Q3 2021 First Solar Inc Earnings Call
Good afternoon, everyone and welcome to first <unk> third quarter 2021 earnings call. This call is being webcast live on the investors section of first <unk> website at Investor Don first 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 third quarter 2021 financial results a copy of the press release and associated presentation are available on <unk> website at Investor Dot 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 and technology update Alex will then discuss our financial results for the quarter and provide updated 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.
<unk> to differ materially from management's current expectations, including among other risks and uncertainties the severity and duration of 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 a more complete disruption. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer, Mark <unk>.
Thank you Mitch good afternoon, and thank you for joining us today.
Beginning on slide three I would like to start by thanking the first solar team for their dedication and continued execution.
Operationally, despite the challenging freight in COVID-19 environment.
Our associates continue to deliver on their commitments.
In the third quarter, we produced over two gigawatts of modules and in October we increased our top production then to 465 watts.
Which represents a 19% glass area efficiency.
In parallel we started construction of the building of our third Ohio factory and began ordering equipment for our first factory in India.
Commercially we had a good quarter increase and a record year to date bookings to 10 five gigawatts.
From a financial perspective, while Q3 freight costs were higher than anticipated are.
Our full year sales trade expectation is unchanged.
Shipments, which we generally define as when the delivery process to our customer commences in the module leaves one of our factories totaled $2 one gigawatts in Q3.
Which was only modestly below our expectations.
Despite this total shipment result, the global freight market continues to experience record levels of scheduled delays and reliability issues.
As a result, approximately 820 megawatts of modules shipped remained in transit at quarter end.
Nearly double that of the preceding four quarters.
And we are therefore, not recognized as revenue in the quarter.
While we expect extended transit times to continue we anticipate our in transit volumes to improve in Q4 as a high percentage of our shipments are expected to come from our Perrysburg factory and U S distribution centers.
As a result, we reiterate our full year 2021 EPS guidance.
Turning now to slide four I'll provide an update on our expansion plans.
As it relates to our U S expansion, we started construction in mid August after successful groundbreaking ceremony, which included bipartisan representation from state and federal government, including Secretary of Labor Marty Walsh.
As we continue this expansion journey.
We're proud to be at the forefront of America solar manufacturing.
Supporting domestic energy independence, and creating good paying middle class jobs that will be here for years to come.
Looking forward with a vertically integrated manufacturing process and our differentiated <unk> technology.
We are uniquely positioned to expand our leadership role as the largest PV module manufacturer in the United States and support the nation's climate objectives.
With construction underway in our schedule on target, we expect to commence initial production at the three three gigawatt factory in the first half of 2023.
In September I had the privilege of meeting Prime Minister Modi, and Washington D. C to discuss India as long term climate objective and focus on energy independence and security.
As well as opportunities for technology leadership in India.
Through an ambitious target of 300 gigawatts of installed solar capacity by the end of this decade paired with a holistic industrial and trade policy Andy.
Andy has created a supportive environment for companies seeking to manufacturer renewable energy in country.
We commend the Indian government for its leadership and believe that if every country where to take bold steps like India, our collective ability to achieve the targets within the Paris agreement would be well within reach.
With this backdrop in mind, we are excited to be expanding our manufacturing footprint into India. Overall the site preparation is complete and we started to order equipment and the schedule is on track with the three three gigawatt factory expected to commence initial production by the end of 2023.
Turning to slide five I'll now provide COVID-19 manufacturing supply chain and cost updates.
As a global company, we have demonstrated discipline execution agility and a steadfast commitment.
Commitment to health and safety throughout the pandemic risk.
Reflective of this approach we have been able to maintain capacity utilization.
Excluding planned downtime of over 100%.
The challenging COVID-19 environment in Vietnam and Malaysia.
Vietnam based manufacturing associates have been essential and the success by electing to remain onsite in order to ensure manufacturing continuity.
While this very challenging period of onsite <unk> ended in late October.
We acknowledge our team's resiliency.
Ingenuity and incredible dedication to the company's mission.
The strength of our global Associates, we continue to execute source, our bill of material strategically.
And navigate the current environment as reflected by the manufacturing performance metrics on slide five.
