Is It Safe? Evergreen Solar's Burning Out

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Everything about Evergreen Solar(ESLR Quote) is eco-friendly, from its mission to harness sunlight to the way it makes its solar panels. But as an investor, I'm more concerned about the other kind of green.

Shares of the Marlborough, Massachusetts-based company have dropped 32% this year even as the 51-member Wilderhill Clean Energy Index gained 19%. Excess capacity and pricing pressure caused the solar company to post a $64.2 million loss in the first quarter as its operating margin sank further into negative territory.

Although American solar stocks offer a compelling long-term story, the industry is over-fertilized and the second half of this year could see some bankruptcies unless oil prices spike and stimulus programs pick up. Evergreen has been ramping up production and expanding its facilities, but the company's losses have been accelerating.

Evergreen has a proprietary technology that it refers to as "string ribbon." The process allows the company to make its silicon wafers without using oil-based machines, like its competitors. By using so-called Quad furnaces, Evergreen produces its panels in an environmentally responsible manner.

While this green-from-start-to-finish concept makes for good marketing, it's irrelevant if the company is spending more on production than its peers. On that front, Evergreen isn't doing so hot.

Evergreen aims to lower its manufacturing costs to $2 per watt by the end of the year. Rival First Solar(FSLR Quote), the only U.S. solar firm to post a first-quarter profit, has already reduced its production costs to less than a dollar per watt.