Q3 2020 Canadian Solar Inc Earnings Call
Welcome to Canadian solar first quarter.
Gone from school.
It's Rachel and I will be your.
Operator for today.
The site all participants are in the listen only mode.
Later, we will conduct a question and answer session.
The reminder of this conference is being recorded for replay purposes I.
I would now like the turn the call overseas the Belgium.
Manager of human insulin.
Good day.
Thank you operator, and welcome everyone to Canadian Solar third quarter 2020 conference call. Please.
Please note. The we have provided slides to accompany today's come from school, which are available on Canadian solar <unk> Investor Relations website.
Joining us today are Dr. shoichi, chairman and CEO.
Dr. Wheatley true senior VP and CFO.
If my line item.
Corporate VP and president of Canadian Solar solar energy business.
Yes.
President of Canadian stores majority owned subsidiary, Yes, I Solar Co Ltd.
Well the company executives, but keep the beat in the queue any session after managements formal remarks.
This call Shawn will go through an overview of Canadian solar strategy and provide an update on the lifting of the S. I sold.
Yes. It is now well respected we review the highlights of the module and the solution.
The energy businesses.
We sold the will go through the financial results.
Shawn will conclude the prepared remarks, the of the business outlook after which.
We will have time for questions.
Before we begin may I remind listeners the managements prepared remarks today as well as their answers to questions will contain forward looking statements that are subject to risks and uncertainties.
The company claims the protection of the safe harbors. The forward looking statements that is contained in the private Securities Litigation Reform Act 1995.
Actual results may differ from management's current expectations.
Any projections of the company's future performance represents managements estimate as of today.
Canadian Solar assumes no obligation to update the projections from the future unless otherwise the part that we could the wall.
The more detailed discussion of the risks and uncertainties can be found in the company I know the sports we form 20-F filed with the Securities and Exchange Commission.
Management's prepared remarks will be presented within the requirements of the FTC regulation G regarding generally accepted accounting principles forget.
The financial information presented during the call will be provided of both the GAAP and non-GAAP basis.
The schools in the certain non-GAAP information management intends to provide investors with additional information to permit further analysis of the Companys performance in the underlying trends.
Management uses non-GAAP measures to better assess operating the woman and just the other operational goals.
Non-GAAP information should not be viewed by investors of the substitute for the up prepared in accordance with GAAP.
At this time I would like to turn over the call to Canadian Solar Chairman and CEO Dr. Shawn true Shawn. Please go ahead.
I'm curious about the high.
<unk> organic thanks for joining us today.
I'm pleased to report of strong such <unk> third quarter results.
Yes, we are cheaper debt 3.2 gigawatt of the module shipments.
<unk> total.
Robin you called 940 million U.S. dollar gross margin of.
The four and five per se.
Which was Oh, Oh Oh.
Our expectation.
Turning to the slide three.
Let me give you a quick update on the.
Well the plan try the listing.
Our average assets subsidiary.
Subsidiary.
We successfully completed the pre IPO, our criteria, where do you see in Q3.
This was all schedule.
Yes.
The one step closer to the worst qualifying for the IPO in China from a regulatory standpoint.
The transaction also bought.
The important strategic apart from nurse and the capital toward the immediately but our capacity, which the lasers solar technology.
In terms of all the time line.
Matt well within our plan schedule.
Hi, marketing for the IPO next year.
We feel good about where we are.
Yeah. The process I believe we are all the trial.
Yes, Vishal IPO application.
The second quarter of next year.
Now moving to slide four.
Well the solar market has been volatile over the past year or so.
The result of Koby line.
I'll watch what kind of gradually the Canadian solar opinion plates focused execution are resolved.
We're continuing to our true long term sustainable growth.
Returns for shareholders.
Our long term strategy, yes the.
Oh.
First of all.
I'm at the site.
We're focused on expanding capacity right.
The increasing the level of vertical integration.
This will give us.
This will allow us the again global market share.
Yeah, the price in our better control costs and improve profitability.
Yeah, well expense on this point later on.
Second we're expanding our market price.
I've done the apart opportunities the localized large scale project your investment vehicles.
Yes.
Well.
Well, the Holy grid connected solar and interest storage and other clean guarded approach are developed by our average of business.
Leveraging these feelings we're good through the popular pop of Nikolay lift the Canadian solar infrastructural fun in Japan, we're targeting to launch similar vehicles. The Latino America on the Euro within the next fall to try there for mothers day.
You Smile well expense all of this points.
Third we continue to execute our strategic growth area.
Yes.
Hi, Good example of the it's the solar PV line.
Average market segments, where we are reaching key milestones.
Including the recently signed our first large scale and the interest charges system. The <unk> on the service agreements the.
The 300 megawatt hour milestone project in California.
Are there more total cost.
Oh the run on the inside.
We also have a large backlog of.
1.2 gigawatt hours.