While we've delivered against our near term production commitments travel and other COVID-19 restrictions have added.
Strange on getting third party equipment installers as well as our U S based associates into Malaysia, and Vietnam to perform the plan product throughput and efficiency upgrades.
We are continuing to work with relevant agencies to support this essential travel in a safe manner. However.
However, the timing of upgrading our last factory in Vietnam to series six plus is now expected to be completed in Q2 of next year.
While I will provide a holistic update on our <unk> program later in the call. The aforementioned factors have contributed to impacting implementation timing and Malaysia and Vietnam.
Consistent with our expectation.
As of our prior earnings call. The Ocean freight market globally has remained challenging due to ongoing port congestion limited container availability.
Historically poor schedule reliability higher fuel costs and other events.
While shipping rates have increased since the July call.
We had accounted for this expectation in our previous full year sales rate guidance, which remains unchanged.
As highlighted on our prior earnings call. We continue to partially mitigate the effects of higher sales rate per watt through implementation and modular improvements in module efficiency implementation of series six plus utilization.
Utilization of U S distribution network and freight sharing contractual arrangements with our customers, which cover a portion of expected 2022 deliveries.
These mitigating factors the challenging trade environment has adversely impacted our financial results and while we have been able to maintain our global our module gross margin guidance for 2021, we expect freight cost to remain at current elevated levels into 2022.
I would next like to provide an update on our variable bill of material spend.
Although spot prices for aluminum has continued to rise since the July earnings call.
We have had a commodity swap contracts in place, which covers the majority of our U S consumption through Q4.
Going forward.
For our domestic and international manufacturing sites, we have several strategies and process to reduce framing costs in the near to mid term.
Firstly by differentiating the frame design and reducing cost of modules installed in the interior versus exterior of the array.
Secondly by optimizing the mounting interface of our next generation module.
And finally evaluating alternative materials for construction of our frame.
From a glass perspective, we have largely hedged this cost through long term fixed price agreements with domestic suppliers that have volumetric pricing benefits as we achieve higher levels of production.
While cost uncertainty remains for certain bill of material items, our targeted 3% cost per watt sold reduction including sales rate.
Tween, where we ended 2020 and expect to end 2021 is unchanged from the prior earnings call.
As we mentioned while sales rate remains at.
Elevated in excess of pre pandemic levels, we have accounted for this in our guidance update during the previous earnings call.
Regarding our end of year cost per watt produced target, we expect to face challenges, primarily due to COVID-19 related delays impacting the startup of a new glass.
Cover factory.
To support our Malaysia, and Vietnam factories. Additionally, we expect higher adhesive costs due to supply chain disruptions in China.
And a mix shift the production to higher cost exterior modules to support projects and high wind zones.
As a result of these factors our revised year end cost per watt product produced reduction target is 5% when compared to the prior year.
Given the majority of modules produced during the fourth quarter are expected to be recognized as revenue next year. This cost per watt produced headwind is not expected to impact our 2021 P&L.
In aggregate. Despite these near term cost pressures are multiyear midterm target to reduce series six bill of material costs by 20% to 25% remain on track.
In the United States, there are a number of items in the mix as it relates to industrial policy trade policy and importation.
While the outcome of these items remain uncertain. We continue to believe the Biden Hyatt Paris administration has a unique opportunity to produce a comprehensive strategy for solar which could include a mix of manufacturing tax credits and extension of the investment tax credit with the domestic content requirement and enforcement of response.
<unk> solar among other strategies.
Through our long term strategic approach to policy. The administration has the opportunity to create an environment that not only helps secure America sustainable energy future and a matter that reflects our country's values and principles, but also fosters innovation for the next generation of PV to be developed and manufactured in the United States.
As it relates to trade policy, we continue to monitor developments related to the petition to extend section 201 tariffs.
And to investigate whether certain solar manufacturers have circumvented antidumping and countervailing duties.
As it relates to importation we've repeatedly.
Equivocally condemn the reported use of forced labor and the crystalline silicon PV supply chain.
We continue to do so as long as it remains an issue.
During the previous earnings call, we indicated that the issue necessitates Swift and resolute action.
But also emphasize that it should present, an impetus for the United States and like minded nations to separate their climate goals from the over reliance on one country and one PV technology.
