Q3 2024 Canadian Solar Inc Earnings Call
Melissa: Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's third quarter 2024 earnings conference call. My name is Melissa, and I will be your operator for today.
Speaker Change: At this time, all participants are in a listen-only mode. Later, we will conduct a Q&A session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.
Wina Huang: Thank you, operator, and welcome everyone to Canadian Solar's third quarter 2024 conference call.
Wina Huang: Please note that today's conference call is accompanied with slides which are available on Canadian Solar's Investor Relations website within the events and presentations section.
Wina Huang: Joining us today are Dr. Sean Xu, Chairman and CEO, Yan Zhuang, President of Canadian Solar Subsidiary CSI Solar,
Wina Huang: Ismael Guerrero, Corporate VP and President of Canadian Solar Subsidiary Recurrent Energy, and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks.
Speaker Change: On this call, Sean will go over some key messages for the quarter. Yan and Ismael will review business highlights for CSI Solar and Recurrent Energy respectively, and Simbo will go through the financial results. Sean will conclude the prepared remarks with a business outlook, after which we will have time for questions.
Speaker Change: Before we begin, I would like to remind listeners that management's prepared remarks today, as well as their answers to questions, will contain forward-looking statements that are subject to risks and uncertainties. The company claims protection under the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.
Actual results may differ from management's current expectations.
Speaker Change: Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of risks and uncertainties can be found in the company's annual report on Form 20-F, filed with the Securities and Exchange Commission.
Speaker Change: Management's prepared remarks will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented during the call will be provided on both a GAAP and non-GAAP basis.
Speaker Change: By disclosing certain non-GAAP information, management intends to provide investors with additional information to enable further analysis of the company's performance and underlying trends.
Speaker Change: Management uses non-gap measures to better assess operating performance and to establish operational goals.
Speaker Change: Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.
Speaker Change: And now I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Sean Hsu. Sean, please go ahead. Thank you, Wina, and thank you to everyone for joining our third quarter earnings call today.
Please turn to slide 3.
Speaker Change: In the third quarter, we shipped 8.4 gigawatt of solar modules and 1.8 gigawatt hours of battery energy storage solution.
Speaker Change: The revenue totaled 1.5 billion U.S. dollars and gross margin surpassed guidance at 16.4%.
Speaker Change: Last November, we began experiencing the most intense evolution in the history of solar.
Speaker Change: By involution, I mean the industry competes internally on cost with no significant outward market expansion.
Nearly a year later, this intense competition remains.
Speaker Change: The solar market continues to face significant pressures, geopolitical challenges, trade barriers, fierce price competition, and ongoing patent disputes, to name a few.
Speaker Change: These combined factors have kept the industry in a cyclical low.
However, every downturn serves as a stress test.
strengthening the company's resilience and competitiveness.
Speaker Change: That, in turn, drives improvements in economics of solar and energy storage solutions, further expanding their applications.
Speaker Change: Speaking of applications, let's discuss the growing role of solar and storage in broader energy applications on Slide 4.
Speaker Change: Two years ago, OpenAI launched ChatGPT, marking the beginning of a global AI revolution.
Speaker Change: As AI models and their applications expand, they will present both exciting opportunities and new challenges.
particularly regarding high energy consumption and associated carbon emissions.
Speaker Change: According to McKinsey, in the United States, the largest data center market,
Speaker Change: Power demand from data center is projected to grow from 3-4% of total energy consumption
to around 12% by 2030 and higher beyond that.
Speaker Change: Data centers are not only growing in number, but also in size.
Speaker Change: Research from BCG shows that the average size of individual data centers
Speaker Change: is currently around 40 megawatts, but there is a growing pipeline of data center campuses sized at 250 megawatts or more.
Speaker Change: Solar and storage will be crucial in addressing the energy needs of AI infrastructure.
providing reliable and sustainable power.
Thank you for watching!
Speaker Change: A year ago, I also spoke about the potential of reaching the terawatt generation for both solar and energy storage.
