Q4 2020 First Solar Inc Earnings Call
First quarter 2020 earnings and 2021 thousands call.
This call is being webcast live on the investors section of first solar website at Investor day for solar Dot com.
At this time all participants are in a listen only mode. As a reminder, today's call is being recorded.
I would now like to turn the call over to Mitch Ennis from first solar Investor Relations. Mr. Ennis you may begin.
Thank you good afternoon, everyone and thank you for joining US today the company issued a press release announcing its fourth quarter full year 2020 financial result, as well as its guidance for 2021, a copy of the press release and associated presentation are available on first of all as website at Investor Day first solar Dot com.
With me today are Mark Widmar, Chief Executive Officer, and Alex Bradley Chief Financial Officer, Mark will begin by providing a business update Alex will then discuss our financial results for the fourth quarter and full year 2020.
Following these remarks, Mark will provide a business and strategy outlook. Alex will then discuss our financial guidance for 2021. Following their remarks, we will open the call for questions. Please note. This call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations, including among other risks and uncertainties the severity and duration.
For the effects of the COVID-19 pandemic, we encourage you to review the Safe Harbor statements contained in today's press release and presentation for more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer Mark.
Thank you Mitch good afternoon, and thank you for joining us today.
I would like to start by expressing my gratitude to the entire first solar team for their hard work versus <unk> throughout 2020.
Although 2020 was a very challenging year I am proud of the way our team responded with our ongoing commitment to health and safety.
Delivering value to our customers and achieving our objectives in this unprecedented year.
While Alex will provide a more comprehensive overview of our 2020 financial results I would like to first note our full year EPS results of $3 73.
This is all came within but towards the low end of the guidance range. We provided at the time of our third quarter earnings call largely due to the volume and the timing of our Sun streams to project sales.
Despite this timing impact.
Intense competition across the Christmas TV supply chain and unforeseen challenges related to the pandemic.
We're very pleased with our financial and operational results in 2020.
Turning to slide three I will discuss some of our key 2020 accomplishments.
Firstly, our vertically integrated manufacturing process.
Diversified supply chain and differentiated <unk> technology enabled us to mitigate potential disruptions to our manufacturing operations from the pandemic.
Currently we produced $5 nine Gigawatts of series six and.
And exited the year with a top production than a 445 watts.
Secondly, driven by continued strong manufacturing execution in Q4, we achieved.
Our year on year, 10% cost per watt reduction despite an increase in volume sold from our higher cost for Iowa facilities.
And an increase in sales freight costs.
Thirdly early generation first solar <unk> modules that were installed in an internal test facility and $19 95.
Reached an installed life of 25 years and demonstrated a 25 year degradation rate of 48 basis points per year.
While our manufacturing processes product design efficiency and warranted long term degradation rates have improved significantly over the past 25 years. This results helps us understand our legacy performance baseline and provides further confidence in the superior long term durability and degradation performed.
So today's series six product.
Fourthly.
We extended our limited power output warranty from 25 to 30 years for our series six modules and.
In our series six modules are now protected by the industry's first and only product warranty that specifically covers power loss from sales tracking.
Which can have a meaningful impact on reducing systems insurance costs.
Finally.
As of yearend, we had shipments of five five gigawatts bookings of five five gigawatts.
And contracted an additional <unk> seven gigawatts of volume that remained subject to conditions precedent.
Overall, our operational financial results and 2020 have built momentum as we move into 2021.
Turning to slide for I'll provide an update on our series six capacity ramp and manufacturing performance.
Over the course of 2020, we realized significant operational improvements.
Bearing December fleet wide metrics year on year megawatts produced per day increased to $17 three megawatts, an increase of 23%.
<unk> fleet wide capacity utilization increased to 117% an increase of 20 percentage points.
Product yield increased to 97, 6% an increase of three two percentage points.
Average watts per module increased to 439 lots an increase of nine months.
And as noted our top production has been increased to 445 watts.
Our manufacturing discipline and execution enabled us to achieve our cost per watt reduction objective for the year.
We exited 2020 with six three gigawatts of nameplate manufacturing capacity.
Effective January 1st we have re rated our throughput entitlement for purposes of calculating capacity utilization.
Since launching series six less than three years ago. The factory throughput entitlement was based on the initial tool set and factory design.
Given the significant improvements made over the years, we have revised our throughput entitlements to reflect the 2020 exit rate throughput.
Our strong execution has continued into 2021.
With improvement across all key metrics.
Since year end.
In addition to February.
We commenced initial production of our series our second series six low cost factory in Malaysia.
With less than three weeks of production. The factory is ramping nicely with demonstrated capacity utilization, reaching approximately 80% yields in excess of 90% and a top production than a 450 watts.
By the end of the year, we anticipate our Malaysia factories will have a nameplate capacity of three gigawatts.
Touching briefly on our systems segment in February we completed the sale of our 150 megawatt AC <unk> two project to long Road energy.
We also signed agreements with long road to sell of the Sun streams for in five projects and are in late stage negotiations to sign an agreement to sell our son's Dream Street project.
As part of this portfolio acquisition long road intends to utilize one gigawatts of series six.
Of which 785 megawatts will represent new bookings upon the closing of these transactions.
Prior to signing the potential agreement to sell <unk> three the project PPA was terminated which enabled long growth to include Sun streams, three four and five projects and their power marketing efforts after transactions close.
While this resulted in an approximately 85 megawatt systems the booking in February at the time of closing we expect this opportunity will be recognized as a new module only bookings.
Turning to slide five I'll next discuss our most recent bookings in greater detail.
Our recent bookings momentum has continued with three three gigawatts of net bookings since the October earnings call.
After accounting for shipments of approximately one eight gigawatts during the fourth quarter, our future expected shipments, which extend into 2020 for our 13 seven gigawatts.
The majority of the bookings since the prior earnings call have been third party module sales.
Which totaled three three gigawatts.
We continue to see an increase in multi year module sales agreements driven by our customers' need for certainty in terms of technology. They are investing in and their suppliers integrity and ethics.
Representative of this we have executed an agreement with intersect power to supply up to two four gigawatts for deployment in projects in 2022, and 2023 of which approximately two gigawatts is recognized as a booking and.
In addition to this new booking intersect has the option to utilize an additional four gigawatts of module volume to support their portfolio of projects up to two four gigawatts.
We've also secured 340 megawatts for deliveries in 2023, with a leading provider of hydrogen fuel cell solutions.
A pillar of growth for the hydrogen economy is the ability to cost effectively produce large scale green hydrogen with renewable energy sources.
With an environmentally advantaged cat sales technology, we are well positioned to address this market need.
Additionally, in Japan, we have continued success, adding to our contracted systems backlog with the addition of two projects totaling 51 megawatts.