No country should be forced to choose between fighting climate change and standing up force principles, such as safeguarding human rights and security and its energy independence.
While we acknowledge the challenges presented by the withhold release order issued by the U S customs and border protection in June of this year. There are practical commercial solutions to reduce the risk of purchasing modules associated with forced labor and uncertain trade policy outcomes.
For example, one of our peers has recently established a vertically integrated supply chain from polysilicon to module assembly outside of China without direct or indirect ties to zig zag.
While this is a small step and only impacts a portion of the overall operation. We believe it is a meaningful step in the right direction.
Two essential attributes of PV power plants are there environmental benefits and their zero ongoing fuel consumption as compared to thermal generation.
The economic competitiveness of solar continues to drive an acceleration of global adoption, many international markets, including China rely on coal file firepower for the majority of the electricity generation.
Due to supply chain challenges and geopolitical factors, China is experiencing a coal shortage that has resulted in higher energy prices and government mandated power restrictions against parts of the manufacturing sector.
Given the majority of global polysilicon capacity is located in mainland China.
Coal costs mandated reductions in energy consumption and reduced operating capacity have further exasperated the supply and demand imbalance in the poly silicon market.
Contributing to an ongoing increase in pricing for both polysilicon and solar modules.
This coupled with a challenging freight environment has caused many Chinese based manufacturers to prioritize availability of solar module supply.
To the local market, where the major investors and utility scale solar or the country state owned enterprises.
This is yet another potent reminder of the risk of having climate goals tethered to supply chains that lead a single nation and the <unk> technology and demonstrates the irony of Americas clean energy transition currently being hindered by reliance on coal to produce crystalline silicon solar module.
Turning to slide six.
I'll next discuss our most recent bookings in greater detail.
We had a good quarter with bookings of one five gigawatts since the previous earnings call.
After accounting for shipments of approximately $2 one gigawatts during the third quarter, our future expected shipments, which extended into 2024 or 16 five gigawatts.
Including our year to date bookings were sold out for 2022.
Four two gigawatts of planned deliveries in 2023 and <unk> three gigawatts in 2024.
While our energy quality and environmental advantages are all key differentiators customers have been placing a premium on our vertically integrated manufacturing process supply chain transparency and zero tolerance for the use of force labor in our supply chain.
We are seeing our value proposition drive interest in multi year framework agreements.
With a robust.
And several active negotiation with customers.
<unk> state in India for multiyear and multi gigawatt agreements. We are pleased with the robust demand for our CAD Tel technology.
At time of our previous earning call. We had indicated the asps across our volume for potential deliveries in 2023 was 1% lower than the volume to be shipped in 2022.
Including our incremental bookings since the previous earnings call. Our 2023 Asps is largely unchanged.
In summary, we have seen a significant increase in desire to work with first solar due to our demonstrated value proposition of more value with less work well.
While many of our crystalline silicon competitors have reportedly cancel deliveries have prioritized shipments into the domestic Chinese market and have ultimately requested price increases and delayed shipments. We however continue to stand behind our contractual commitments.
With this backdrop in mind.
We are seeing bookings momentum with customers, who value our technology advantages the benefits of domestically produced product and a responsible solar principles.
Additionally, and as reflected on slide seven our pipeline of future opportunities also remains robust our total bookings opportunities is 45, gigawatts with 'twenty, one gigawatts in mid to late stage customer engagement.
Note our.
Our capacity expansion in India, and the related increase in available supply to meet projected domestic demand has increased our bookings opportunity in India to over 17 Gigawatts.
A 10 gigawatt increase since our Q2 earnings call.
Before turning the call over to Alex I'd like to provide an update on our technology roadmap.
Looking forward <unk> represents an anticipated an enhancement to our module performance, which is expected to increase efficiency and reduce long term degradation.
On the April earnings call, we indicated the cured lead line implementation was anticipated by Q4 of 2021 and.
And fleet wide by the end of Q1 2022.
On the July call, we indicated cure implementation in Vietnam required international travel from third party equipment installers as well as our U S based associates.
Regarding Malaysia, we were in the process of implementing the required upgrades, but not all had been completed.
As of the end of the July call.
