Maxeon's ABQ Factory: Big plans, Bigger Issues
Solar panel manufacturer Maxeon has yet to secure financing on their proposed $1B solar manufacturing facility in Albuquerque, and I have doubts they will anytime soon.
While politicians celebrate Maxeon’s plans to build a $1 billion solar cell manufacturing facility in Albuquerque, I have serious doubts.
The proposed 160-acre, 3-gigawatt (GW) solar cell and panel manufacturing facility expects to create 1,800 highly skilled jobs in Albuquerque. It’s supposed to diversify New Mexico’s economy and put Albuquerque on the map for domestic solar manufacturing. For reference, the US’s solar panel manufacturing capacity is currently at 27 GW/year - so a 3 GW factory is a big deal.
Local and State politicians have touted their ability to attract Maxeon with quick permitting times, tax incentives, state grants, and investments from federal programs like the Inflation Reduction Act. Upon announcing the project, Maxeon said they expect “to begin construction in the first quarter of 2024, with factory ramp-up to commence in 2025.” We’re now well into the third quarter of 2024 and I’m starting to seriously doubt Maxeon’s ability to come up with $1B. Recent legal issues, revenue losses, and a drop in stock price have me wondering how they might still pull this off.
In their press release a year ago, Maxeon stated the following:
[The project] is subject to a successful financial close under the U.S. Department of Energy's ("DOE") Title 17 Clean Energy Financing Program. Maxeon is currently in the due diligence stage of its loan application and site selection is an important milestone in completing this process with DOE's Loan Programs Office. DOE's invitation into the due diligence and term sheet negotiation process is not an assurance that DOE will issue a loan guarantee, nor that the terms and conditions of a loan guarantee will align with terms proposed by the applicant.
Meanwhile, KUNM reported in May of this year that Maxeon’s timeline is slipping:
They said that surveys, geotechnical investigation, permit reviews and a construction air permit had been completed, and that pending the closing of financing the company plans to break ground in the second half of 2024.
Maxeon is trying to come up with a billion dollars to build the facility. To fund a project like this, a publicly traded corporation like Maxeon might raise equity, use existing cash, or borrow money from someone else.
Maxeon stated they’ve been eyeing the Title 17 Clean Energy Financing Program (Title 17) at the Department of Energy’s Loan Programs Office. This program, like many other government loan and grant programs, is meant to help finance projects that are too risky for private banks but offer societal benefits and help develop immature industries or supply chains in the US. Unfortunately for Maxeon, this doesn’t mean the DOE is willing to hand them a billion dollars no-questions-asked.
According to the Title 17 eligibility criteria, proposed projects need to have a “Reasonable Prospect of Repayment.” In other words, Maxeon needs to prove they either already have the cash flow to repay the loan or will once the proposed project is complete. And if you look at Maxeon’s financial statements, it quickly becomes clear that their creditworthiness is questionable.
Sales revenues have dropped significantly since Q4 2023 while expenses have not. One vital financial measure that credit analysts look at while considering investing in a company or offering them a loan is EBITDA (Earnings Before Interest, Taxes, Debt, and Amortization). EBITDA represents the cash profit generated by a company’s operations. Maxeon’s EBITDA since its inception are as follows:
2020: -$46,500,000
2021: -$168,715,000
2022: -$138,798,000
2023: -$175,208,000
Q1 2024: -$58,889,000
Maxeon is plagued by huge losses every year, and it’s only getting worse. Part of their issue is that they build some of the best, yet costly, solar cells on the market. They have not found a way to lower the cost of making great solar panels, and inflation has strained the entire solar industry over the last couple of years - with many solar manufacturers now seeing red on their income statements. If I were a loan officer working in DOE’s Title 17 office, I would have trouble overlooking this poor performance.
Furthermore, high interest rates magnify the issue. Reuters’ recent solar industry analysis states that “[solar] suppliers that are already “well-known and bankable" in the U.S. are expanding, other aspiring manufacturers have delayed factory projects because of oversupply...” High interest rates don’t just make it hard to build factories - they deter would-be solar panel buyers from installing solar arrays or rooftop solar, which affects Maxeon’s bottom line and therefore investor sentiment.
This brings us to Maxeon’s stock. Since they announced the Mesa del Sol factory location, Maxeon’s stock price has taken a nose dive and is at an all-time low:
Maxeon’s market cap, or the total value of the stock Maxeon investors own, is just $76 million as of August 15th, 2024 (the ‘Mkt cap’ estimate from Google above is incorrect). In other words, the market thinks Maxeon is worth $76M. When Maxeon announced the Albuquerque factory last summer, the company was worth a little over $1B, which made a $1B factory seem a bit more feasible.
To say investor sentiment is low would be an understatement. Maxeon stock is down over 99% from a year ago. The stock saw a small bump when President Biden announced a 50% tariff on Chinese solar cells and panels this past May, but that wasn’t enough to outweigh the company’s underlying issues as the stock price drifted back down soon after. To make matters worse, recent lawsuits against Maxeon headline the company’s current issues.
The Rosen Law Firm, one of the firms filing a class action lawsuit against Maxeon on behalf of Maxeon investors stated the following:
[Maxeon] made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically… (1) that Maxeon relied on the exclusive sales of certain products to SunPower; (2) that, following the termination of the Master Supply Agreement, the Company was unable to “aggressively ramp sales”; (3) that, as a result, revenue substantially declined; (4) that, as a result, the Company suffered a “serious cash flow” crisis; and (5) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.
In other words, Maxeon lost their biggest client (SunPower) earlier this year and wasn’t completely transparent with their investors about how serious an issue this was for their cash flow. To make matters worse, Maxeon delayed posting their quarterly financial statements, getting them in trouble with the FTC. Lawsuits aside, it seems as though financial losses are expected to increase for the foreseeable future.
On the bright side, the company saw a $200M cash injection immediately following the lawsuit meant to help them get back on their feet. According to the Albuquerque Journal, “TCL Zhonghuan Renewable Energy Technology Co. Ltd., TZE, Maxeon’s largest shareholder which is based in China, agreed to invest $97.5 million via a debt investment and an additional $100 million equity investment, Maxeon announced Thursday.”
The company hopes this cash injection will help them return to profitability, but it will also increase their total outstanding debt to nearly $550M - making them more risky to lenders - and that cash likely won’t be available to help fund the factory.
According to the Journal, Maxeon expects millions of dollars of investments from the State of New Mexico over the coming decade including $20M of Local Economic Development Act grants, rebates on gross receipts taxes for construction, and hundreds of millions of dollars of industrial revenue bonds (IRBs).
A majority of the funding is supposed to be IRBs. IRBs are essentially debt instruments issued by a local governmental entity (to bond investors) and repaid by the project owner (Maxeon) - so it’s not really government funding, but debt funds made possible by the government. And unfortunately for Maxeon, IRBs are no easier to get than any other type of debt. Maxeon will still need to prove its creditworthiness, and for all the reasons I’ve already mentioned, that’s becoming increasingly difficult for Maxeon to do.
Now, while I have serious doubts as to whether Maxeon will pull this off, they have not yet stated that the $1B Albuquerque factory will not be built. Perhaps the corporate suits at Maxeon are working on some promising financing schemes behind the scenes, or maybe TZE’s cash injection will help get Maxeon to profitability. But the credit analyst in me sees a company with legal issues that probably can’t get a loan, can’t attract investors, has dwindling sales, and doesn’t have the cash to build a $1B manufacturing facility in Mesa del Sol. Hopefully, they prove me wrong.