Yeah, Hi, additional pipeline of 4.8 gigawatt hours in solar projects under development.
We expect our energy storage Costar contribution would you true both revenue and profit over the next of fuel corridor.
Because of the material earnings drivers going forward.
Now, let me turn over the call it will yeah yeah.
Good day. Please go ahead.
Thank you Shawn.
On the M.S. business.
Q3 shipments were up 33% year over year to 3.2 gigawatts above guidance.
Revenues and gross margins off of $695 million and 18.5% respectively were also better than our expectations as demand came back strong and costs did not increase as fast as we anticipated.
Shawn briefly talked about the strategic direction of the MSS business.
Turning to slide five please.
We're making a deliberate strategic shift as we enter a new era of growth from solar industry in solar energy driven by greed parity.
Historically, we took the capture like the approach that give us the flexibility to quickly respond to the unexpected policy and market changes.
Today as.
As global Decarbonization efforts intensified and solar energy continues to improve is compared to income competitiveness, we expect more stable and sustainable demand growth. This is why we're shifting our strategy towards growing market share.
Facing bridge from integration to better control our manufacturing costs.
Specifically, we are planning to nearly double our manufacturing capacity across the supply chain and increase our finger wafer sales and.
And most of you capacities to.
Five or 10, sorry, 11, 18, and 23 gigawatts of respectively.
By the middle of 2021.
Okay, new capacity will be in the latest technology and we produce our latest 506 hundred watt plus modules, which we introduced during the past Q3.
The new capacity will come will contribute to our 2021 gross margin as soon as two to the next year and will support our 18 to 20 Gigawatts strip the guidance for 2021.
This is a long term growth plan that will be supported by the China listing of satisfy solar which includes our MSS business and the China energy business.
We believe that extending access to China's deep and look at the capital markets. We will continue to reduce our cost of financing and boost our long term growth opportunities.
Despite the relatively strong performance in Q3.
We are facing near term challenges driven by a combination of factors.
Turning to slide six piece.
To give you a sense of the magnitude.
The cost of part of Silicon increased by around 70% between June and September of this year.
And while it has come down somewhat it remains around 50% higher than where it was in June.
Glass and the the prices have also almost doubled the seems to.
Logistic costs, mostly shaping.
Also doubled over the past quarter falling another round of Colby Lockdowns.
And on top of own these.
Between Julienned.
Between June of November the U.S. dollar depreciated, approximately 9% relatively to the RMB.
As a standalone any of these factors.
Would have put pressure on the gross margins, but.
But when you combine everything together like the situation today this is quite unprecedented didnt.
The impact of co lead led to a weak market earlier this year, which was then followed by a massive searching demand.
This created and acute but temporary shortage of old basic materials, including the aluminum copper glass each sector. So we are still talking about impact of Colby.
However, I think we're now at the point of maximum pain or very close to it.
And the things should start to improve from here.
Please turn to slide seven.
First we're already seeing capacity expansion in the production of shortage materials. For example, some glass manufacturers for autos or beauty matures, our switching some of their capacity to produce solar glass to take advantage of the exceptional margins the price.
Price of part of sort of can this also already come down as previously damaged production sites have been repaired and capacity is gradually coming back on line.
Second we're increasing our market presence in China.
Where relative prices are attractive for the first time in a few years. This is amplified by the fact that margins are not affected by.
Foreign exchange and Ocean shipping costs, we're seeing very strong demand in China, the opposite to opted to transition years towards fleet parish and the serious policy efforts to decarbonize the economy into.
In terms of the magnitude, we think China <unk>, the coot accounts for approximately 25% up our shipments next year.
From approximately.
The.
10% in the average year.
Third so far our Q4 sales include very little the ASP contracts that were signed in Q2 when market demand was severely suppressed.
We're now working closely with our customers to educate them about the supply side of Cps situation and we will continue to raise prices.
Force.
The investment in new capacity, especially the meat and upstream manufacturing process. This will help us reduce costs and will contribute positively to gross margins as early as two to next year.
Fifth visibility into our energy storage pipeline. Both in terms of course, the some solutions and storage project development gives us confidence that any just story to the also contributed to the next years earnings.
Finally, we are also seeing fast growing demand for self consumption of solar energy in the higher margin rooftop for distributed generation segment the.
This is the market, where we half of very strong market positioning.
In fact over the past few quarters more than half of our shipments were sold to the DG segment of.
Beach around the CIRT, we're seeing the residential market.
We expect significant growth and sustainable profitability in this market.
As we Delever integrated solar plus storage solutions by offering a differentiated and the innovative customer value propositions with strong marketing support.
This is one of our important strategic directions going forward.
Oh, even though we remain very positive about our medium to long term outlook based on the more sustainable global demand capacity expansion increased vertical integration and ongoing improvement the raw material supply and the growth the DG market.