In July through September Covid, 19 cases began to significantly increase as the delta variant spread.
And government restrictions were put in place in parts of Southeast Asia.
As it relates to our <unk> development program, we have demonstrated the product's full performance entitlement in a lab setting and are currently working to translate this potential into high volume production in Ohio.
This trend for improving module wattage and degradation appears favorable we are still working to realize the full performance entitlement and high volume manufacturing conditions.
We are continuing to refine our production parameters in order to bridge this gap relative to the program objectives for sure.
As a result of the aforementioned challenges our integration schedule is delayed and we have revised our integration schedule to the lead line implementation by the end of Q1 2022. Please.
Please wide replication timing will be determined upon completion of implementation of the lead line and factory equipment upgrades required for sure.
While <unk> been delayed this presents a window of opportunity to leverage the optionality in our technology roadmap and demonstrate the resiliency of our vertically integrated manufacturing process.
Through product enhancements to our current series six technology.
We have increased our top production been to 465 watts, which represents a 19% glass area efficiency.
And produced over 125 megawatts of $4 60 watt modules during October.
In addition to improved efficiency and module Wattage series six is expected to have a significantly improved long term degradation rates.
Using improve metrology to measure derogation at our test sites and further validated by third party analytical methods and customer site data. The current series six platform is expected to have a 30 year degradation rate of 3% per year, which.
Which is 40% below our previous expectation.
The improved series six nameplate wattage is in line with our target to exit 2021 with a top production bin of $4 60 to $4 65 Watts, It's energy performance, including a slightly higher long term degradation rate.
And higher temperature coefficient is below the expected performance of cure.
In connection with our cure obligation starting in Q1.
Next year, we are.
Either amended or we will endeavor to amend certain customer contracts utilizing <unk> technology by substituting our enhanced series six product.
In connection with these customer contract amendments, we may make certain price concessions.
We currently estimate that the price concessions that we will potentially will make across the impact of customer contracts will not exceed approximately $100 million of 2022 revenue.
Despite these challenges we are encouraged by the promise of cure technology.
Through their relentless focus and persistence of our manufacturing technology teams, we believe cures performance on the manufacturing line, we will continue to improve.
We will discuss the full year 2022 impacts during our fourth quarter earnings call.
I'll now turn the call over to Alex who will discuss our third quarter financial in 2021 guidance.
Thanks Mark.
Starting on slide eight I will cover the income statement highlights for the third quarter.
Net sales in Q3 was $584 million, a decrease of $46 million compared to the prior quarter.
The decrease in net sales was primarily due to lower systems segment revenue, which was partially offset by an increase in module segment revenue.
On a segment basis, our module segment revenue in Q3 was $563 million compared to $543 million in the prior quarter.
System segment gross margin in Q3 was $6 million, which was largely driven by a favorable settlement related to a legacy systems project.
Module segment gross margin was 21% in Q3 compared to 20% in Q2.
Several positive and negative factors that impacted Q3 results.
Firstly, we recorded a reduction in our product warranty liability, which was primarily due to lower claims than previously estimated for our series two and series six modules.
This resulted in a $33 million reduction of warranty liability and a corresponding benefit to cost of sales.
Secondly, certain of our legacy module sale agreements all covered by collection and recycling program when a corresponding expense for estimated future cost of our obligation was recognized the final sale.
During Q3, we recognized an $11 million increase in our module collection and recycling liability due to changes in the expected value of sudden recycling byproduct.
Thirdly as mentioned we're in the process of implementing factory upgrades in 2021, which requires downtime, resulting in lower production and underutilization.
In Q3, our module segment gross margin was impacted by $6 million of under utilization.
On a net basis. These factors increased module segment gross margin dollars in percent by $16 million and three percentage points respectively.
Separately, whilst we continue to navigate and partially mitigate the effects of the dislocated shipping market higher freight costs impacted our financial results for the quarter.
In Q3 sales totaled approximately $67 million.
Along with module warranty expense of approximately 1 million sales freight and warranty, which used a module segment gross margin by approximately 12 percentage points.
Of note as a reminder, many of our module peers report freight cost as a separate operating expense for comparison purposes. We encourage you to consider the fact when benchmarking our module gross margin relative to our peers.
