Three years ago, the founder and chief executive of SolarWorld, Frank Asbeck, pulled his company back from the brink of collapse by convincing shareholders to forgo 95 percent of their capital.
For Mr. Asbeck, the head of Germany's largest photovoltaic firm, the averted crisis felt like a "new birthday." But as the company’s board gets ready to meet on Thursday - three and a half years after Mr. Asbeck’s clever rescue maneuver - the company is still in dire straits financially.
Observers, long wary of the firm’s strategy, believe much of the blame is due to the fact that SolarWorld didn't change its business model at all after being given a second chance. Mr. Asbeck continues to push for SolarWorld to handle every step of the supply chain - from the procurement of raw materials and the production of modules all the way up to sales.
But the company is hemorrhaging money again and a clear turnaround strategy has yet to be fleshed out.
The future viability of SolarWorld's business model is in question. Arash Roshan Zamir, analyst, Warburg Research
With Chinese suppliers exporting solar modules at dumping rates, prices in the oversupplied market are in free fall, pushing SolarWorld against the wall and posing an existential threat to the company’s business model.
SolarWorld is also facing a problem in scale when competing for lower unit costs on the global market. Once the world’s second-largest solar-module manufacturer it has since slipped to 15th place, with the firm’s annual production capacity at only a quarter of that of market leader Trina Solar.
In everyday operations, the Bonn-based company spends €40 million ($42.4 million) more than it takes in and is on track to operate in the red for the sixth year in a row.
The situation has become so dire that some supervisory board members are demanding that SolarWorld completely reorient itself, company insiders told Handelsblatt. Specifically, they would like to see SolarWorld concentrate on making certain specialized products and significantly reduce its costs.
At a meeting scheduled for Thursday, members of the supervisory board, made up of Chairman Georg Gansen and 11 other people, will discuss proposals. According to the insiders who spoke to Handelsblatt, everything will be on the table and no idea will be taboo.
"Things can't go on like this," a supervisory board member told Handelsblatt.
Several board members seem to harbor significant doubts about SolarWorld's trajectory and have demanded Mr. Asbeck and the company's other executives to present long-term strategic plans for the company.
The firm hasn't released definitive results for its full financial year of 2016 yet, but last year’s third-quarter report revealed a lot about the group’s disastrous financial situation. From January until the end of September last year, the company burned through more than €100 million, and recorded a loss of €62 million for that quarter. The firm's cash reserves have dwindled to €84 million.
At the same time, the company's equity ratio has fallen to 18.4 percent, while its net debt has shot up by a third to around €315 million. It is already clear that SolarWorld missed its 2016 target of more than €1 billion in sales, with management considering the overall risk factor to be "very high."
While growing competition and the slashing of German government subsidies for the production and sale of solar modules put external pressure on the company, SolarWorld is also under scrutiny from its creditors. Breaching some of its loan covenants could cost the company more than €180 million at any time, should creditors demand repayment – an amount threatening the firm’s very existence.
"The future viability of SolarWorld's business model is in question," said Arash Roshan Zamir, an analyst at Warburg Research who considers the company to be "not competitive."
Mr. Zamir estimates SolarWorld's production costs at around €0.46 per watt. This compares to a world market price for polycrystalline solar modules of only €0.34 per watt, assessments by market research group PV Insights show.
"In order to ensure the company's future profitability, SolarWorld must significantly reduce its production costs," Mr. Zamir said.
The company's management has already begun to take the first steps. SolarWorld, which employs more than 3,000 workers, has laid off 470 temporary employees and cut down its production by more than 13 percent, measured against an annual production capacity of 1,500 megawatts.
There's going to be no way around more cost-saving measures, even if they include further lay-offs.
Production of solar modules at the company's facility in Arnstadt in the German state of Thuringia has been on hold since October 2016. Workers there are instead manufacturing pre-products for modules, such as solar cells.
For all of the challenges SolarWorld faces, the company has not given up on its strategy of doing almost everything by itself - from slicing the silicone into thin sheets to packaging and shipping the finished modules.
As a result, some supervisory board members are floating the idea of instead buying individual components inexpensively to then specialize in the assembly and sale of integrate solar systems. A spokesman for SolarWorld, however, defended the current business model.
"Our integrated production in Germany and the U.S. sets us apart from the competition,” a company spokesman said. “Especially in light of the large amount of goods available on the market for dumping prices, this is a distinguishing feature of our brand, one that is highly valued by our customers," the spokesman added.
One thing is clear, however: SolarWorld's executive board is under pressure to set the course for the company's future. There's going to be no way around more cost-saving measures, even if they include further lay-offs. A company spokesman recently refused to rule out such a move.
SolarWorld generates more than half of its sales in the United States, but a $770 million legal dispute over an unfulfilled delivery contract is tarnishing the firm’s reputation in that country. In Asia, the region recording the highest growth rates in the photovoltaic sector, SolarWorld is as good as nowhere to be found.
Franz Hubik covers renewable energy for Handelsblatt in Düsseldorf. To contact the author: [email protected]