Today, global solar installations have cumulatively reached nearly 2 terawatts.
Speaker Change: But to achieve global carbon neutrality, we will need close to 20 terawatts of solar capacity.
Speaker Change: Similarly, storage capacity is projected to continue growing rapidly with annual installation exceeding 300 gigawatt hours by 2030.
Speaker Change: Solar and storage are still in their early stages, and Canadian solar is well positioned for these long-term growth opportunities.
Speaker Change: As we move into the new era of growth, differentiation will be the key.
Please turn to slide 5.
Speaker Change: Being a market leader means more than just operational scale. It also requires innovation and leadership.
Speaker Change: Our recent partnership with SolarCycle is a prime example of our leadership in and commitment to advancing sustainability.
Speaker Change: Through this collaboration, Canadian Solar becomes one of the first crystalline silicon solar module manufacturers to offer comprehensive recycling services to U.S. customers.
It is time for trust.
Speaker Change: Yes, in short supply, we are proud to be named the world's most trustworthy company in the energy and utility sector on Newsweek's 2024 World's Most Trustworthy Companies list.
Speaker Change: This recognition is a testament to our ongoing commitment to transparency, sustainability, and delivering high-quality service across our global operations.
Thank you.
Thank you for watching!
Speaker Change: At the core of our business is our commitment to delivering high-quality, reliable products.
Speaker Change: Our continuous investment in research and development ensures that we remain at the forefront of technological innovation in both the solar and energy storage sectors.
Cross.
our suite of products and solutions.
Finally, let me update you on our American manufacturing plan.
Please turn to page 6.
Speaker Change: We are making long-term investments in the U.S. for both solar and energy storage.
Speaker Change: Our Texas solar module facility came online late last year. We have been adding more production lines and ramping up the volumes since then. We expect to reach full capacity by the middle of next year.
Speaker Change: For our solar cell facility in Indiana, we expect to be operational by the end of 2025.
Speaker Change: We are also excited to announce that through our subsidiary, eStorage,
Speaker Change: We will build a state-of-the-art battery cells, module, and packaging manufacturing facility in Shelbyville, Kentucky.
Speaker Change: This project will be built in two phases, with phase one kicking off this year.
Speaker Change: We will invest more than $300 million in the first phase to build a production capacity of three gigawatt hours annually.
Speaker Change: Once the first phase is completed, we plan to invest in a second phase to double the capacity of our facility.
Speaker Change: With our in-house battery management system and U.S.-sourced thermal management system, we will be able to meet domestic content requirements.
Speaker Change: The products built in the Charleville factory will be ready to be installed into energy storage projects nationwide by fall of 2025.
Speaker Change: While this is an ambitious timeline, we are confident in our ability to meet it thanks to the support of Shelbyville community, the governor's office, and our talented workforce.
Thank you for watching!
Speaker Change: Canadian soldiers will have committed nearly $2 billion to American manufacturing with plans to employ more than 4,000 people across Texas, Indiana, and Kentucky.
Speaker Change: These jobs will span manufacturing, engineering, and R&D, contributing to local economies and helping foster a strong manufacturing presence in the United States.
Last month,
Canadian Solar celebrated its 23rd anniversary.
With more than 20 years of global manufacturing experience,
Speaker Change: We are proud to play a role in revitalizing American manufacturing.
Speaker Change: With that, I will now turn the call over to Yan who will provide more details on our CSI solar business. Yan, please, go ahead. Yan, please, go ahead.
Thank you.
Thank you, Sean. Please turn to slide 7.
Speaker Change: In the third quarter of 2024, we shipped 8.4 GW of modules.
Speaker Change: We generated revenue of 1.7 billion dollars and achieved a growth margin of 18.6%.
CSI Soto delivered an operating income of $111 million.
This quarter, we continued to execute our profit-first strategy.
prioritizing orders that meet our profitability criteria.