SG&A and R&D expenses totaled $69 million in the third quarter, an increase of approximately $9 million compared to the prior quarter.
This increase was primarily driven by a 3 million impairment charge related to a certain project development in Japan $2 million increase in R&D expense predominant relates to cure testing.
Lower net benefit of $2 million from reduction to our expected credit losses in Q3 compared to Q2.
Production startup, which is included in operating expenses totaled $3 million in Q3 compared to $2 million in the prior quarter.
Q3, operating income was 51 million, which included depreciation and amortization of $66 million.
$9 million related to Underutilization and production startup expense.
Share based compensation of $6 million.
We recorded tax expense of $1 million in the third quarter compared to $20 million in Q2.
The decrease in tax expense for Q3 is driven largely by lower pre tax income shift in our jurisdictional mix of income and lower estimated taxes in certain jurisdictions.
And the combination of the aforementioned items led to third quarter earnings per share of <unk> 42.
And $3 16.
First three quarters of 2021 on a diluted basis.
Next on slide nine discuss select balance sheet items and summary cash flow information.
Our cash cash equivalents marketable securities and restricted cash balance ended the quarter at $1 9 billion, a decrease of $111 million compared to the prior quarter.
Several factors impacting our quarter end cash balance, especially in Q1, we sold certain marketable securities associated with our module collection and recycling program for total proceeds of $259 million.
Which were presented as restricted cash on our balance sheet and were therefore included in our measure of total cash at the end of Q1 and two.
During Q3 of these proceeds were reinvested on a representative of our balance sheet as restricted marketable securities which are not included in our measure of total cash.
In comparison to our initial expectations coming into 2021 year to date performance reflects the strength of the business model, but also tremendous execution during the course of the year.
While the effects of higher freight costs were partially offset by the aforementioned settlement related to a legacy systems project.
Our current earnings per share guidance is largely within the range. We provided during our February earnings call.
Relative to year to date EPS of $3 16.
The $4 30 midpoint of our current full year guidance.
<unk> fourth quarter EPS of $1 14.
Compared to <unk> 42 in the third quarter.
There are several factors driving this quarter over quarter increase in earnings per share and our ability to reiterate our full year 2021 EPS guidance.
Firstly, approximately 820 megawatts of modules remained in transit at quarter end and were not recognized as revenue during Q3.
While extended transit times impacted our Q3 results, we anticipate a significant a significant portion of these modules will be recognized as revenue in early Q4.
Driven by a strong start to the fourth quarter, we anticipate an increase in module volume sold during Q4.
Secondly, while freight cost in Q4 are expected to remain above pre pandemic levels. We had accounted for this expectation in the guidance. We provided on the July earnings call.
As a result, our sales rate guidance of full year 2021 of 10% to 11 percentage points of gross margin.
Fuel gross margin remains unchanged.
Thirdly, we remain on track to complete the sale of certain Japanese systems projects in Q4 contributing to an expected increase in system segment revenue and gross margin compared to Q3.
So with that context, let's discuss the updated guidance ranges in some more detail.
Our revenue gross margin guidance remain unchanged and note that our gross margin continues to include the impact of $61 million to $66 million of ramp and utilization and reduced throughput costs.
Financial perspective, we delivered year to date EPS of $3 16.
Our full year 2021, EPS guidance is unchanged.
Our net cash position of $1 7 billion remained strong.
From a manufacturing perspective, we produced over two gigawatts. Despite the challenging COVID-19 environment increased our top production been to 465 watts and have revised our cure implementation schedule.
And finally series six demand remains at record levels with 10, five gigawatts with year to date net bookings, which includes one five gigawatts since the previous earnings call.
With that we conclude our prepared remarks and open the call for questions operator.
You ask a question you will need to press star one on your telephone.
<unk> Your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the line of Philip Shen with Roth Capital Partners.
Hi, everyone. Thank you for taking my questions have three groups of questions. The first one is around bookings and pricing was wondering if you could provide a little bit more color on that.
Looking ahead do you expect to accelerate or perhaps slowdown bookings to maximize price and then are you looking to make any changes to the way you structure. Your contracts. So you can maximize your pricing.
