Evergreen Solar (NSDQ: ESLR) said Thursday it has lined up a Chinese manufacturer to use Evergreen's silicon wafers for making solar cells and assembling them into panels.

The deal, reached Wednesday night with Jiawei Solar, a subsidiary of Jiawei SolarChina, reflected Evergreen's changing strategy to find cheaper ways to expand its manufacturing in order to fulfill its contracts. The company had considered building a new factory in China to keep making its own wafers, cells and panels.

With financing hard to come by these days, Evergreen is opting to outsource some of its productions (see Evergreen Considers Contract Manufacturing). Outsourcing might become more popular among solar panel makers that seek to reduce costs. BP Solar, for one, also plans to do the same (see BP Solar is Laying Off 620, Outsourcing Panel Manufacturing). 

The agreement with Jiawei, which is still being finalized, would enable Evergreen to drive down production costs to around $1.50 per watt by the end of 2010 from around $2 per watt the company expects to achieve by the end of 2009, said Evergreen CEO Richard Feldt over a conference call with financial analysts to discuss its first-quarter earnings.

Jiawei Solar would produce solar panels using Evergreen's ultra-thin silicon wafers, starting in the second quarter of 2010. Marlboro, Mass.-based Evergreen would set up a wafer factory at Jiawei's complex in the city of Wuhan and then pay Jiawei for the costs of making solar cells and assembling them into panels, as well as a subcontractor fee, Feldt said.

Jiawei would have the capacity to produce 100 megawatts of panels per year initially. The plan is to increase it to 500 megawatts by 2012, Evergreen said. The local Wuhan and other Chinese government agencies have promised to provide incentives and help the companies find bank financing to carry out the manufacturing plans. 

Evergreen anticipates cutting the production costs not only by contracting with Jiawei but also by continuing its plan to expand production at its factory in Devens, Mass., which it began building last year. The Devens factory produced 8.5 megawatts of solar panels in the fourth quarter, and it should reach a 40-megawatt production capacity per quarter, or 160 megawatts per year, by the end of 2009. Evergreen also is building a factory in Midland, Mich., to produce heat-resistant filaments for making the wafers.

The deal with Jiawei also could give Evergreen an advantage in the Chinese market.

The Chinese government is developing a set of subsidies to boost solar energy production in the country, an effort that is being watched closely by solar equipment makers worldwide (see Confusion, Political Spat Emerge for China Solar Subsidies). Government incentives have played a key role for turning Germany and Spain into the world's two largest solar markets.

Evergreen hopes to sell panels from Jiawei in China as well as other parts of the world, Feldt said. He added that the company at this point has no plans to expand its manufacturing in the United States beyond what it already has set out to accomplish with the Devens factory.

Keeping the Devens factory makes sense because the U.S. market should grow quite a bit in coming years – and because consumers might care whether their solar panels are made in the United States or China, Feldt added.

"We believe we can have a strong U.S. market and a lot of people want to buy made in USA products," Feldt said. "So over the long term it will be important to have manufacturing in USA."

The company saw a rise in sales for the first quarter but also widened its net loss.

Revenue more doubled to reach $55.8 million in the first quarter, compared with $22.9 million in the year-ago period and $44.2 million in the fourth quarter.

First-quarter net loss reached $64.3 million, or $0.40 per share. The earnings included charges related to the $43.9 million write-off of its loan and interest to Silicium en Provence (SilPro), the $3.5 million startup costs of its two factories in Devens and Midland, and the $1.8 million spent on closing its pilot production line in Marlboro.

The company posted a net loss of $25,000 in the first quarter of 2008 and a net loss of $52.1 million, or $0.32 per share from the fourth quarter of 2008.    

SilPro filed for the equivalent of Chapter 11 bankruptcy protection in a French court earlier this month. The company couldn't line up more money to complete a plan to build its first silicon factory (see Silicon Producer SilPro Teeters on Bankruptcy).

SilPro had asked customers to help pay for the cost of building the factory. Evergreen signed a 10-year supply agreement with SilPro in 2007. Evergreen executives said Thursday that they could turn to their existing silicon supply DC Chemical for help if it needs more silicon.

Evergreen produced 18.2 megawatts of panels in the first quarter, up from 8.5 megawatts from the fourth quarter. The company sold 17.3 megawatts of panels in the first quarter. The panels' average selling price dropped to $3.13 per watt in the first quarter from $3.39 per watt the quarter before.