Speaker Change: Demand in the large China market softened in the second half of the year.
while Europe faced minor disruptions due to logistics.
which resulted in lower shipping volumes than initially guided.
Speaker Change: However, as evidenced by our strong performance in the generally loss-making industry,
Speaker Change: We are focused on achieving sustainable growth and recognize the natural trade-off between volume and profitability.
Thanks for watching!
Speaker Change: Shipments to the North American market continue to increase, accounting for over 30% of total shipments in the third quarter.
while energy storage shipments reached 1.8 gigawatt hours.
marking new highs in both volume and profit contribution.
Speaker Change: These two drivers were key contributors to our third quarter performance.
Speaker Change: Moving on, moving on to the market and Canadian solar supply chain, please turn to slide 8.
The solo market continues to face significant pressure.
upstream costs are stabilizing.
Speaker Change: while module ASPs continue to decline, albeit at a slower pace than seen in the first half of the year.
Speaker Change: With costs below those of PERC and increasingly strong power output performance, TopCon technology has now become the industry standard.
Speaker Change: As Sean mentioned earlier, we continue to actively invest in R&D, optimizing TopCon and other emerging technologies.
Speaker Change: Today, we're seeing top count cell efficiencies at mass production levels reaching as high as 26.7%.
Speaker Change: The current marketing environment demands a more surgical rather than sledgehammer approach.
We remain prudent, not only in our go-to-market strategy.
but also in our manufacturing plants.
Speaker Change: In the near term, our capacity investments will focus on strategic areas, namely those in the United States.
Now, to our eStorage business.
Speaker Change: In the third quarter, we achieved record shipments of 1.8 gigawatt-hours globally.
Speaker Change: Despite the large quotas of shipments and revenue recognition, we have now grown our backlog to a record $3.2 billion as of November the 30th.
We continue to solidify our presence in established regions.
while also expanding into emerging markets.
Speaker Change: as demonstrated by our inaugural contract in Chile. For the Chile Huatacondo and other global projects, we are delivering eStorage's latest proprietary solution, the SolBank 3.0.
Speaker Change: Its compact design with 5 MWh of capacity per 20-foot container optimizes land use and reduces costs.
The Sobank 3.0 also boosts an IP55 protection rating.
making it an ideal solution for demanding environments.
Speaker Change: So, what is our competitive advantage? Please turn to slide 10.
Speaker Change: Despite only a few years of commercialization, e-storage is already a consistent top 10 player in the global energy storage market.
Speaker Change: In key markets like the United States, the United Kingdom and Canada, we hold very strong market shares.
Thank you for watching!
Speaker Change: This storage is differentiated by our ability to deliver comprehensive integrated solutions and services.
Speaker Change: For DC systems, safety, reliability, and cost are the primary factors, with cost often being the most significant consideration.
for AC Solutions.
Speaker Change: Success depends on a more balanced set of factors, including system integration, local great knowledge, effective risk management, long-term services.
and more.
In today's
Speaker Change: Geopolitical environment, customers also need to be confident in the long-term consistency and reliability of the services they receive.
Speaker Change: were one of the few players with expertise spanning both upstream and downstream.
Speaker Change: On the upstream side, we can leverage our experience across R&D, supply-side management, and cost control.
Speaker Change: Downstream, we offer complete implementation, differentiated parent company guarantees, and long-term service capabilities.
We remain firmly committed to driving technological and operational differentiation.
Speaker Change: while further strengthening our leadership in global channels to build long-term sustainable value.
Speaker Change: Finally, I would like to briefly address the ongoing anti-dumping and the countervailing duty proceedings.
Speaker Change: With over a decade of experience in the U.S. market, we are well-versed in the legal process and continue to actively engage as both an importer and a domestic manufacturer.
Speaker Change: We remain committed to the U.S. market and will play our part in pursuing a fair and equitable outcome as the final determination is made.
Speaker Change: It is important to note that even once final, these rulings will serve as estimates of cash deposits.