While we are on track, while we are targeting the short term challenges the underlying fundamentals of the industry remain very strong of solar becomes fully market driven and as we come closer to the bottom of the structure of cost curve.
We expect margins to stabilize or the healthier level. This will the treatment. This will be driven by technology scale brand and global market position.
All of which are areas, where we have a competitive advantage.
Before turning over the cost to the smell, let me touch from China Energy assets. This is part of that's high solar this.
This quarter, we sold two large operating projects totaling 200 megawatts in China. This was a key driver of the revenue and profits from the energy business. After the sale. We do have around 260 megawatts in our China portfolio of which we expect to sell around half over the next year or so.
While maintaining ownership of the other half the Chinese project, the Boston environment was quite tough over the past few years due to delays from subsidy subsidy payments, but be the Greek parity. This problem has been removed so.
So we see a lot of the growth potential from a market driven business we.
With that let me pass it onto the smell if no. Please go ahead.
Thanks to them I'm pleased to going to the school.
On the energy business looking at the slate age.
We made significant progress during the last quarter the words overcoming the challenges that the roles from probably the 19.
Definitely love in the deal financing, including the availability of toxic we can the U.S. was the key channel.
We have an all the secure most of the necessary financing and all the.
Execute on our projects.
In the U.S., we started construction on the select projects in Texas, hopefully in over 500 megawatts.
In Mexico, we close nonrecourse project financing on the started construction on the 126 megawatts from.
We got when we have to break some of their construction in Mexico.
Working hard to complete the interconnection of on one of these projects as we speak.
Im done so business development, we secured 862 megawatts and there could be a using the deal.
A few basic law, who went private auction the with the large non cold you from it.
And by lengthening or part of the agreement with one of the largest financial institutions from the drama.
This is in addition to the 274 megawatts of with time earlier in Q.
We were one of the first companies to one third of the but assuming the market both of US president developer on the some of them suppliers on the system since the great.
And we see significant potential as we continued to expand our leadership position in the keep adjusted that Mark.
In Japan, we announced our success in securing 22 megawatts from the true season pass the function.
The findings from another high project market, we continue to half of the position of the leadership.
Why did the consistency of Ternium from a subsidized fit into the market to an option of smart grid the.
The recent changes from the government game with Japan's kind of all new Charlie the pledges reveal.
Reveal of land use planning on the connection interest structured initiatives.
We believe this will make the final an even more robust market over the long run.
Meanwhile, we still have the large 290 megawatts by book plus another channel lead the my what sort of place in operation.
Combine the brilliant topic when you did the of it of student body from Matrimony 29 cents per kilowatt hour.
Which is much higher than the global average speed.
Well, we'll continue to do it all I want to diminish the pipeline I'm sick of additional long term growth opportunities from other Asian markets.
In Europe, our pipeline is growing strongly.
On the <unk> and we are starting to see success in the countries, where we started investing over on the the article.
You need the money despite some of the garbage related delays I wouldn't projects of the progressing with the Berman.
In terms of solar PV.
So just thoughts on the Standalone storage, we have somebody the funds in our leadership position in the U.S. why did the internally shuttering, the unbilled and I would expect expertise and of course, our global the teams.
The development of of storage project is now part of our call core global pipeline.
The board of projects is something construction in the fall of them quarters.
In terms of public sales.
Moving on to the projects totaling China, which John mentioned, we also completed the same thing kind of other gibbon ambiguous.
Sadly we are on track to achieve our 2020 targets, despite the tough market than vitamin.
However, we cannot rule out of the possibility of the certain projects make it moved into Q1 next year.
That is only about the pipeline.
Moving on to slide nine.
What is called me disrupt the some of our near term plans. We continue to expect 25% on all the volume growth in product sales.
When we train in my mind, I think the owners should be the projects in sort of the markets.
We expect when we reach the Canadian solar the ecosystem, that's true about the channel the value throughout the project lifecycle Spike up shooting income from operations of maintenance.
So the management services, the still much integration of French of treats the ship.
Well the recycling most of the capital.
Our goal is to increase the predictability of our revenue just on cash flow as we on a lot of the company's value for investors understand the good thing they've got a portion of the value of <unk>.
The the movies, we are in the process of forming topic of the partnerships in the form of public or private vehicles with the long term the investors.
The next milestone should be in Brazil.
We expect to pull the hopefully going to see the important sheepish from 20.
That's the actual projects or if the I.E. 2021.
We are also working on similar vehicles from Europe.
The specific dynamic will depend on market conditions, but we are on track and look forward to updating you as we achieve milestones over the coming quarters.
Now, let me turn the call over to hear from who will go up from the financial the show results in greater would be the.
Your friend. Please go ahead.
[noise] education model.
Please turn to slide of pet.
Revenue in Q3 was 914 million of 71% of from Q2.
The 20% year over year.
Oh smog in Q3 was a 19 point of 5% well above our guidance of 14% to 16%.