With new net bookings of three three gigawatts and with additional one four gigawatts of expected bookings associated with the closing of the sales of the <unk> portfolio.
In the U S project development business.
We are pleased with the robust demand for our series six product Inc.
Included in these new bookings volume contracted two conditions precedent in.
And the potential for Gigawatts of incremental volume related to the intersect transaction.
We have seven two gigawatts of volume for potential deliveries in 2021.
Five nine Gigawatts in 2022.
And two three gigawatts across 2023 and 2024.
Overall, while the market remains competitive we are very pleased with the pricing levels that we are securing to date for our differentiated series six plus and cure market.
In an industry that sales electrons and where products.
Are evaluated based on the quantity of electrons they will produce.
We also seek to differentiate our business model through our commitment to an environmental footprint of our technology product secularity.
And supply chain transparency, we call it responsible solar and you can learn more about it at our corporate web site.
Turning to slide six I'd like to discuss the strategy and advantages of this approach.
Firstly.
Due to our resource efficient manufacturing process.
Our thin film modules have the lowest carbon and water footprint available in the market today.
With its advantaged position series six is the world's first PV product to be included in the EP Register for sustainable products.
Which conforms to the NSF for five seven the industry's first sustainability leadership standard.
Designed to help institutional purchaser EP is used by national governments, including the United States and thousands of private sector institutional purchasers worldwide as part of their sustainable procurement decisions.
Secondly, we have over a decade of experience in operating.
High value PV recycling facilities on a global scale and remain the only solar manufacturer to have global in house recycling capabilities.
Recycling process establishes a circular economy by recovering more than 90% of the semiconductor materials for reuse and first solar modules and 90% of the glass for use in new glass container products.
Thirdly, our vertically integrated manufacturing process enhances our supply chain transparency and control over end to end manufacturing process.
We believe that our responsible solar strategy is the right way to do business and in a growing number of markets yields an economic advantage for example, France already schedule that favors PV modules with a low carbon footprint. Spain is also appears to be moving towards incorporating our carbon footprint.
Eric and its renewable energy procurement program.
Recent update requires owners of renewable energy generation assets to submit carbon footprint data to the country's renewable energy registered.
Gathering the information needed to shape, the procurement mechanism that may benefit low carbon solar.
In the United States, Vectren utility that services, Indiana and Ohio.
Included in environmental admission minute mineralization objective within their integrated resource plan.
This objective accounts for the cradle to grave admissions impacts of different forms of generation.
Including the low carbon footprint of thin film PV module as compared to crystalline silicon.
Addition, alliant energy and consumers energy.
Utilities in the Midwest.
I have included the aforementioned NSF for 507 sustainability leadership standard for PV modules and Inverters in their most recent solar solicitation.
We would also like to take the opportunity to touch on the reported use of force labor and China's polysilicon manufacturing industry. We.
We have repeatedly and unethical.
Deb the preferred use of force labor and Chinas PV solar supply chain and will continue to do so as long as it remains an issue.
We also reiterated our commitment to zero tolerance of force labor throughout our supply chain.
We believe there should be no place for solar cloud, where even a single component no matter how small it is produced by a human being against their will.
We have seen reports that authorities in the United States are developing plans to expand their Xinjiang specific import regulations to include solar.
And in the latest version of the force Labor Prevention AG Bill the U S House representatives, including poly silicon as a high priority sector.
We recognize the challenges of this potentially creates for companies that have traditionally relied on Chinese based firms for their modules, but as an industry. We cannot accept a view of solar at any cost.
This is an important reminder, that over reliance on China to supply subsidized solar panels comes at a price that may not always be reflected on the bottom line.
Is the price that many include May include needing to look the other way on environmental social and human cost.
It is also yet another reminder, one or several we've had this past year about the importance of diversity of supply.
Before turning the call over to Alex I would like to provide additional context on the effects of tariffs on the U S and global PV markets.
In December 2012 during the Obama administration, the United States imposed antidumping and countervailing duties after determining that domestic trips in the silicon industry was materially injured by imports of Christmas silicon cells and modules that were sold at less than fair value and subsidized by.
The government of China.
In March 2019, the United States continues these tariffs.
Given these tariffs only apply to a portion of crystalline silicon supply chain Chinese manufacturers added cell and module capacity and nearby countries in southeast Asia.
Today with this adjustment to their supply chain crystalline silicon competitors can not only avoid these tariffs, but also continued to use government subsidized poly silicon ingots and wafers manufactured in China.
Separately in February 2018 during the Trump administration. The U S imposed section 201 tariffs on imported crystalline silicon cells and modules for most countries with limited exceptions over a four year period.
Between June 2019 in November 2020, an exemption from section 201 tariffs was granted for crystal and Silicon Bifacial modules.
This exclusion enable Chinese solar companies with bifacial cell and module assembled in southeast Asia to avoid the section 201 tariffs.
As well as the antidumping and countervailing duties.
While they are still using subsidized poly silicon ingots and wafers from China.
Despite actions by the United States and India, Most global markets have allowed unencumbered access of government subsidized panels from China, resulting in PV economy, and global goals that are largely beholden to a single technology supply chain and country.
We believe our differentiated technology and advantaged cost structure and a balanced perspective on growth liquidity and profitability has enabled and will continue to enable us to succeed in the global marketplace. Despite the lack of fair trade.
As the only alternative to crystalline silicon technology, among the 10 largest solar module manufacturers globally first solar provides domestic supply security and enables the United States and global markets to reduce our over reliance on imported panels from China.
We remain hopeful for a future where both free and fair trade can be established in the PV industry.
I'll now turn the call over to Alex who will discuss our Q4 and full year 2020 results.
Thanks Mark.
Starting on slide seven I will cover the income statement highlights for the fourth quarter and for years 2020.
Net sales in the fourth quarter was $609 million decreased to $318 million compared to the prior quarter.
This was primarily a result of higher International project sales in Q3, partially offset by increased module volume sold in Q4.
For the full year 2020, net sales with $2 7 billion compared to $3 1 billion in 2019.
Relative to our guidance expectations net sales were within but towards the lower end of our guidance range.
This result was primarily caused by factors slides from our Q3 earnings call, which included the timing of the Sun streams to project sales.
To a lesser extent net sales were also impacted by certain module deliveries that were delayed due to COVID-19 related events.
Moving a positive case for the customer construction site, which resulted in a temporary shutdown and a shipping vessel containing first solar modules that was divested from its intended destination due to a positive case from the vessel.
For the percentage of total quarterly sales our module revenue in the fourth quarter was 90% compared to 46% for the third quarter.
For the full year 2020, 64% of net sales were from our module business compared to 48% to nine 2019.
Gross margin was 26% in the fourth quarter compared to 32% in the third quarter.
And for the full year 2020, gross margin was 25% compared to 18 in 2019.