Number two here as it relates to the reconciliation Bill you have.
<unk> per watt thin film.
<unk> credit, but then there's also the <unk> Mas.
Module credits for the manufacturing production tax credit.
Can you talk about do you think you get those added together or do you think one or the other and then finally as it relates to capacity expansion.
Maybe talk to us about how youre thinking about it.
And then it drives to accretion to the ASP.
There's other components in there that are structured such that for domestic content requirements that may may evolve with the ITC. There is an associated value lever associated with that so.
Really happy with.
The engagement that we're seeing right now not only here in the U S. But obviously in India to have 17 gigawatt.
Opportunities in India already just after only a little over a quarter or so since we've announced the factory expansion.
It's really nice to see that level of engagement involvement and robustness that we have for India factory.
So we are encouraged we are also I would say that the sales cycle customer engagement is probably a little bit longer.
Partly because we are looking multi years out into the horizon and we're also trying to create the Optionality. We're also trying to make sure. We've got good visibility with all the various levers that could come into the mix whether it's.
Tariff trade policies, whether it's industrial policies.
We want to make sure that we have clarity around some of those levers as we started in and enter into some of these contracts.
Encouraged by the pricing.
If you look at.
Where we are and how pricing is firming up.
Here in the U S and even what we're seeing in India as it becomes more of a domestic manufacturing market. We are encouraged by what we're seeing there as well so all of that I would say put us very positive and trending in the right direction. The reconciliation bill.
And in particular the.
Manufacturing tax credit the.
The spirit and the intent of that has been to be additive. So the components are additive.
There has been some additional clarifying language that I believe was.
Forward and our managers amendment yesterday to make sure there is clarity that is additive.
We believe it's additive for the cell and module level at a minimum and is being evaluated whether potentially could be additive beyond that.
We're encouraged by that we think the bill is structured in a way that it will provide.
Provide the domestic capability that we need to ensure our self reliance and long term energy independence and security.
So that's obviously moving in the right direction.
That would be helpful. In terms of the timing of Capex is hit with those new factories before they came online. So as we think about the balance sheet and how we look at funding be announced capacity already that might impact how will look at it depending on whether we see the possibility for additional capacity beyond the currently announce factories.
Your next question comes from the line of Juliana Demoulin Smith with the Bank of America.
Hey, good afternoon. Thanks. So thank you I appreciate it so just to follow up on sales questions first off just looking at the year the guidance just Q confidence on shipments in for you. I know you said there was some already slipping from <unk>, but it is what what are you seeing a poor congestion just the ability to deliver altogether I'll leave it open ended I know, there's a lot of different.
Pieces, there, but clearly you are saying you got some amount of visibility and confidence there and then separately I'll throw them all together here for ease of just go Nonetheless.
Coming back to the.
The ability to qualify for certain subsidies here how are you thinking about <unk> in India, just as far as that goes.
In qualify specifically for your expansion and then lastly, any commentary on pricing specifically on 23, and I know that he just asked a little bit.
On maximizing it but just.
Level, how much what trends are we seeing here on twenty-three and especially 24 is as you start to see some of this backfilled.
And potentially contemplate ITC et cetera.
At Jal saw on the shipment fee. So I would say, we're seeing poor congestion in general issues in the shipping market B as bad today as we've seen them. So.
Any improvement if you look at the cost of sales right you and we indicated for the course of that still raised I would say, though the absence, we still see some issues around black failings in general I have good confidence in our shipment numbers for the year. The Delta comes a little bit and how much will that will be put through the piano in terms of revenue recognize that.
Look at Q3, we managed to hit are expected shipment numbers, but we will load the tune of somewhere around three to 400 megawatts in terms of the <unk>.
So I feel encouraged by that statement and that commitment.
It's still being worked through.
There are some.
The first request for the <unk> have been made.
If you look at the.
Scoring current scoring with not necessarily indicate we would receive an allocation of P. A lot, but we are working through that.
<unk>.
His administration is also looking to expand beyond what was originally allocated two because there was such an overwhelming request.
To expand the funding requirements for <unk>, So and there's also potentially another path that we could pursue that would give it equivalent <unk> benefit even though it wasn't directly funded through the BLA program. So we're working on different options as I said before our business case was not.