If you exclude the benefit from the U.S. anti dumping and countervailing duty true up in Q2, the gross margin for the improved by 130 basis points quarter over quarter.
Operating expenses.
The flat quarter over quarter.
But up year over year due to higher shipping costs.
<unk> expenses were down 9% year over year.
The quarter over quarter increase the.
Assets net of Wong of benefits in Q2, the 2020 such.
Such as insurance cash.
Overall, our expense relative to revenue has been declining over the recent quarters.
The net foreign exchange of off in the sort of quota was sitting there.
The significant hit all the net income as compared to previous quarters.
This net the impact was caused by the sharp depreciation of the U.S. dollar relative to the RMB around 5% the during Q3, which.
Which is the largest the quarterly change of the past 12 years.
While we have a comprehensive income per 1 million price how many more the doesn't.
The U.S. dollar of RMB exposure is by far the largest seems most of all revenue is.
The U.S. dollar while most of the cost is spent RMB.
Well the significantly reduced Oh, you asked all the RMB exposure was hardly a hedging positions and expect the impact in Q4 to be much smaller despite another full percentage points. The appreciation of the U.S. dollar since the beginning of October.
Net income attributable to Canadian solar in Q3 was 8.8 million or 15 cents per day, we'll get a share.
This was significantly impacted by the 12.6 million home.
Holding tax expense in China.
Adjusted to the special dividend the distribution from the and assess the business to the parent company.
Moving this one off the tax impact net income in Q3 would have been 21.4 million higher than our Q2 net income.
Moving onto the balance sheet on slide 11.
Well, we ended Q3 with anything launch of the balance sheet.
While we increased our total debt to 2.3 billion this quarter, mainly driven by the convertible bond issuance. Our total unrestricted cash balance was 1.1 billion of that.
Double of what you average of 500 million.
Note that the is an element of timing here as we close the both the convertible bond and the pre IPO fund raising <unk> mm MSS business near the end of quarter three.
Thanks, Dan we have started to deploy the capital raised to support all the capital all the capacity expansion class.
Capex in the first nine months of the year was approximately 180 million.
We are leaving the full year 2020 context of time.
To approximately 500 million.
Which includes the beauty capacity impose model Inc.
And the HGTV products in Q4.
The heart of our expected Capex is well supported by the cash raised in Q3.
Well Twentytwenty one.
We expect the contacts to be around 700 million.
Which is significantly higher than in previous years.
The higher level is in support of our long term growth strategy.
Our level of vertical integration kind of.
Continue to rule out cutting edge from.
Now I would like to spend a few minutes going through the latest the corporate structure of Canadian solar.
On slide the call.
Following the successful close of all the pre IPO fund raising at the end of Q3.
We will start the reporting results for different the second that's next quarter.
Specifically.
The would change of the MSS versus average of structural.
See if I saw was a global average.
As you know the.
Oh, Yes, we will move to the right. There was more of China average business from energy to the yes, I solar which made sense from a management perspective.
In terms of average of storage we have teams on both the Sci Fi solar and the global average business.
Assets, Yes for system solutions, and average storage delivers for <unk> and the just the system solutions.
This is the team behind the recent storage of supply and the service agreement announcement was the most from project in the U.S.
This team is part of the ESI solar.
Expects to deliver around the five under 60 megawatt hour next year, including the Mustang project.
On the average of business the site, which now talking about area of focus is on developing solar plus storage or standalone storage products.
And I would be BOPUS have viewed up five of the book backlog of kind of pipeline of projects over the past few quarters.
This structure will allow us to benefit from the images of the having both teams.
Integrator and the battle on the one corporate umbrella.
We are also benefiting from the synergies of.
Patches voyage into the previously sold the only contracts.
Meanwhile, the calming of of the revenue and the profits from the two businesses.
We'll be separate.
From a modeling standpoint is also important to the remember that the we sold the 20 point full set of solar to minority investors.
The additional 4.7 per cent the presenting the yes the old pop from.
The effective after the completion of the IPO.
We will continue to consolidate the yes, hi solar business.
The 20.4% of minority interest will be subtracted from yes, I saw the earnings.
The effective income or loss attributable to non controlling interest.
Now, let me pass the back of Shaw, who will conclude with all the guidance and the business outlook channel.
Thanks for your book.
For the fourth quarter of trying to trying to where the.
Sorry, the total module shipments to be the that range of 2.9 to three gigawatts.
Total revenue is expected to be in the range all while line.
Hey day milling total 1.0 wildfire the of it.
Gross margin.
Back to the to be featuring the 10 per se.
This means that for the full year trying to try the we now expect total module shipment to the in a range of the 11.22 and the 11.3 gigawatt what did the in the prior guidance range.
Meanwhile, we are reiterating our full year trying to kind of why module shipment guidance of.
In true trying to gigawatt.