Systems segment revenue was 61 million in the fourth quarter compared to $505 million in the third quarter.
Fourth quarter systems revenue was lower than anticipated primarily due to the delay in the sales of assumptions to project.
Our systems segment gross margin was 18% for the fourth quarter compared to 33% in the third quarter.
Fourth quarter was positively impacted by $9 million benefit associated with a reduction in estimated liquidated damages for legacy EPC projects with increased systems segment gross margin by 14%.
For the full year systems segment gross margin was 26% compared to 16% in 2019.
The module segment gross margin was 27% in the fourth quarter, that's a 30% in the third quarter.
As a reminder, the third quarter was impacted by a reduction in our product warranty liability reserve and reduction of our module collection and recycling liability and impairment for third module manufacturing equipment for tools no longer compatible with our long term technology roadmap.
On a net basis. These factors increased Q3 module segment gross margin by five percentage points.
Also as a reminder, sales freight warranty are included in our cost of sales and reduced module segment gross margin by 7% in the fourth quarter compared to 6% from Q3.
Despite utilizing contracted routes minimizing changes on the use for distribution center.
<unk> got higher rates during the fourth quarter for a portion of our module deliveries due to constrained contain about viability in the global shipping market.
With this context in mind, we're pleased with our Q for module segment gross margin results, which achieved our guidance expectation.
For the full year module segment gross margin was 25% 20% in 2019.
Full year 2020 module segment gross margin included $20 million of seven from decommissioning costs and $4 million of ramp related expense, which in the aggregate reduced module segment gross margin of one 4%.
From a fleet wide perspective, as a result of our continued manufacturing execution cost per watt sold at the end of 2020 met our target of a 10% decline relative to the end of 2019.
SG&A R&D and production start up closer to $102 million in the fourth quarter, an increase of approximately $16 million relative to the third quarter.
This increase was primarily driven by an increase from production startup expense from $13 million in Q3 to $17 million in Q4.
$9 million of development project impairment charges in Q4.
And a 7 million increase in incentive compensation expense relative to our guidance expectation.
Offset by the cost savings.
With this context in mind, we are pleased with our operating expense was out relative to our fourth quarter guidance range of $90 million to $95 million.
SG&A R&D and start up totaled $357 million in 2020 compared to 348 million in 2019.
Included in the full year 2020, Opex was $41 million of production start up expense.
$1 billion development project impairment charges.
Millions of severance charges $6 million of class action and <unk> legal fees of $3 million of expected credit losses on our accounts receivable as a result of the economic disruption caused by COVID-19.
And $2 million of retention compensation expense.
Combined with litigation losses of 6 million total operating expenses of $363 million for full year 2020.
Operating income of $58 million in Q4 and $317 million for the full year 2020.
We recorded a tax benefit of $66 million in the fourth quarter, which included a discrete tax benefit of $61 million associated with the closing for the statute of limitations on uncertain tax positions.
For the full year, we recorded a tax benefit of approximately $107 million, which includes a full year net benefit from the cares act approximately $84 million and $24 million related to the release of evaluation allowance in our foreign jurisdictions.
During the fourth quarter with an equity in earnings we reported a full impairment of approximately $3 million related to one of our equity method investments.
Fourth quarter earnings per share was $1 <unk> compared to $1 45 in the prior quarter.
For full year 2020 earnings per share was $3 73.
Compared to a loss per share for $1 97 from 2019.
Next on to slide eight to discuss select balance sheet items and summary cash flow information.
Our cash and cash equivalents restricted cash and marketable securities balance at year end was $1 8 million.
An increase of $123 million from the prior quarter.
Our net cash position, which includes cash and cash equivalents restricted cash and marketable securities less debt.
Year end was $1 5 billion, an increase of $105 million from the prior quarter.
Our net cash balance is higher than our guidance Steve.
Lower than expected project spend on U S International development projects.
Timing of cash payments for Capex delays for the first quarter.
And improved collections from module.
Notice the contemplate payment structure, the timing of the functions to project sales did not have a significant impact from our year end cash balance relative to our guidance.
Cash flow from operations for $37 million in 2020 compared to $174 million in 2019.
Cash flow from operations in 2020 included the previously disclosed payment for the class action litigation settlements for $369 million.
And a decrease in module prepayments following an increase in Q4 19 associated with ITC Safe Harbor module purchase orders.
Also as a reminder, when we sell an asset with project level debt that is assumed by the buyer.
Price and cash flow associated with the sale is less than if the buyer had not assumed the debt.
2020 bonds, all projects assumed $137 million of decorate these transactions.
Capital expenditures were $89 million for fourth quarter compared to $106 million in the third quarter.
Capital expenditures for $417 million in 2020 compared to $669 million in 2019.
Finally, before turning the call back over to Mark I'd like to provide an update on our strategic review of our U S project development, North American O&M businesses.
As recently announced we signed a definitive agreement to sell our U S project development platform for Lee with renewable LNG.
Portfolio company over the infrastructure.
Basically unit for us a comprehensive multi phase process, where more than 160 policies for either contact other expressed inbound interest when multiple structures for considered.
Based on the extensive nature of this process and the offers that we received we believe this transaction represents the most compelling option.
We're pleased with the platform will be acquired by Leawood at almost the entirety of our U S. Based product development team is expected to join leawood upon closing.
The non transaction is expected to close in the first half of 2021 after obtaining regulatory approval in first line.
Non customer closing conditions.
Subject to closing the acquisition Leawood will sign or <unk> and one eight gigawatts of module purchase orders of.
Of which 744 megawatts represent new bookings.
While approximately <unk> four gigawatts for included in the upfront purchase price for the remaining approximately one four gigawatts of modules are expected to be added to our contracted backlog on <unk>.
<unk> to be recognized as future module segment revenue.
As previously noted in our U S project development sale announcement, we stated that we intended to retain one one gigawatt AC of U S based projects that we plan to sell separately.
After this announced when we closed the sale of our <unk> two project.
Signed agreements to sell off countries for five project.
Late stage negotiations to sell our functions three projects, which totaled 750 megawatts AC.
The remaining projects are on contracts that are expected to be sold in 2021.
As it relates to the sale of our North American O&M business to know the force power services a portfolio company of clever group. Although we initially expected the sale of this business to close in the fourth quarter of 2020 certain conditions to closing remain outstanding.
We expect these remaining conditions to be satisfied and the transaction to close in the first half of 2021.
I will later discuss the financial impact for these transactions during the guidance portion of today's call now I'll turn it back over to Mark to provide a business and strategy update.
Alright, Thank you Alex.
Since the company's founding over 20 years ago. The PV industry has been through periods of rapid growth declining costs and technology evolution.
One of the few solar companies that both entered and exited this last decade.
