, when revenue increased over 30%, cost of revenue almost doubled. Sure, I suppose it’s good news that cost of sales is at a run-rate of $1.93 billion, which will be a decrease of 24%.
But in order for that to happen, the company had to restructure at a cost of $400 million, and had to raise equity capital to pay down its debt, diluting company shareholders by 4%.
That’s not to stay the stock can’t stay afloat or even go higher. There are enough permabulls out there to make sure the stock defies the laws of physics, including gravity.
But without any real technology, none of it is sustainable.
As of this writing, Larry Meyers did not own a position in any of the aforementioned securities.