Our updated the guidance reflects the impact of the shortage and the pricing credit of surgery or raw material.
However, we expect the environment operating pool in the first half of trying to each other while.
Lets go materials the plot expense.
Molecule, yes, the increase and we start production of our upstream ingot capacity.
Which shows the review our manufacturing costs.
Yes, the parts of the near term challenges.
We remain very excited about our mid to long term growth outlook, given the strong underlying market fundamentals and the Canadian solar leadership position of Crow manufacturing, probably the development and the manager storage. So.
Solution sector.
With that I would now like to open the call Joe of question operator.
Ladies and gentlemen, we will now begin the question and answer session.
The off the question.
On your telephones and wait for your name.
If you wish the council.
Please press the pound or cash.
Once again the asked the question Im sorry, the number one on your telephone simple.
Your first question comes from the line of Colin Rusch.
<unk>. Please ask your question.
Thanks, so much guidance so.
As you know historically, what you've been able to do is pass on some of the supply chain costs on your customers.
Can you talk about those dynamics, you know how long that might take how effective those efforts might be as you look at the next couple of quarters.
Well aware of that although a lot of yen to expand.
For the first and our assessment of it.
Well.
Actually the demand came back are starting to come back in August and.
But the costs came back in the hotter so.
It takes time.
A few rounds of negotiations with the customer to accept this marks the reality.
And.
So Ah we feel right now the discussion is pretty Haiti ratty at this moment for Q4 shipments.
So it's I believe after the end of Q4, Oxford, the sole code, mainly your and rush.
Down and the one the markets realized that the costs of not coming down they will have to face. The reality of so we believe that Q1 will already be improved in terms of the market acceptance about the module price the adjustment.
Adjustment.
And on the we also believe that by Q1.
A few cost items will likely true slowly it.
Improve going down.
More mild so ER. So we believe the Q1, we will see improvement and true to going to see more significant improvement.
Thank you.
Great.
And then looking.
Looking at the energy storage business, no you're talking about the bad becoming profitable I guess, given what we're seeing in terms of demand versus the availability of supply how should we think about the margins on that business relative to historic levels for the sort of model of MSS business.
So oh I.
I cannot give you specific numbers, but I can tell you that for energy storage system integration.
It's not of manufacturing business.
So on the Opex level, it's relatively much lower so the net profit lever, it's actually a much better that module business.
Okay. That's super helpful guys. Thanks, so much.
Your next question comes from the line of Brian Lee of Goldman Sachs. Please ask your question.
Hey, guys. Thanks for taking the questions maybe the first one just on the on gross margins. The eight to 10 per cent for Q4 can you.
Give us the sense for how it breaks out between modules and ER and assessing the energy.
The.
The the.
A math fast growth margin, yes, the us.
Slide 11, non war and the idea of your growth margin slightly a higher value.
But.
That's not so much different however in terms of revenue.
The I'm asked the revenue accounts for about a third or a little bit more the into a third of.
The total Q4 revenue or the.
Now for the emphasize reflect mall the Oh, the Massa all of them all of your visit yes, or a growth market.
Okay. Thank you Shawn that's a that's helpful color and I guess I know, you're saying that goes.
Gross margin should improve in Q1, and then significantly improve in Q2. So you know I don't want to put words in your mouth, but it's really the second half of the 2021, when we start to see more of the.
Normalized gross margins and would you say normalized gross margins or higher is the 15% to 20% is that kind of the new normal or do you think we're back to a 20% plus gross margin across the business in a in the second half of 21.
Well, that's a very good question of why Uh Huh.
You know what the raw.
From a lease the of all 15% of.
Normalized the growth market I hope you can do more than kind of effect, but his total bar to the panel and the but we do have a plan.
That's true.
Oh, we believe that's true.
Sure why.
We stand a good chance they'll have the growth margin.
The goal above 10%.
Hopefully from Q2, we're well target were twice will range mid teen and during Q2 and Q4 and a sales.
Sales, our Oh, the new capacity, especially the Ingo wafer capacity darker makes the couldn't pay the contribution.
We hope the Doctor.
The growth margin.
Further improve but of course, the Asa still some unknown to us the away.
Okay and control what we can influence the many of many of the Micrel.
But it's difficult to us for us to control of the lock growth for example of the exchange rate of future in U.S. dollar.
The.
The Chinese RMB.
The current sales for.
Well, the a secretary of space.
The reasonable of foreign.
The next tranche of future use.
Yes, all the R&D.
Okay Fair enough and then maybe last question from me I'll pass it on I know.
You guys are.
Making.
Making a strategic shift here to do more vertical integration it should help the cost structure.
And so like you said Shawn your your kind of controlling the micro where you can what's out of your control like currency and the macro that that's the uncertainty how do you think about it I guess in the macro side of things. It seems like there has been a significant amount on the of module.
Capacity addition, announcements from both yourselves, but your peers.