We are continuing to adapt our business model to remain competitive and differentiated in a constantly evolving market.
For example, our original inserts into O&M and EPC and project development.
Was to address an unmet need of the market and capture a profit pool.
Our acceleration of series six production was the competitive response to address the current market condition. Despite.
Despite these transformation among others, our core identity as the module manufacturing company with a differentiated <unk> technology has remained constant.
As we've looked into the future with a more focused business model our pace of innovation will be critical to our competitive strength, enabling us to leverage our points of differentiation and capture compelling value for our technology.
Sure they'll crackling warranty and responsible solar strategy are recent examples of innovations enhancing our competitive position in the market.
This market the market momentum for PV continues to build.
Our series six energy.
<unk> and environmental advantages are all key Differentiators, which we believe will enable us to meaningfully participate in this wave of demand.
Okay.
Based on the growth of selected PV markets and our competitive advantages. We believe we can grow our manufacturing capacity, while still selling our products into regions, where our technology has points to initiation.
Within this context slide.
Slide nine provides an updated view of our global potential bookings opportunity, which now totals $19 seven gigawatts across early to late stage opportunities through 2023.
In terms of segment mix. This pipeline of opportunities is exclusively third party module sales.
In terms of geographical breakdown North America remains the region with the largest number of opportunities at $14 nine gigawatts.
Europe represents two three Gigawatts, India represents one eight gigawatts with the remainder in other geographies.
A subset of this opportunity set is our mid to late stage booking opportunities of 12, six gigawatts, which reflects those opportunities we feel could book within the next 12 months.
And includes the aforementioned one four gigawatts of contracted volume subject to satisfaction of conditions precedent.
The subset includes approximately <unk>.
10, two gigawatts in North America, one two gigawatts in India <unk>.
One gigawatts in Europe of <unk>.
Which <unk> seven Gigawatts is based in France, and the remainder in other geographies.
This opportunity set coupled with our contracted backlog gives us confidence as we continue scaling our manufacturing capacity.
Turning to slide 10, as we've continued to drive additional throughput increased average watts per module and improved manufacturing yields.
Our series six production exited 2020 with nameplate capacity manufacturing of approximately six three gigawatts split between four one gigawatts at our international factories in Vietnam and Malaysia.
And two two gigawatts in Ohio.
With the commenced production at our second series six factory in Malaysia.
Our global manufacturing footprint increases to six factories.
At the end of 2021, we anticipate increasing nameplate capacity.
<unk> $8 seven Gigawatts, which includes two six gigawatts of capacity in Ohio.
Six one gigawatts across for factories in Malaysia and Vietnam.
This two four gigawatts of incremental year over year capacity is reflective of our new Malaysia factory and expected improvements in average watts per module and throughput across the fleet.
By the end of 2022, we anticipate increasing throughput by 12% compared to our re rated throughput entitlement and expect continued improvements in our average watts per module and manufacturing yields.
Importantly by the end of the year, we anticipate increasing our fleet wide nameplate manufacturing capacity to $90 four gigawatts, which.
Which includes 2627 gigawatts of capacity in Ohio, and $6 seven gigawatts across our international factories.
At this 0.7 gigawatts of anticipated incremental capacity is expected to come from optimization of our existing footprint.
As previously highlighted we are evaluating the potential for future capacity expansion and may seek to further diversify our manufacturing presence.
In addition to the factors we've previously highlighted we.
We're also evaluating domestic and international policies to ensure any such expansion is well positioned.
While we have made no such decisions at this time any greenfield capacity additions are unlikely to share it to our 2022 production plan.
From a production perspective.
In 2021, we expect to produce approximately $700 for $2 seven six gigawatts.
Which is within the seven 3% to $7 seven gigawatt range. We have provided at the last at this time for the last February guidance call.
Our second Malaysia factory will continue its ramp period through the end of the first quarter and we are planning for over three weeks of downtime across the fleet to implement technology and throughput upgrades in 2022 with the addition of the fully ramp factory in Malaysia and ongoing improvements across the fleet, we expect to.
Produce eight 6% to 9.1 Gigawatts.
Turning to slide 11, I will now provide an update on our technology roadmap.
Over the course of 2020, we've made steady progress on our technology roadmap and in the year with a top bin of 445.
Early in 2021, we have demonstrated continued progress increasing our fleet wide average for module to $4 40 for February month to date and for our New Malaysia factory introduced our series six bus module. The next phase of our technology roadmap with our current top bin of 451.
<unk>.
Leveraging our existing series six tool set we increased our module form factor by approximately 2% and increased our module efficiency, which has increased our top bin production by approximately 10 watts.
Note after our second Malaysia factory ramp is completed we anticipate our top Ben will be 455 watts and.
Importantly, this increase in form factor is sized to reduce balance of system cost per watt by adding module wattage without material changes to the installation process or support structure.
We anticipate implementing series six plus across the fee over the course of 2021.
From a manufacturing cost perspective, we expect this additional wattage will reduce our cost and sales rate per watt.
Which I will later discuss.
For the fourth quarter of 2021, we anticipate commencing initial production of our copper replace series six for cure on our lead line production.
As previously disclosed this program is expected to not only increase module wattage, but also meaningfully improve lifetime energy performance.
Accordingly by the end of 2021, we anticipate our top production Ben will reach for 60 to 465.
With an expected 30 year warranty degradation rate approximately 50% below our existing baseline.
Given PV power plants have an expected useful life of up to 40 years a reduction in our modules long term degradation is expected to be a material benefit to project economics as it increases energy density of the module and lifecycle of energy generation.
As demonstrated on slide 12, we believe the benefits of improved module efficiency and temperature coefficient will result in a 7% higher energy density and the first share for our 465 watt pure module compared to our 440 Watt series six module.
Due to the expected reduction in our pure module as long term degradation rate. We expect this improvement can increase to 20% and year 40, which represents a 13% improvement over the life of the asset.
As we've stated previously we believe chores significantly increases series six is competitiveness against bifacial modules.
As a point of reference bifacial modules generated an estimate for two 8% more energy than comparable mono facial modules for.
Importantly tours energy uplift does not increase the module or balance of system cost is typically seen with bifacial modules.
By the end of the first quarter of 2022, we anticipate the entire fleet will be converting to cure.
This is anticipated to provide additional benefits to our average watts per module and cost per watt.
The implementation of our copper replacement program combined with our ongoing R&D program, we are aiming to achieve a top production bin of $4 75 to 480 watts by the end of 2022.
On our second quarter earnings call. We stated that we expected a 480 watt module bid in 2023.
With a cash held cell efficiency entitlement in excess of 25%, we see a path to significantly increase our module wattage and efficiency in the midterm.
With this pass through increased efficiency, coupled with our degradation spectral response and temperature coefficient energy advantages and vertically integrated manufacturing processes. We believe the outlook for our technology remains well positioned in a global PV market.