Speaker Change: The definitive rates would still be determined on a company-by-company basis during the annual administrative review.
Speaker Change: Now, let me turn the call over to Ismael, who will provide an overview of Recurrent Energy, Canadian Solar's global project development business.
Ismael, please go ahead.
Thank you.
Thank you, Yan.
Please turn to slide 11.
Better quarter financials were modest.
Speaker Change: A certain project sales have been delayed into the next quarter and next year.
We reported $45 million in revenue.
Speaker Change: with a gross margin of 32% and an operating loss of $21 million.
Speaker Change: In the absence of significant project sales, and with B2O projects still under construction, P&L will experience near-term pressure.
Speaker Change: However, we remain disciplined in managing our operating expenses to optimize our financial performance.
Speaker Change: This quarter, we successfully closed the previously announced $500 million investment from BlackRock.
Speaker Change: This marks an important milestone providing us with the capital needed to accelerate the transformation of our business toward a partial IPP model.
Go to www.Flydreamers.com for more.
Speaker Change: We are currently managing execution of the largest number of projects in the history of our development business.
Speaker Change: This includes approximately one gigawatt peak of solar capacity under construction in Spain and Italy.
Speaker Change: and an additional 127 megawatts peak of solar capacity along with 1.4 gigawatt hours of best capacity under construction in the U.S.
Speaker Change: This builds on the 300 megawatts of solar projects we successfully brought to commercial operation earlier this year.
Speaker Change: As part of our business model transformation, we are securing long-term competitive offtake agreements to establish recovered predictable revenue streams.
Please turn to slide 12 for one such example.
Speaker Change: We have significantly expanded our partnership with Arizona Public Service, or APS.
Speaker Change: This includes three 20-year tolling agreements, collectively covering 1,800 MWh of energy storage and 150 MW of solar capacity.
Speaker Change: enough to power approximately 72,000 homes for four hours with energy storage and 24,000 homes annually with solar.
Speaker Change: These agreements cover the Desert Bloom Storage and Papago Solar and storage projects in Maricopa County, Arizona.
Speaker Change: Notably, Papago Storage, a 1200 MWh turn-alone energy storage facility, is currently under construction and is scheduled to come online in 2025.
Speaker Change: Once operational, Papago Storage will be the largest stand-alone energy storage project in the entire state.
Energy prices have been volatile across different markets.
Speaker Change: In Europe, we are observing a trend toward declining prices, reflecting broader market dynamics.
Speaker Change: Conversely, in the U.S., particularly in regions experiencing high demand, projects with interconnections have more favorable pricing.
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Speaker Change: Notably, as Sean mentioned earlier, AI is driving a surge in energy demand.
Speaker Change: Our key differentiator in this space is our extensive global footprint.
Speaker Change: which positions us to meet the growing demand for renewable energy solutions in any geography.
evade
Speaker Change: We have signed approximately 1.5 gigawatts with leading technology companies around the world, many of which we have contracted across several regions, including the US, Europe, Japan, and Australia.
Speaker Change: Our ability to sign long-term contracts with strong counterparties is one of the factors that drives our long-term growth.
Please turn to slide 13.
Speaker Change: We continue to build and maintain one of the largest and most mature solar and storage project development pipelines in the industry.
Speaker Change: Now standing at more than 26 gigawatts of solar and 66 gigawatt hours of battery energy storage capacity.
Speaker Change: The total cycle from early pipeline to in construction is taking longer.
Speaker Change: And we are seeing significant delays due to bottlenecks during permitting and in the interconnection process.
Speaker Change: which now take 3-8 years depending on the country and the project.
It is one of our challenges.
Speaker Change: as we are dependent on government agencies that are clearly overgrown by the huge number of applications they receive.
Speaker Change: The same applies to the grid operators when it comes to connecting the power plants, as grid operators were not planning according to the massive volume that is now coming online.
Building a TV plant takes around a year.