In Q1, China manufacturing.
Manufacturing suppliers.
Heading into the you know kind of the next 12 to 18 months. So does that give you pause at all in terms of you know potential for supply demand imbalance or heading into next year, just would love to hear your thoughts around the macro the what you're seeing competitively around the the capacity side. Thank you.
Oh, sorry, why let's talk about Rockwell medical.
From.
From the locker point of view.
Net loss of profit and the.
Growth potential.
Solar of isn't yet.
And Oh I of because you're going to see the of the whole world is going forward and durable going from solar and.
So.
So that's all of the Lockwood of side. However, the the men the ER the of the admin, let's say the solar the men in a particular year also depending of the micro.
The conditioning resolve of pricing.
Let's say of what's driving the journey of why yeah. The solar module price and other component price is the reasonable level, where I believe our customer I can follow the write off kind of exciting.
I see moderate the solar module price increase I believe the however, a year for the module price too much well, you're well for the cash two of the total with the man. So that's on the field.
The sort of all of your price is that reasonable level then or.
The most of the third party research data. The say is I now expect to around 106 days, along the seven day Gigawatts of Oh.
The boss Dave.
And.
Now.
You mentioned Dr. Yeh of.
Some of the.
The module CA last day.
Another thing I understand the target of Alpha in the recent Oh, we are watching the hot as well.
The ER, we're not really looking to the the of smaller or the small volume, but they are a.
We rather pay attention sort of the top six well itself.
The top six on top of it all together.
The towards the announcement.
So far but next year, yes are all lines of six the line the seven day IP.
Lot of disease, which means there will be it's on the competition, let's assume that's also a market the amount is in the wind the 60 gig.
EBIT walk and the of the.
Targeted the total of target shipment and all of the top six hours of wind the six the line starting to hit while the well it looks like well there will be some of the competition, but that the linear dock competition is still in the manager.
Manager BOE a day.
Gail.
In terms of Canadian solar where the in looking at Oh channel and also our technical I believe the pace.
Well we.
Decided.
Put all of our target I'll bake into trading day gigawatt of next year.
And.
In the past the from the.
Yes, so no doubt the us to be a more accurate oh, we have always almost always being achieving our target. So I do believe that Oh, we will.
We will achieve our targeted trying to the drug and why that's why as well I call really the calm and the other people's target, but I do believe that whatever the Canadian solar says Oh, we are we doing the yes.
So yes, you on true.
Our goal of common.
Well I just want to.
The little bit more or so.
So we feel that the demand from the old chime in the U.S. would be very strong next year.
And and the you know that we have a pretty sizeable capacity in southeast Asia that will help us to growth more market share the U.S. and we have the strong move right now in China to execute.
Moving hence our mackie share here so.
So I I, so we're being better position because of the China pricing.
You know because the flow the strong demand and also the fact, the Knicks gentry <unk> the RMB the U.S.D. and also there's ocean shipping cost difference kind of trying to price seems now actually better significantly better than overseas pricing. So I. So this will help us next year or two getting more.
Profit healthier profit.
All right. Thank you both I appreciate all the color and context. Thanks.
Your next question comes from the line of Philip Shen of Roth Capital. Please ask your question.
Hi, everyone. Thank you for taking my questions.
The question on your capacity expansion no if you will.
Look at the ratio of wafer to your total module capacity as of 2020, it's about 40%.
And I think you're maintaining that mostly the same.
For 2021 at about 44%. So philosophically you know do you do you think you could ever increase that we've heard of module capacity ratio.
And and why why keeps out where it is where as sales increasing from 60% to 71% of your.
Module capacity thanks.
Hi, Phil.
Sure I'll speak of medical cost trend Oh, we are doing the though we are increasing the ratio of vertical integration.
However, it takes time.
Now to a share root.
<unk> of all the wafer capacity, but the ingo.
The capacity because otherwise we will have to the bio buying goods and cutting slicing tool.
The way part of it doesn't odd the dot much true our full growth market.
Well, we look at the the of principal solar or why don't you out of these days.
The policy to kind of stage of makes the most of our money.
The of course and the.
Second the wise, the ingot and wafer sales.
Well on the module. So are the key next year one of the key driver.
Dr. T I of for next year is to increase our ingot capacity.
As you can see from our chart. We are increasing our you know we are used to be up their focus on 'em all of multi crystalline way of first we still do the huh, we still plan to have a with the reasonable long of a multiyear.
Multi crystalline silicon.
All of them all of you. However next year. We are at this moment, we are building our.
First the large scale of law of though you can go to factory loading go to linger workshop. This AWS three gigawatt you can go workshop.
Or true at all or to the next year or reach full capacity.
Q2 of next year.
So a lot of the Oh, well, where oh, we see a the more significant.
Marty improvement.
The much more significant in the Isle.