Finally, we continue to focus on advanced research and development on our value and the potential to move beyond a single junction device and leveraged the high band GAAP advantages of cash sale and a multi junction device.
Our multi junction device has the potential to be disruptive high efficiency low cost module within advantage energy generation profile.
While the evaluation of this technology as an early development, we are aiming to utilize many of the product enhancements in our existing CAD Tel roadmap.
Turning to slide 13, I'll provide some context around our module cost per watt.
As initially presented on our guidance call in February 2020, we forecasted a series six cost per watt reduction of 10% between where we expect it to end 2020 and the end of 2019.
Despite unforeseen challenges related to the pandemic pricing pressures in the global shipping market and rising commodity costs, including aluminum, which we mitigated in part through our hedge structure.
An increased demand for PV glass, we executed on our cost per watt roadmap for the year and achieve this target.
Looking into 2021, I'd like to start by addressing how we intent to manage key bill of material and sales freight costs.
Firstly, given our module utilizes a CAD Tel chemistry, our cost per watt is unaffected by fluctuations in poly silicon pricing.
Secondly from <unk> and the emergence of bifacial modules have continued to put pressure on the supply and cost of PV glass.
Strategy, primarily relies on forward contracts and localization of glass supply and.
In 2021, we intend to further localize our glass needs domestically in the United States and Malaysia through long term supply agreements.
This strategy enables us to mitigate the cost of variable spot pricing for glass and inbound freight.
Thirdly from a sales rate perspective, utilizing contracted routes and minimizing changes.
Hello.
To alleviate some of the impact of higher spot rates in 2020.
Despite higher shipping rates expected in 2021, we intend to utilize our distribution center strategy to mitigate some of these <unk>.
No.
Did you produce module segment gross margin by 7% to eight percentage points in 2021 compared to seven percentage points in 2020.
Finally, as part of our series six plus implementation.
We anticipate a reduction in the module profile by reducing the thickness of our frame injunction box.
In addition to reducing the bill of material costs. We anticipate this development will enable us to increase module shipping container modules per shipping container by approximately 10%.
As it relates to our Ohio manufacturing facilities despite.
Exiting 2020 with a higher cost per watt in comparison to our international factories.
We anticipate significant improvements in 2021 through the following initiatives for.
Firstly for the fourth quarter, the manufacturing yield was 96% which was below the fleet average we anticipate this will improve to 97% by the end of 2021.
Which provides a benefit to our fixed.
And variable cost per module.
Secondly, we anticipate increasing our nameplate manufacturing capacity to two six gigawatts by the end of the year, an increase of 18% compared to the end of 2020.
Finally, I'll cover glass facility in Illinois started in the fourth quarter of 2020.
And our flow glass facility in Ohio started in the first quarter of 2021, and we will supply our Ohio factory.
We anticipate this will provide a benefit to the variable portion of our cost per watt.
The implementation of these key initiatives among others, we anticipate our Ohio cost per watt headwind relative to our international factories, we will exit 2021, <unk> per watt higher including sales rate.
On a fleet wide basis relative to where we exited 2020, we anticipate reducing our cost per watt produced by 11% by the end of 2021.
Due to the ramp in Underutilization cost related to the aforementioned factory ramp upgrades and challenges related to sales rate, we anticipate reducing our cost per watt sold by 8% by the end of the year.
As we look beyond the mid term I would like to revisit the five key levers that we believe will enable us to continue reducing our cost per watt starting with efficiency, we anticipate increasing our top production been from 445 in December 2022 of top production bin of $475 million.
480 watts by the end of 2022.
With a midterm goal of 500 watts per module, we see the potential for continued improvement in our module performance.
Improvements in module, what's generally provide a benefit to each component of the cost per watt, including our variable and fixed bill of materials and sales freight and warranty costs.
Secondly by the end of 2022, we anticipate increasing throughput by 12% compared to our re rated capacity utilization baseline for the implementation of additional tools and Debottlenecking efforts.
This drives additional throughput on our existing manufacturing footprint, resulting in the fixed cost solution benefit.
Thirdly, while we've made steady improvements to our manufacturing yield over the course of 2020, achieving 97, 6% in December we anticipate a fleet wide in excess of 98% the plant upgrades for series six plus and cure are expected to impact yield performance during the year.
However in the midterm.
We see a path to increase our fleet wide manufacturing yield to 98, 5%.
Fourthly, we see mid term opportunities to reduce our buildings, primarily across our glass and frame.
Finally, we believe the combination of sending our market profile and transportation optimization can lead to a 15% reduction in freight cost.
Combining the benefits of our cure and our other R&D.
Work with aforementioned cost levers. We believe we are strongly positioned to continue to drive series six cost per watt efficiency and energy improvements over the near and midterm I will now turn the call back over to Alex who will discuss our financial outlook and provide 2021 guidance.
Yes.
Thanks, Mark for this.
Discussing our 'twenty 'twenty, one financial guidance I'd like to highlight our corporate controller.
And David create shareholder value through a disciplined decision making framework bounces.
Growth liquidity and profitability.
As it relates to growth.
We anticipate increasing our nameplate manufacturing capacity to nine four gigawatts by the end of 2020.
Driven by the addition of a second factory in Malaysia, and ongoing improvements in average watts per module throughput and manufacturing yields.
As Mark previously highlighted we are evaluating the potential future capacity expansion and may do some beyond our existing geographic footprint.
Strong bookings performance from 2020 and year to day 2021, and current forward contracted position of $13 seven Gigawatts gives us commercial confidence as we evaluate the potential for incremental expansion.
Our liquidity position has been a strategic differentiator in an industry that has historically prioritized growth without regard for long term capital structure.
For example, one of the few solar companies that both entered and exited the last decade.
Our strong balance sheet has enabled us to weather periods of volatility and also to see growth opportunities.
Additionally, we were able to self fund our series six transition, whilst maintaining a strong liquidity position ending $2021 5 billion of net cash.
We anticipate we'll be able to continue to self fund future capacity expansion and strategic investments from that technology, whilst maintaining a strong differentiated balance sheet, which we believe is a meaningful competitive differentiator.
From a profitability perspective.
<unk> backlog provides increased visibility into future sales for <unk>.
Uses financial exposure to spot pricing for PV modules.
It helps for line I'll capacity with future demand.
Accordingly, we can be selective about bookings opportunities and contract module sales at pricing levels that fairly value energy advantage product provide an acceptable profit per watt.
For example in 2022, although there remains significant and contracted volume yet to book the <unk>.
Across the aforementioned flight non gigawatts of volume potential deliveries in 2022 is only 10% lower than that of the seven two gigawatts for volume to be shipped in 2021.
