Solyndra: What went wrong?

By now, unless you live in a hole in the ground, you've probably heard something about Solyndra, the solar panel manufacturer that recently declared bankruptcy and laid off over 1,000 employees in California.  Many of the articles I've seen on the subject focus only on the political ramifications for the Obama administration and the political side of the story in general.  That's all fine and dandy, but what actually went wrong with the company?

To answer that question, you need to first know a bit of the company's backstory.  Founded in 2005, Solyndra's product was a departure from your typical solar panel.  The conventional solar panel, as I'm sure you've probably seen before, is a relatively large, flat panel covered with photovoltaic cells, usually composed of polysilicon.  Solyndra's solar panels weren't panels at all--they were thin tubes covered with a chemical coating.  Much lighter and smaller than traditional solar panels, they were easier to install.

So, Solyndra was founded in 2005 with this product, bucking the solar panel market trend.  Due to the custom manufacturing process inherent with this type of solar array, production costs were quite high.  However, in 2008 (around when the company first started to really enter the market), prices on the polysilicon that its competitors used for their panels were sky high and the green energy movement was all the rage.  The idea was that the solar movement would really take off, and increased production efficiencies and economies of scale would drive production costs down, to the point where it would cost less to produce a solar cylinder than they could sell them for.  That's right, Solyndra started out selling its solar arrays at a pretty steep loss. 

By 2009, Solyndra was selling its arrays at a loss of $0.76 per watt (it cost $4 per watt to manufacture the cylinders, but they could only sell them for $3.26 per watt).  Starting in late 2008 and continuing in 2009, the price of the polysilicon that its competitors used took an 80% nosedive.  All of the sudden, Solyndra's questionably nifty idea to use a non-polysilicon material for its arrays didn't look so hot.  To be fair, who expects the price of the key commodity in your industry to decrease by 80% in a year?  In 2009, Solyndra's main US rival, First Solar (who made conventional polysilicon solar panels) was able to make its solar panels for around $1 per watt, so they were raking in the money at that point.  On a side note, due to increased efficiency, lower materials prices, yada yada yada, First Solar now makes its solar panels for around $0.75 per watt.

In 2009, Solyndra had a net loss of $172.5 million on $100.5 million in revenue.  They spent $273 million that year and only brought in $100.5 million.  Not sustainable in the slightest.

Now, with the business side of the story taken care of, let's trace the money that allowed this all to happen.

After being founded in 2005, Solyndra quickly attracted large amounts of capital from investors.  Between 2005 and 2008, Solyndra raised nearly $1 billion in private equity investments.  With a risky business model as described above, how was Solyndra able to acquire so much capital?  Two names, those of its financial adviser and its main investor: Goldman Sachs and George Kaiser.  'Nuff said.

Enter 2009 and the Stimulus.  Over the next couple of years, the Obama administration approved nearly $550 billion in loan guarantees to Solyndra using Stimulus funding, beginning with the first announcement in March 2009.  In January 2009, however, the Bush administration had turned down Solyndra's request due to Solyndra not being considered a good investment.  Two months apparently changed the minds of the aparatchiks in Washington.  I'm sure there was no political pressure to approve the loan in March--must have just been a coincidence.

What did Solyndra do with the hundreds of billions of dollars that it recieved from the government?  Remember, in 2009, Solyndra was $172.5 million dollars in the red...  With a business model going down in flames, a lackluster customer base, and no real improvement in sight, Solyndra kicked off construction on an approximately $500 million new plant in California.  Shockingly, the product continued to not sell as well as projected, and costs were still much higher than revenue.  Fast forward to 2011 and the bankruptcy.

So there you have it: terrible business model and rather poor business decisions by Solyndra executives, mixed in with a dash of political favoritism, stirred together vigorously, and you've got a bankrupt company that has put the government on the hook for over half a billion dollars.

(Note--to clarify about the federal loan guarantee: the government didn't actually give the money to Solyndra, but it was on the hook for paying those loans in the case of Solyndra failing, which has happened.)