We're part of what I'll call a catch up while we're from well. So if you look at the capacity of the new capacity of update a cash.
You mean, the yeah, how are you hardening Oh RMBS release.
We are increasing both the.
You can go to the wafer capacity by the end of next year, both the ingot and wafer capacity will be around 10 per se and.
We're just a ticket a heck of a significant higher than today thinking.
Oh, no sorry, Oh, well be a about the 10 gigawatt of both the Ingo wafer suburbia romping gigawatt by the end of next year, we're just a second the present higher than today.
Great. Thanks, Shawn has a follow up there.
I see a lot of the industry shifting to the as you were mentioning the larger wait.
For and so formats, a with a I guess two camps theres. The one of the two only be true camping and the 210.
And so what percentage of your.
Modules do you think will have the larger.
The format either one of the two I believe drawn that standard versus the two times, what's the what do you think that average is for the large format of your shipments in 2021 do you think you can get as high as 50 per cent of your shipments overall in 21 to that higher one of the two millimeter formats or do you think it's a little bit less.
Net or perhaps more.
No, we're asking yet to get into a.
Joe numbers however.
However, all by the new capacity, meaning you can go to the wafer Kubasik also the new solar cell capacity by the solar module capacity of design I want the large or a way far large cell format.
You know a friend of Canadian Solar August actually a leader.
Adopting a new.
On the larger of cell and module for Oh, we were the first line you named US true we introduced the while the 66.
In the major pullback and now we also was the first to introduce the Oh, while a day true of the wine and also the to trying the millimeter of format are you asking the abolish the which standard which will be the GAAP man standard the good news the Soc Canadian solar.
It's on both cash because we think the apples kind of makes sense and the so we actually the line the product I guess on both the both the stand or both or both.
Both the spices.
And the <unk>, so oh, which means the.
Bye.
Once we have hold the kebab milk of boxes, all line will walk the usage on the new capacity to produce the Oh only produce the large format and therefore from second half of next year and also trying to trying to true.
You would expect GAAP, what I'll hop off of our of product how from a the those new form of.
Alternative otherwise our transition year, so some product will be introduced the.
Over the Q1 through the in Q3, so there will be some transition in the process also also mentioned doctor to the.
The a small or wafer size doesn't mean, all day debt because of some of the product.
Line I want the most of the size for example, some of the loophole program actually Ah Ah yes.
The patent suits. The you know the small away from our side, maybe a better suited also some of the customer for example, the Japanese customers. The October a lot of the still continue and we will support them well use the previous format.
Oh, yeah yeah.
Yes, hi, its been it so in terms of Oh capacity or actually by end of 2021, Oh, we're going to have the like the of almost 10 gigawatts. So far of cell line will be compatible.
Comparable for both the two tendon one maybe two.
Like the eight nine gigawatts already and we're going to half of 10 Gigawatts of the we for the lingered a both the larger March a large wafers and from mode. You Oh, the new module capacity on top of whatever we have today it will be a a cup the compatible to the to either to 10 the 182.
So.
Ah So where we were in pretty good shape in terms of book about shopping.
And also great even the even the existing owed capacity, even the existing capacity or we call that the midstream capacity of one 660, we are actually is as the relatively new.
Not so bad capacity compared to others in the market, which are we do see a lot 157. The one once you've day points on pipe. So line and our Onesix seeks the sexiest you be able to compete in the first half of next year at least.
Thank you both for all the detail one of the very quick question on capacity of the new announcements the use of a shared how how much of that or what percentage of that.
Where's the new capacity. So for example, how much of that is in southeast Asia versus perhaps the even in a new country.
For the region.
Well the there most of the majority of the new capacity of student China.
And we have some opportunity to cut backs GAAP, we the minor expense in Thailand.
And Oh, we are actually actively.
Study and the explore the possibilities of.
New capacity new technology in the other markets depending on the policy shipped mainly from the U.S.
Can you share which of your fees that might be.
No fed of club by the way, where they have a more than three gigawatt of solar cell capacity entire line, which.
Which is up for the also of riches are per day, a new capacity so.
And looking at the total market size the U.S.
The Dod or.
Hi, the and cell capacity.
And also the Vienna.
Module capacity are there.
The moment.
More than adequate to support.
Our of U.S. customers.
Great. Thank you guys I'll pass it on.
Thank you.
Your next comes from the line of William Crippen, Yes, Ma'am go ahead.
Please go ahead.
Well Jim.
[laughter], how we take the next question please.
Your next question comes from the line of William Griffin of EUV, Yes. Please ask your question.
Great. Thank you. So just wanted to ask about the the capacity expansion. You know historically you guys have been committed to this you know what you call. The reverse pyramid structure, which I think has been advantageous in the declining price environment. I'm. Just curious you know why why pivot away from that now if we can.
The the the disruption in the market of thought for raw materials is going.
Going to be temporary.
Well.