With a target of 11% reduction in cost per watt produced between year end 2014 year end 'twenty. One I believe there is an opportunity to capture an attractive momentum.
So with this context in mind I'll next discuss the assumptions included in our 'twenty to 'twenty, one financial guidance.
Please turn to slide 14.
As it relates to our U S project development business, we anticipate that the transaction will close in the first half of 2021.
The proceeds of approximately $270 million.
Included in this price of $392 million 390 megawatts of series for the series six modules.
The 10 gigawatt project pipeline, including the five contracted development project.
30 megawatt operational three of project and certain other safe harbored equipment.
Upon closing we expect for recognized a pretax gain on sale shown on the income statement between the gross margin and operating income line approximately $25 million.
As it relates to our North American O&M business, we anticipate the transaction will also close in the first half 2021.
And upon closing, we expect to recognize a pretax gain on sale of approximately $115 million.
We believe the closing of these transactions will be a posted results for both our U S project development and North American O&M associates.
As of the end of 2020, we had approximately 300 associates as reported on North American O&M and U S portion of our own businesses collectively.
Loathing substantially all of these associates will join leawood unnoticed sales respectively.
As we exit North American O&M and U S project development, we see the potential for significant cost reductions from these decisions, which.
Which is reflected in both the cost of sales and operating expenses line.
As we've mentioned on prior earnings calls, including Q3 of 2019.
And is it also the case in Q4 of 2020 and closely with low project development revenue, we see an adverse impact for the systems segment gross margin due to the fixed cost burden and the cost of sales line.
Suddenly for the O&M business for majority of the non direct project related costs to support the O&M business sit within the cost of sales line.
In total in 2021, we expect to see approximately $15 million in annual cost of sales savings associated with the sales in North America O&M business.
With an additional approximately $5 million of savings in 2022.
Run rate annual savings of approximately $20 million from the sales from 2020.
The sale of the U S project development is expected to result in approximately $35 million of savings in 2021, and an additional $10 million to $15 million run rate savings from 'twenty two for a total annualized benefit from 'twenty two onwards, approximately $45 million to $50 million.
Approximately 60% fit from the operating expenses line.
From a development business.
Between.
And approximately $15 million of cost of sales associated with our power generating assets.
For the book backlog systems backlog of approximately 200 megawatts AC of systems projects in Japan, and a strong competitive position, we'll leave it as an opportunity to capture an attractive profit pool for that.
Next our 2021 shipments expected to be between seven eight and eight gigawatt, which exceeds our production plan for the year of seven 4% to seven six gigawatts.
There are several factors driving them.
First thing we produced approximately one six gigawatts in the fourth quarter.
EBITDA guidance from the third quarter earnings call by about 120 megawatts.
Fourth we shipped one eight gigawatt.
There's 100 megawatts below the midpoint of our guidance range.
And finally, we expect to ship approximately 150 megawatts of series six modules as part of the U S project development transaction to a previously intended for safe Harbor for 26% investment tax credit.
Our ongoing series six throughput and technology programs are expected to impact 2020, the weighted operating income by $60 million to $70 million.
This is comprised of $5 million to $10 million of ramp expenses incurred at our second factory in Malaysia, which we anticipate will exited around period by the end of Q1.
As previously mentioned, we have fleet wide factory upgrades to incorporate series six plus cash.
Sure and throughput improvements from 2021.
The off price will require approximately three weeks of downtime across the fleet, resulting in estimated underutilization losses of $40 million.
Production startup expense of $15 million to $20 million.
We anticipate these improvements will contribute meaningfully to about $8 six to nine gigawatt production plan in 2022.
As it relates to domestic capital markets and financing with significant utility scale solar and wind capacity additions expected in 2021 with.
And with co located battery storage, increasing many projects ITC eligible basis.
Non for tax equity at this time expected to remain high.
Our financial guidance assumes the bank profitability will be sufficient to supply the needs of the tax equity market for.
If market conditions deteriorate and appropriate legislative solution, such as the ability to receive direct cash payments in lieu of investment tax credit get implemented.
And finally to date, we've largely manage the impact for the COVID-19 outbreak on our business and it does not have significant impacts on our operations.
Our guidance Accordingly, as teams will continue to be able to mitigate any such impacts on our supply chain operations without incurring the material costs.
Mark.
I'll now cover the 'twenty to 'twenty, one guidance ranges on slide 15.
Our net sales guidance of between $2 85, and $3 billion, which includes two for five to $2 $55 billion of module segment revenue.
Included in our systems revenue guidance as the sales assumption for two project, which closed in Q1.
Gross margin is expected to be between $710 million to $775 million, which includes $580 million to $625 million of module segment gross margin.
Module segment gross margin includes a combined $45 million to $50 million of rent expense and Underutilization losses, which are expected to reduce module segment gross margin by approximately two percentage points.
Additionally, sales freight and warranty are included in cost of sales are expected to reduce module segment gross margin by 7% to eight percentage points.
In the United States for seeing some weather related impacts to module delivery schedules, resulting from loss pick films, particularly in Texas.
Whilst we're in the process for balancing customer's project needs from contractual commitments. We anticipate this will impact our Q1 shipments.
However, with lower Q1 sales volume and an improving cost per watt profile over the course of the year. We anticipate our module segment gross margin increased from 19% in the first quarter to 26% in the fourth quarter.
Approximately one third of our full year ramp in Underutilization charges are expected to be encouraging first quarter with the remainder split evenly across the subsequent three quarters.
It's important to note that our Sellable volume in 2021 is predominantly series six and series six plus which is competing for business against Bifacial technology.
And whilst we are incurring ramp underutilization cost this year to integrate our <unk> technology, we expect to begin realizing the value associated with these improvements in 2022.
SG&A and R&D expenses are expected to total 270 to 280 billion.
Included in SG&A, approximately 5 million of transaction costs related to the sale of our U S project development business.
Operating expenses, which includes $15 million to $20 million of production startup expense are expected to be between 285.
Mm $300 million.
Operating income as estimates day between $545 $640 million and is inclusive of an expected approximately $140 million gain on sale related to the aforementioned O&M and project development transactions and $60 million to $70 million of combined ramp and underutilization costs and startup expenses.
<unk>.
So as a non operating items, we expect interest income interest expense and other income to net to negative $10 million.
Full year tax expense is forecast to be $100 million to $120 million, which includes expense related to the north American O&M and U S project development sales transactions.
This results in a full year 2021 earnings per share guidance range for $4 from <unk>.
To $4 75.
And now we expect earnings per share of approximately $8 related to the gains on sale of our U S project development in North American O&M businesses.
Capital expenditures in 2021 are expected to range from 425 to 475 million. If we complete the transition to our second series six factory in Malaysia.
Increased throughput at our existing series six facilities.