Speaker Change: The permitting process takes 2 to 5 depending on the country, mainly waiting on queues, and the same applies to interconnections.
Speaker Change: Projects in backlog are expected to start construction within the next six quarters.
Speaker Change: While projects under construction usually take 6 to 18 months to be operational, depending on size and permitting.
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Speaker Change: Overall, while project delays are coming in our business, we are confident about our future growth given the volume of interconnections we have secured, which includes approximately 10 gigawatts of solar projects and 16 gigawatt hours for storage projects.
Speaker Change: For most projects in the U.S. and Europe, our strategy is to build, own, and operate while selling portions of the operational fleet at the right time.
Speaker Change: For projects in non-ITP regions, we cancel at any time once they enter our backlog.
Thank you for watching!
Speaker Change: Our extensive pipeline not only showcases a robust funnel of projects through which we can realize long-term value, but also highlights our ability to selectively monetize projects at the best time.
Speaker Change: Now let me hand the call over to Xinbo, who will go through our financial results in more detail.
Thank you.
Thank you, Ismael. Please turn to slide 14.
For the third quarter, we reported revenue of $1.5 billion.
with a growth margin of 16.4%.
Gross margin contracted by 80 basis points, quarter over quarter.
Speaker Change: primarily reflecting lower third-party batteries' energy storage volumes and reduced module margins.
operating expenses for the quarter total 247 million dollars.
Speaker Change: The sequential increase was driven by modest rises in R&D expenses and shipping costs.
which we expect to gradually decline in the coming quarters.
Net interest exchange remains stable.
rising slightly to 20 million dollars.
Speaker Change: Meanwhile, the Federal Reserve's rate cut in September, coupled with the announced economic stimulus in China, contributed to a weaker U.S. dollar and a stronger Chinese yuan, resulting in a net foreign exchange and derivative loss of $4 million.
We reported a total net loss of $6 million.
Speaker Change: Well, the net loss attributable to Canadian solar was $14 million, or $0.31 per diluted share.
Speaker Change: This includes the impact of dividends payable in time on the recurring energy redeemable preferred shares.
associated with BlackRock's investment.
Speaker Change: which had a dilutive effect on earnings per share of $0.10.
Speaker Change: This quarter's financial results reflect the ongoing transformation of Recurrent Energy's business model.
Speaker Change: Notably, the absence of project sales by recurrent and significant intra-group transactions in mean nations.
Speaker Change: recorded for energy storage cells to projects in the US and Asia, contributed to the net loss at Canadian solar level.
In the near to midterms,
recurrent self-fueler projects.
Speaker Change: but continues to build projects that have not yet reached commercial operation.
Speaker Change: This may result in pressure on Canadian solar's P&L in certain periods.
Speaker Change: However, it's important to emphasize that this doesn't imply a reduction in the value of the product, rather the value will be realized in a more consistent and long-term manner.
Speaker Change: For example, during this quarter, CSI Solar delivered substantial volumes to recurrence public gold storage projects.
Speaker Change: As Ismael discussed, this is a landmark project for which we have already secured a long-term toll agreement with Arizona Public Service.
Speaker Change: Now let's turn to our cash flow and balance sheet. Please turn to slide 15.
Speaker Change: Net cash used in operating activities for the third quarter was $231 million.
Speaker Change: This outflow was primarily driven by increased project assets and the lower short-term notes payable.
Our net debt position stands at $3.3 billion.
Speaker Change: with gross debt total being $5.4 billion. This increase in financing was primarily driven by new borrowings to support capacity expansion, working capital requirements,
and the development of both projects and operating assets.
Speaker Change: In the third quarter, we invested approximately $237 million in manufacturing capital expenditures.
Speaker Change: Following the adjustments to our capex plan in the first half of the year, we remain on track to meet our lowered full-year target of $1.2 billion.
Speaker Change: Looking ahead, we expect next year's capex to be around the same level as we prioritize strategic investment in the U.S.
