Solyndra

Most of you will know that the California solar company Solyndra has failed, burning through in less than two years nearly $535 million in taxpayer money.

I wrote in Forbes yesterday that it was a headscratcher why anyone thought this a sound investment

Obama’s investment of taxpayer money into Solyndra is a great example.  It is clear little due diligence was completed before the loan guarantees to Solyndrawere rushed out the door in 2009 in time to meet Energy Secretary StevenChu’s artificial target date for the first loan of Obama’s green jobs program.  A good, well-timed sound bite on the evening news was more important that the actual details of the investment.

But, in fact, little due diligence should have been necessary.  Already in 2009 it was clear that the solar panel industry had commoditized, and low-cost manufacturing would be the key to succefully competing in the market.  Further, European countries whose subsidies and high feed-in tariffs for solar were driving most of the market growth were already in the process of dialing back those incentives.

Surely any reasonable investor would have been leary about entering such a market with an under-scale startup, much less one which chose California of all places to build their plant.  Most rational investors would cite California as a huge liability in a falling-price commodity market, but it was an asset for a company trying to compete in capturing taxpayer dollars, being the home of many of the most powerful politicians most likely to buy into the green jobs boondoggle (of course it did not hurt that Solyndra’s largest investor is a major Obama campaign contributor).

It turns out that the numbers were worse than I imagined, and reading ZeroHedge, it seems like some outright fraud may be involved (hat tip to a reader who I cannot never figure out if he wants to have his name mentioned or not)

What was in the prospectus was, no doubt, the real reason that investor chose to take a ‘pass’ on the deal. There were revenue/expense numbers for the nine months preceding the proposed deal:

Revenue: $58.8mm
Cost of Goods Sold: $108.0mm

That is an absolute complete disaster. This is a low margin business to begin with. At Solyndra they were losing 84 cents for every dollar of sales. Adding in SG&A and CapEx the losses and cash drain had to be very heavy.

Wow, that is really a fail.  Even in the worst run late 90's Internet company I ever encountered, they were not selling dollars for 50 cents.  One wonders what numbers Steven Chu and company saw before they funded this dog, and whether from the very beginning these guys were counting on a steady stream of 9-figure government subsidy checks.

  • rob

    What does this mean for Obama's upcoming speech on jobs? He's probably going to suggest another big government run investment program. In the light of Solyndra, I question how well this new program will work out. Surely the republicans will hammer him on this and I can't imagine there is a lot of underlying public confidence that this future money will be well spent.

  • Noah

    The only folks around President Vacation doing due diligence are the campaign contributors who he would take the bribe.

  • Supermike

    Is it too late to set up a hedge fund banking on the failure of companies propped up by unsustainable subsidies? (or is betting against subsidy a sucker's game?)

  • Mesa Econoguy

    This sure smells like fraud, and I'd be interested in taxpayer recourse here, since public funds were pumped into this failure.

    Action against the Obamalini Admin. would be interesting.

    Had this company gone public, at minimum, there would be an SEC inquiry.

  • marco73

    Where are the stories about the current CEO's mansion, private jet, yacht, thoroughbred farm, fancy car collection, etc?

    Oh that's right, there are no stories about that. The founder and CEO, Chris Gronet, bailed out in August, 2010. He allowed a new management team to come in and take the fall.

    Sure, Gronet had some phony-baloney advisor title for a while, but he took his money and left long ago.

    This is a fraud, pure and simple. They just dressed it up pretty in "green jobs" and found some morons to give then, gulp, half a billion dollars.

  • mahtso

    “One wonders what numbers Steven Chu and company saw before they funded this dog,….” Some people are suggesting that the numbers seen were the campaign donations to Obama-Biden 2008. I believe it was Rich Lowery who wrote a piece comparing the media silence on this with the noise related to the fairly tenuous connection of Pres. Bush to Enron.

  • steve

    I always tend to think of politicians wasting money on boondoggles and such as basically very smart people. The problem being that they care about the political ramifications of their spending and not the economic ones.