Implement series, six plus and cure and invest in other R&D related program.
On a year end 2021, net cash balance is anticipated to be between one eight from $1 9 billion.
The increase from our 2020 year end net cash balance is primarily due to operating cash flow from our module business. The proceeds from our U S project development in North American O&M sales, which we expect will partially offset by capital expenditures.
Turning to slide 16, I'll summarize the key messages from today's call.
We continue.
Position, both from a demand and supply perspective.
Series six demand within robust with three three gigawatts of net bookings in previous earnings call and an additional one day.
For gigawatt volume contracted subject to conditions precedent.
Our opportunity.
Pipeline continues to grow with a global opportunity set of $19 seven gigawatt, including mid to late stage opportunities of $12 61.
On the supply side, we continue to expand our manufacturing capacity and expect to increase our nameplate series six manufacturing capacity to $8 seven gigawatts by year end 2021, and nine four gigawatts by year end 2022.
2021, we expect to produce seven 4% to seven six Gigawatts of series six volume the year over year increase of 25 for 2019 defense.
We see significant mid term opportunity for improvement for our module efficiency cost per energy metrics.
We ended 2020 with full year EPS of $3 73.
And are forecasting full year 2021 earnings per share for $4 five to $4 75.
And finally, we expect to close the sales of our North American O&M and U S project developed businesses in the first half.
For 2021.
And with that we conclude our prepared remarks and open the call for questions operator.
As a reminder to ask a question Mark.
One on your telephone please draw your question principal towns and Josh.
In order to allow time for everyone. Thank you for your question for you David Huang.
Please standby, we compile the Q&A losses.
Our first question comes from Philip Shen will flow your line is open.
Hey, guys. Thanks for taking my questions.
You've shown some healthy bookings year to date.
Given the force waiver issue ramping up can you talk about how recent conversations with customers have been shaping up and perhaps how they've shifted as well.
And then looking out to 'twenty two.
When do you expect that could be.
Become fully booked it looks like you are two thirds, there and then what about the outlook for 'twenty three.
And then in terms of.
Your recent bookings you talked about I think.
10% reduction in pricing from 2020 levels.
Yeah.
Which might suggest that your 2022 bookings.
Value gain or book.
Book to recently are in the 30 per watt.
So I was wondering if you could comment on that or if they might be closer to the mid twenties cents per <unk>.
Which is.
I think certainly possible and what.
Some market participants have been sharing with us in terms of market pricing for crystalline silicon solar.
I know Theres a lot there. Thank you very much for the questions.
Alright so.
Sales hit on them all through.
Let him bookings were real happy with the momentum and just if you even look at the.
Mid to late stage.
The opportunities for that we expected the opportunities, which we could close within.
The next year with North of 12, Gigawatts sitting there.
The momentum we're starting off with right now we expect 2022 to be a very strong booking year.
As it relates to this.
Discussion of comment around new implications of force labor.
I think we tried to hit on some of those themes of it's probably an interest any one particular issue, but it goes back to this concept that we referred to as is responsible solar.
And they are engaged with our conversations that are.
One concern about over reliance <unk>.
Concern about.
Maybe the current state of.
<unk>.
Political relationship between the U S, and China, or India, or China, or other markets as well.
And as a result of that they're looking for alternatives and one thing thats great about first of all it not only do we have great technology and great capabilities, but having.
<unk>.
A different standard, which we hold ourselves accountable for.
And we have different value attributes that we can provide to our customers and certainty as one in June with the counterparty and our supplier with a different health himself from an integrity and ethical standard to the highest levels I think it's important and it's starting to come into the bookings what we've started to see now in the pipeline that we have.
<unk>.
So it still is one of one of many I think theres still a lot of people that are trying to understand the whole force labor and how it plays out and what other potential applications are around it but what I will tell you is that some of.
And customers that we have not referring to here is the IPP or developer or for EPC, but others that are more of the offtake agreements, they're very concerned in some cases, they're incorporating conditions within their procurement criteria to ensure that there is zero tolerance for.
Force Labor and.
<unk>.
Not only are the models of which are being procured and utilized in in the project and they have in the U S or somewhere else internationally.
They want to make sure that their suppliers also has zero tolerance and theres nowhere through their entire supply chain.
Do they tolerate force label and that makes it very hard as you know with the complexity.
Silicon supply chain to make those types of searches and reputation is.
As it relates to our.
Our goals are.
Be very transparent goals mark.
Going to give you a discrete timing, but we clearly want to be as we.
Exit this year. Our goal is we want to be sold out of 'twenty. Two we wanted to be more than halfway sold out of 23 and have a meaningful portion of our 'twenty for volumes contracted.
So.
When you look at where we are right now and as you indicated we're pretty in pretty good position for 'twenty. Two is clearly more work to do and I keep telling them.
Our chief commercial officer, let's keep solid keep solid and taken the opportunities that we can and it's good for the pipeline in the robustness and resiliency that we have that hopefully gets us to that goal of accomplishing that would be for <unk>.
A year and that would clearly would put us at a much higher than we historically have tried to say, let's maintain up a 101.
Sold to book ratio, if we accomplish that will be much higher than our historical one to one at least for we say right now we feel confident we can get that.
Asps.
What I'll say.
Phil around that.
If you look at the Q when it comes out of the <unk>. In this case I think it is going to come out with an average of.
<unk> 38, or something like that the metrics are going to tell you that.
The.
Okay.
I wouldn't say that we're starting to see increasing asp's I wouldn't say that's necessarily reflective of what we're seeing are we starting to see it depends on each year, which we are booking out into <unk>.
Asps starting to firm up.
And.
Maybe we'll start to see some some resiliency.
And therefore direction, but we're like I said, we said on the call is we're very pleased and happy with the Asps that we've been able to capture relative value. We create for our technology and then the opportunity to continue to improve our overall cost reduction roadmap maintain.
Solid gross margin, but more importantly, as you look at year over year and we're growing.
Our capacity in our sold volumes will be up significantly year on year as well, but all sort of creates contribution margin that helps expand operating income.
Our next question comes from Brian Lee with Goldman Sachs. Your line is open.
Hey, guys. Thanks for taking the questions.
<unk> I guess first Mike can you of the one one gigawatts of systems I think you talked about this but.
How much is targeted to be sold this year next year and then presumably 2023 will be the last year, where you see some systems business revenue and how much of that year and then the gross margins I know there.
They depend a lot on mix, but it seems like if we back out the.
The components, where youre doing pretty well, it's about high single digit low teens number implied for this year is that going to be kind of the go forward margin level I would have thought it would be a little bit higher given sun streams made it into 'twenty one versus.
2020, but any any thoughts around mix implications for margins and how to think about margins for that business. So that you still have some.
Some revenue to monetize over the next couple of years. Thanks, guys.
