This post begins a series intended to help investors (and policy-makers) understand when an energy
technology company is being overhyped, as apparently Hanergy Solar was.
Cleantech advocates always try to downplay failures like that of
Solyndra as not telling us much about the industry more generally, but
they ignore the common circumstances apparent in various failures.
Hopefully, these pieces will provide some illumination.
First lesson: The ability to get favorable press is not necessarily a
precursor to long-term success. Numerous big failures, from Solyndra to
Better Place, have been media darlings.
It is all too easy to get press coverage for new energy technologies,
especially Cleantech for a number of reasons. Few reporters have strong
technical backgrounds, and accept uncritically what they’re told by
innovators. Understanding the difference between gallium arsenide and
crystalline silicon, or sometimes even AC/DC is beyond a large fraction
of writers, who are hired for their writing skills. Their job is to
interview people and report what they say, and indeed, few reporters
outside the specialized press are supposed to do actual analysis.
But also, “hot” topics often get uncritical coverage. A lot of
articles about Cleantech appear in the general press, including the
“Home” or “Style”
sections where the economics of the product is almost completely
ignored. (Sometimes a homeowner will urge more subsidies for the fancy
products they are buying, which is also suggestive that a product is not
ready for primetime.)
And there is a huge media advocating the Cleantech industry that is
outside the industry. Because being “green” has a feel good aspect,
support for anything claimed as green can be unconditional. People
worried about the environment will often provide glowing reviews of
products and companies, that are really puff pieces which don’t address
the serious issues, most especially the economic efficiency of a
technology. Thus, Solyndra was said to “Rock Green Power” and potentially “could revolutionize” the market for solar panels, but by people for whom that was wishful thinking, not sober economic analysis.
And press attention often is related to the extravagance of the
claims being made, which is usually a counter-indicator of future
success. Hanergy, for example, claimed it would introduce five different models of
solar-powered cars by the end of this year. For a firm which isn’t an
automaker to introduce five models of conventional cars is quite a
stretch, and that no one else has been able to produce a viable solar
car to date, this announcement should have raised eyebrows to the moon.
Instead, numerous outlets hailed—or at least repeated uncritically—the
promises.
Which highlights one reason why strong press coverage should make investors wary: Diversion of effort from business
progress to getting media attention. Especially for companies that have
few products or sales, like Solyndra, brand building is not of great
value, and senior executives can be seduced by the press they receive. Having Arnold Schwarznegger
at your plant opening, as Solyndra did, must be exhilarating, but for
young firms, they would be better off playing Bachman-Turner Overdrive’s
“Taking Care of Business” as their elevator music.
http://www.forbes.com/sites/michaellynch/2015/05/22/warning-signs-for-energy-technology-investors-1-ink-versus-gold/?ss=energy