Speaker Change: Now let me hand the call back over to Shawn, who will provide our guidance and the business outlook. Shawn, please go ahead. Thank you, Xinbo. Please turn to slide 16.
For the fourth quarter of 2024,
Shawn: We anticipate solar module shipment by CSI Solar to be in the range of 8 to 8.5 gigawatts, including approximately 500 megawatts to our own project.
Shawn: In terms of battery energy storage, we expect a total shipment
Shawn: to a range between 2 to 2.4 gigawatt-hours with around 1.2 gigawatt-hours
allocated to our own project.
Shawn: Even accounting to intra-group eliminations, this will mark our largest storage quarter to date.
Shawn: We forecast total revenue for the fourth quarter to fall between $1.5 and $1.7 billion, with gross margin expected to be in the range of 16 to 18 percent.
For the full year of 2025,
We project total solar module shipments to be between
30 to 35 gigawatts.
Shawn: For battery energy storage, we expect shipments to be in the range of
11 to 13 gigawatt hours in 2025.
Shawn: These estimates include approximately 1 gigawatt of solar module and 1 gigawatt hours of storage allocated to our own project.
As we move into next year.
Shawn: We anticipate continued challenges in the solar module market as supply and demand dynamics work toward rebalancing.
On a Starage, [inaudible]
Shawn: Demand remains strong, costs are stabilizing, and pricing is also adjusting.
Shawn: We will continue to manage through these market uncertainties with a focus on sustainable growth and rigorous risk management.
Thank you for watching!
Speaker Change: With that, I would now like to open the floor for questions. Operator?
Speaker Change: Thank you. At this time, I'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question comes from the line of Colin Rush with Oppenheimer & Company. Please proceed with your question.
Speaker Change: Hi there, this is Andre Adams, Oliver, Colin. I was hoping you could speak to your plans for monetizing the project pipeline in light of
Speaker Change: the ongoing increases in wholesale electricity prices for data center supply.
Hi, I would like Ismael to address this question.
Ismael.
Thank you.
Speaker Change: Thank you Sean. Look, we are, I mean, basically we are seeing a significant amount of customers looking for PTAs. That's how we see...
Speaker Change: The high demand of data centers is affecting us and we are starting to explore how can we serve better our customers.
Speaker Change: in case we can do something else for them. But that's what we see significantly. The strategy to monetize the projects, we are always open to whatever we believe is the best way to add.
Speaker Change: The most value to our shareholders, so we will remain open all the time to see when it's the best time but initially what we are thinking on doing is is start to operate and once we have
Speaker Change: In that volume, around 2-3 GW in operation, I start selling chunks of it and keeping the majority ownership. That's the initial intention, but it's open to whatever we believe is the best at the time.
Speaker Change: Thank you. And just on the battery supply side, how are you planning to navigate potential tariffs and how mature are your conversations with
new non-Chinese suppliers.
Hi, Yan. Yan will address this question.
Okay, thanks. Thanks, John. Well, so...
I think...
Speaker Change: On contract, on sales side, we actually, for the volume that to be delivered after
Speaker Change: January 1st, 2026, we already, the contract price already accounted for.
Speaker Change: The 25% of duty and for earlier volume, we actually, it's coming for the current duty rate, which is 7.5%. However, we always have a change of law protection.
for any possible changes.
beyond, you know, women are beyond 301.
Speaker Change: And we also have announced the Kentucky Storage Project, and we're also actively evaluating and looking for different supply options. So I hope this answers your question.
Speaker Change: Thank you. Our next question comes from the line of Praneet Satish with Wells Fargo. Please proceed with your question.
Thanks, good morning. I guess first question.
Speaker Change: You know, broadly, you have a 30% market share in the U.S. How do you think about...
Speaker Change: you know, maintaining that market share given the anti-dumping duties that were announced at 80%, you know, recognizing that they're not finalized. But I guess just what's the strategy in the U.S. going forward? You said you're committed to it. Is it is a strategy kind of building out the manufacturing presence or raising ASPs? And then I guess, how do you balance
Speaker Change: Building out more manufacturing capacity with the potential for, you know, some of this foreign entity of concern language that's out there.