Yes, I'll take the first one Bryan I'll, let Alex take the question on gross margin.
As it relates to the systems business.
The one one is largely the.
The U S assets that we still have.
So on streams has contracted the rest of the Sun streams complex, we've signed but we haven't.
For a portion of the side of another portion hasnt been signed yet, but the plan would have all of that done hopefully by the end of the quarter and then I'll take the largest portion of.
Of the U S volume that aggregates up to on an agency basis on a 600 megawatts for something like that.
And.
There is another few hundred megawatts, that's left in the U S of which our plan would be to move forward as quickly as possible.
Do we have all of that sold out by the end of this year. So those are just development sites of which we would then try to contract model offtake agreements to for the goal for the U S stuff would be to monetize all of that volume this year.
And sooner the better.
The development team is going with the transaction. So we don't have the capabilities to really to continue with the development activities, we will have to enter into.
Service agreement effectively for with Lee were to continue to support those projects until they're sold out.
The balance of it there is still a.
Two to 300 megawatts of contracted Japan projects and and there is still more thats not.
Contracted at this point in time, we have feed in tariffs, but we haven't actually for fully accomplished the permitting process and interconnection and other things that would ultimately cover.
For the alternate required for our recognizing of a booking.
That volume will be recognize.
Most of it will show up in 'twenty, three there'll be some in 'twenty, one and 'twenty two.
But if you look at the <unk> on those projects most of them have 23 <unk> as we currently see them.
But as you know.
The bookings in the excuse me the average asps on those projects are from a highly attractive and so we'll monetize that over the next three years and we'll see if we go beyond that again, we still have some more projects for Canadian tariffs that we have in both jet that potentially could create more volume into the 'twenty three maybe even 'twenty for a period, but.
I'll, let Alex talk about the gross Mark yes.
And if you look at the guidance. We gave total revenue of $2 85 to three of that module two for five to $2 55.
It implies systems for the $450 million of revenue and on the gross margin side on the 17% to 285 companywide a module of $5 80 to 695. So again implies systems 130 to $160. So if you look for those gross margins at 25% to 26% of the company level.
Systems looks pretty high but its really very limited volume systems is in the low for us is skewed a little bit by some streams and then potentially a little bit of Japan, giving in back end of the year for the module that comes in at about 2000 for years to 25, So thats why youre seeing module gross margin for the year.
As you are talking about kind of how to look for that going out.
We tried to give a little bit of color here.
The gross margin level, we talked about.
The ASP decline and what we've got book and if you look at 'twenty two there's clearly still a lot to book in that but we do have a significant amount contracted already and we said if you look at the ASP decline.
'twenty one into 'twenty two it goes down about 10% and then cost decline day down about 11% net other off different beta is obviously on an ASP and the cost per watt, which you can see that.
We are getting cost block coming down at a slightly better than the ASP decline going from 'twenty one into 'twenty two and at the same time you are getting some additional volume coming through so you get that scale on a percentage basis, you've got a better benefit from deletions from fixed cost at an absolute dollar basis, you guys just the benefit of <unk>, Inc.
Volume coming through that and then as we've talked about it for it matters all set to go down to the operating margin level. So we talked about some of the cost reductions coming out from the sale of the O&M and project development business. Some of that comes out in 2021, but there's also a lack of a little bit that comes out in 2022. So that's going to see cost of sales of non opex continuing to reduce.
First as we go into 'twenty, two and that again helps us down for an operating margin level.
One thing I'll add to that too Brian.
Alex mentioned in his comments is just that there is there's a pretty significant headwind in Easton 21 for Underutilization is in order to deal with the upgrades that we need to do for primarily for sure. So there is there is a significant cost I think it's about $40 million in total.
Hunter utilization that will have to absorb within 21, so that's weighing down on the other.
On the gross margin I think if you adjust for that I think for gross margin goes up a couple of percentage points up into that range.
Okay.
Our final question will come from Tom Kelleher with Baird. Your line is open.
Thank you for Mike can talk for me.
I wanted to for all down.
I heard you say mark several different things about gross margin improvement.
So the Asp's are firming up.
Plus lots in the 'twenty two so if I go to talk to EPS for the upright.
And then my second question thoughts.
I guess when you build a new factory <unk> determined whether or not you have.
For the Rois on that.
I guess, there's probably a margin associated with that and so you have to ask one for.
Belief in long term contracts to invest that money and so those are my two questions.
Yeah, Ben I'll take the first one I'll, let Alex take the second.
We can't we're not giving guidance for 'twenty two at this point that we gave some pretty strong indicators of what will drive 22, which will be the volume of production volume that we referenced the new product of cure. The one they want to keep making sure thats represented in there is and all of 'twenty two volume will be cure.
If you look at the one slide which shows the energy uplift and Theres, a meaningful energy uplift because of the improvement of long term degradation in that.
We sell energy we sell value.
And so that that is important to understand we also referenced that there was a lot of interest and rightfully. So on bifacial modules cannot and they talked about a 48% energy uplift relative to mono facial modules similar efficiency.
If you look at where we are.
With our <unk> product line.
Our lifecycle average.
On top of the initial.
Co and efficiency path. There is another 10 percentage points of <unk>.
Life cycle energy through improvement of long term variation and so you can take you can take our product and even against crystalline silicon.
<unk>.
Bifacial that maybe even has a nameplate of 150 175 bps better efficiency and youre going to find that over the lifecycle energy profile, we're going to outperform that.
In the range of call it anywhere from 4% to 6%.
That's compelling value creation so.
The technology, it's the it's the supply improvement David a production plant improvement that we're talking about and continued reduction of our own internal cost I think 'twenty two we're not going to give specific guidance, but we gave enough information I think to help people look across the horizon and what 'twenty two should look like.
And then I think about ROIC, so I look at it across both in individual factory.
<unk> five basis.
If you think about individual factory at a gross margin level, depending on what our volume sold its more of it is held outside the U S. Today and as we as we expand you may see that gross margin level going down and being more challenging from an individual factory relative to the current book volume.
But at the same time, adding a factory at very limited to no Opex and also actually have a slight benefit in the leasing from the fixed cost instead of a cost of sales line.
Lastly on <unk>.
Operating margin benefit at anything is tax free can look better so because it has impacts not just for an individual factory, but also for diluting fixed cost cost plus the benefit you get extra volume with pretty much the same opex given the as we've said before we think 80% to 90% of our operating cost line is fixed.
We have to look at it both individually and across the company, but we certainly want to make sure that if we're adding we're.
Being significantly above our weighted cost of capital Friday cafes, we've seen that today.
We have reached the end of our time for the question and answer session.
Today's conference call you may now disconnect.
Okay.
The next day.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Mike.
Okay.
Okay.
Thank you.
[music], Inc.
Thanks.