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.