Predicated on receiving the PLO, who received that it was it was a benefit and upside.
We have other incentives that are moving forward.
We're receiving an incentive for our.
Capex that we're spending on the factory, which is a 24% credits that we've received to offset the cost of that capital Theres other incentives that were receiving related to labor.
10 year incentive for a 20% rebate against our cost of both labor and Theres. Some other incentives that we are pursuing and those are all trending green. So PMI right now there'll be managed.
I still believe we will be.
Able to find an outcome that will be a positive outcome for us, but even without it we still are very confident with our business case in India, and our relative competitiveness of our of our new product in our new factory in the.
India market.
Pricing for 423.
What I would say is that where we are marking it currently right now is encouraging and especially with the value levers that I referenced as potential potential upside as well.
We are encouraged by what we're seeing.
We feel very confident in our ability to to see.
Attractive pricing not only in 'twenty, three 'twenty, four and potentially into 'twenty five as we enter into some of these long term agreements.
The other thing I'd add just on that pricing and also risk and so there is a few of changing risk profile around sales fragrances that we're looking at 'twenty three relative to historical contracts. So may not necessarily influence the overall ASP, but does change the risk shift, especially in a market, we're seeing sales being a higher cost today.
You said youre getting a premium ASP for your risk or youre not recognizing a premium for your for your risk factors.
We're looking at with changing the allocation of risk in contracts. So that we have sharing or pass through of certain costs to the customers given the uncertainty around ship. So if you think think of it. This way I mean look freight car I understand now is up.
70, 80, 90% and so we've kind of created a <unk>.
Being down about 5% versus a previous expectation, 9%, that's mostly bill of materials issues on the long term, we believe that gets resolved, but we do see short term pressure, especially on the aluminum side.
For the sales side perspective, I would say that you're going to see the run rate you'll seeing in the second half of this year most likely carry forward into next year. So no sequential increase forecast today, but the higher relative to prepandemic levels.
If you look in 22 overall as well it's gonna be the first year, we do not have the U S systems business, Although we will have some contribution from Japan.
Companywide gross margin level, you can see some impact of that then.
Then I would say the other piece you're going to see us.
The flip side of not having night.
Those business the strategic decision we made the exit was accompanied by a growth decision and you're going to see that come through later, but in 2022, we haven't yet got additional capacity in the us or in India online, but you are going to see the costs associated with that in terms of startup and ramp costs coming through.
We've talked on the last call about that being somewhere in the range of $760 million to $70 million per factory.
By himself and ramp and you'd see I think a little bit more than half of that total coming through in 2022.
With the remainder coming in 2023, so you're going to see some pressure on across the board in 2022.
I'd say that if you then look forward and take that through into twenty-three most of those short term challenges tell the longer term story.
Q a delay that we talked about that impacts will be felt from $22 and 23.
By 23, you'll have over half of the ramp and startup for the India and U S factory, which will have been spent sequentially year on year going 22 to 23, you're going to see a decrease in stomach Ram.
As we talked about and they're better marks Afp's right now we're seeing 22 to 23 essentially flat in the backlog not this time when we have got pretty strong macro tailwinds right now and the bookings we would expect to see Costco walk come down with the two years from a volume produced and sold perspective, you're going to see volume come up as the factories come on line and 23.
Still on target basically within the budget, which we've come in and communicated externally as well as scheduled when those factors would be up and operational.
Beautiful thanks.
Your next question comes from the line have been <unk> with bird.
Alright.
Thank you.
So if we did have the.
We called also.
Manufacturing credit.
If we had that how how do you guys monetise that.
My first question.
Can you can.
You use that yourself or do you get a tax equity partner, how does that work and.
And then how big do we think that is.
So first of all.
Some of our customers are 100% there are a couple which I do thank him very much for the fact, they are 100% committed to first solar technology, but not not all of them are.
And.
Theyre getting.
Reneged on or pushed out and by our competitors.
So in some cases.
If they have a commitment with us on the books and the project discreetly, which that was associated with maybe moving they're looking to take that volume and allocated to another project that they're unable to get module supply for so for us it's not much of an impact because nobody wants to give up the opportunity that they have got secured right now with us.