So Shawn has mentioned to that he's very confident about the growth sort of sustainable growth of the industry I share. The same opinion, so I, we eat the but by looking at the the L. Steele you of solar energy around the warrants and the strong policy shipped tourist the de carbonization.
And there are you know whatever election in the last 3000 debt in the the new a new announcement from precedence in China we.
We actually.
You know us we're actually very kept confident about to the mid to long term growth potential so in.
In terms of capacity.
On the expansion part of that is for next year, but more is for the year. After all you know the years. After next year. So Uh Huh next year it will be from half of and try the season you for the industry. We the very strong inherent demand on the project level probably the.
The little bottlenecks on some of upstream of supply in some of the fact from the call. The 19 that to the image of the industry or have to realize that the industry has realized that the demand to be very strong.
And that everybody is expanding capacity to actually meet the demand. After next year. So this is a this is a common common the non interest in our industry. This is why you see so many news about the capacity expansion and also on top of that it's the the industry is becoming.
Much more market driven it's a because of the demand.
It's less policy driven and the cost of solar is low.
The copout the the the rapidly.
Cost reduction on the any of storage and interest storage site the line.
So we'll see we see that a more and more markets are the adopting solar.
The subsidy and the sub consumption saw the also growing really fast. So we believe that the men, it's less volatile and is that sustainable.
Hi, I went out of this a show the can probably got a few more comments.
Yes, indeed the.
Our of stride in the Pos used to be the or reverse from AI and.
We have a benefit of form the structural from not radically of laid out of capital light manufacturing of structural however are the big the model as of now something never change I mean, I asked the change when the market share would be leaves out of the market is changing dial to this industry.
Some of the industry is getting a true consolidation phase.
And the.
The winner of the consolidator of phase, where we acquire more integrated.
Abbas the you know what are the with the competition. The alcohol, we are changing the RPM Aldo.
And that's the number one number true.
I want to.
Just the bring draw attention not you buy the after all of this environment a year.
Moving to our mid and upper.
Per stream of Canadian solar cell manufacturing begun models of steel reverse pairwise on larger composite is few larger of the sale on sale of larger than boys.
Of the wafer to wafer large of the you can go to so were still maintaining the flexibility.
Yes, you will be able to respond to the true.
Two of the market.
Two of the market demand change.
Yes very helpful. Thank you and then just one other one on the third quarter, specifically, but obviously the margin was better than guidance and better than we were expecting I'm just curious.
How the <unk>.
The increase in the poly silicon pricing in the quarter impacted you if at all I mean, the art are your contracts some per poly silicon supplied to the sort of lag.
The actual spot pricing in the market or you know how does the hardware.
I think I actually.
Partially it came from a of the demand come back Uh Huh.
After the lock down the first we've locked on Q2 and said that's more than that is there a series of expense explosions.
And she can jump province in the few sort of come factories that caused a pretty significant cash Shawn.
Shortage of sort of council that Joe Lapa, the price of pretty significantly and.
That had a pretty strong impact on our profit to the ability, but we had cheap poly inventories coming from Q2 purchasing because there's the delay.
On the on the material of purchasing so are.
We benefited from there in Q3, that's why the cost impacts on the masses more mild.
And the the demand came in stronger so that.
That helps.
So the the impact of sort of become a price the up.
Well actually more reflected in Q4.
Yes, yes that we're them, yes in value that's a time lag of.
From the point of silica material or enter into auditing of actually two of the module all of our module shipped out yeah, Rick and assets sales. The I can be several weeks or couple of you know why not true minus of debt.
The Lady no all fall of of lifetime, the upfront so and also a using Q3.
Oh, we have seemed odd to the.
All the settings on price may be coming up the costs, usually now sometimes the policy that can factor launch of the wall.
The didn't want to do the of the.
The mission mentioning the summer so we.
Strategically.
Accumulated from spot.
Well the poly silicon on low price.
Turning out to be right. So you leave the.
Our of we didn't see much impact in Q3, however, you reduce the Dod.
Volume Jewel flow, that's why the some hall in Q4 for all through the all the the junior.
Just to show.
Our lowest gross margin.
Corridor.
But also unfortunately the Dodge.
As we mentioned as the yen automation, we do have a price we believe that to all of those margin will recover the.
Q1, and then you true true and though would target of you'll get it back.
Our normalized gross margin in the range.
Bye bye.
Q3 of the next year.
As we are now at the top of the hour I will turn the call back to Canadian Solar is chairman and CEO Dr. Q4 of the closing remarks.
Thank you all for joining in today's call and for your continued support if youre of and the question Paula for lack the thought of our call. Please contact our investor relationship the team.
Well I hope you all of your families stay safe and healthy.
The enjoy the kamin sales.
Thanks, giving the holidays.
Take care and have a nice day.
Ladies and gentlemen, this concludes our conference for today. Thank you for participating you may now disconnect.
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