    In this case, it doesn't appear they even bothered to look at the economics well enough to see if it supported their political goals. I would have thought they would at least want such a company to survive to an election so they can use it as a "success" story. I mean how hard could it be to make half a billion dollars last a few years until the next election if that is your plan.

    I may have to rethink my view of politicians.

  • Slocum

    Anybody doubt that Solyndra is going to figure prominently in 2012 campaign ads? So we might have gotten at least *something* for the half a billion down the drain.

  • Not Sure

    "So we might have gotten at least *something* for the half a billion down the drain."

    Half a billion dollars didn't go down the drain. It went exactly where it was intended to go.

  • Benjamin Cole

    I do not think Uncle Sam should "pick winners." This was a waste of money.

    Pm the other hand, we spend $1 trillion annually on the department of Defense, VA and Homeland Security megaplex-boondoggle-a-rama, most of it for parasitic coprolite.

    In right-wing circles, that is never a topic of conversation.

  • Smock Puppet, Solar Panel Installer for Fools

    >> Wow, that is really a fail. Even in the worst run late 90′s Internet company I ever encountered, they were not selling dollars for 50 cents. One wonders what numbers Steven Chu and company saw before they funded this dog, and whether from the very beginning these guys were counting on a steady stream of 9-figure government subsidy checks.

    I would wager that The Great Big 0 and company actually believed they would deliver on Cap and Trade, which might well have changed the market for these things from a total loss for the investor to a total loss for the nation, instead.

  • steve

    I agree Benjamin. The Republican's have their own favorites.

  • ErisGuy

    Here are the numbers Chu and Obama saw before funding Solyndra.

    "Why do Hollywood movies cost $100 million? Because you can't embezzle $10 million from a $15 million movie."

    "burning through in less than two years nearly $535 million in taxpayer money."

    Why can't I get a job like that. Foolish me. I went into a productive occupation.

    If solar energy components have commoditized, where are all the solar generators? I'd rather have solar generator than my back-up gas generator.

  • caseyboy

    And now the President wants us to fund the "Infrastructure Bank". That's right a fund where our money will be given out for shovel ready projects in return for campaign contributions, I mean in return for new bridges to no-where, high speed rail between places like Pittsburgh to Cleveland or Minneapolis to Chicago, etc. You just can't get to and from those places fast enough.

  • Smock Puppet, Proponent Of The Good Thing About High Speed Rail

    >> You just can’t get to and from those places fast enough.

    No, you just can't get away from those places fast enough.

    The trick is to jump off the train in the middle...

    I have a few thousand politicians & bureaucrats I'd like to volunteer for that, even.

  • Smock Puppet, Proponent Of The Good Thing About High Speed Rail

    >> If solar energy components have commoditized, where are all the solar generators? I’d rather have solar generator than my back-up gas generator.

    Yeah, oughtta work fine and dandy for ya in the middle of the next hurricane or blizzard. Much, much, much better than gas.

    OW! You know, it hurts when your eyes roll back that far into your head. Really, really hurts.

    BTW -- You want to buy some stock options with that solar generator? Government backed! A sure thing! Cali is a perfect place for high-tech industry! You'll get rich!

  • Smock Puppet, Proponent Of The Good Thing About High Speed Rail

    >>> Pm the other hand, we spend $1 trillion annually on the department of Defense, VA and Homeland Security megaplex-boondoggle-a-rama, most of it for parasitic coprolite.
    >>> In right-wing circles, that is never a topic of conversation.

    DOD, 691b
    VA, 132b
    DHS, 57b
    =========
    You're about 12% off, but hey, a billion here, a billion there -- sooner or later, it adds up to real money, right...?

    Because, you know, it's a bad thing that we spend 20% of the budget on protecting ourselves from outside enemies, and rewarding those who have sacrificed to perform that activity... while we spend more than 43% of our budget on a pair of failed Ponzi Schemes.

    Oh, wait, was that not the mindless, droolingly stupid anti-military conversation you wanted to have? Sorry, can't accommodate you there.