Speaker Change: This is Sheng. Now I will address this question and then I'll ask Yan and Thomas to provide further comment.
Speaker Change: Now, as you mentioned, Canadian solar has advantage, so we have a suite of weapons.
All of the above options.
and we are going to use a combined strategy.
Speaker Change: You mentioned the U.S. factory, our U.S. module factory is up and running. We can ship cells from Thailand to U.S. Now the solar cell from Thailand also has tariff, but solar cell has less value, so obviously less tariff if we ship it to U.S. to make it into module in our factory in Texas.
and also CEO of UN for Thailand.
Speaker Change: And for Southeast Asia, we always maintain a relationship with a few good third-party suppliers.
So this will be another option.
Speaker Change: So as I said, we have a suite of different options and weapons, all weapons we can use to make sure we continue to deliver to our customers in the U.S. Now you mentioned 30 percent, I'm not sure if we had that much market share.
Speaker Change: We shipped around 8 or 9, we're going to ship around 8 to 9 gigawatts to the U.S. this year, and I believe the U.S. market should be like 40 to 50 gigawatt size. So no, we are not 30 percent.
Well, probably 20-something percent.
So, um...
Speaker Change: So I guess that's my 30,000-feet overview. Now, I would like to introduce Thomas Kernel, our senior VP for sales and marketing.
Speaker Change: He may have more insight to share with you, or further for you. Thomas?
Hi there, good morning, how are you?
As Sean outlined, first of all,
Speaker Change: We are using different channels and different strategies to continue serving the U.S. market. The U.S. factory and U.S. capacity is further increasing coming along.
Speaker Change: But, of course, for the Southeast Asia manufacturing, we can use different locations, different bill of materials, and different combinations. And all of that will help us to at least continue on the same level, if not potentially growing the volume into the U.S. market.
Speaker Change: And at the same time, we expect market prices starting to slightly increase. So we believe on the customer side, they're helping us and this will help us in addition to the overall circumstances.
Speaker Change: Got it. Now that's that's very helpful comments. And I wanted to add one more. Sorry. Okay.
Speaker Change: So, for that, you know, for any revision of that, it requires...
process, a legal process of the Congress.
Speaker Change: So we feel, you know, we don't feel anything that risky for us, given we're actually a Canadian-owned company.
And so we actually are highly confident about...
our robust presence in the U.S.
Speaker Change: Makes sense. I wanted to ask on the 2025 module guidance of...
Speaker Change: 30 to 35 gigawatts. Maybe if you could provide any more details around how you came up with this forecast and the assumptions. It seems like it's kind of assuming a flat outlook for demand into next year. But did you basically size this level of shipments as kind of the amount that the market can take without impacting your gross margins? Just trying to understand high level how you came up with it.
Speaker Change: Hi, this is Xiaohua again. You are correct. We put out this number 30 to 35 gigawatts.
so that we maintain our market share.
Speaker Change: will do not sacrifice the growth margin too much. Even at this price, at this range, maybe we will see less growth margin next year.
As Thomas mentioned, there's additional duty.
for Southeast Asian product.
I would believe our customer.
Speaker Change: will have to handle and show their part of the cost increase. But still, we are showing the cost increase together with our customers.
So this will probably...
Shit, I'll have oral smear again.
a little bit.
But the DOC only announced the preliminary AD loading.
three days ago.
So we are still analyzing.
Speaker Change: And also we are still waiting for DOC to release more documents.
Speaker Change: So we understand exactly how they arrived in this number, and what...
Speaker Change: What can we do to avoid such a high tariff in the final review and also the administrative review process a few years from today? So answer our question, yes, a 30 to 35 gigawatt should allow us to more or less protect the same market share, but also to protect the all-global market.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Philip Shen with Roth Capital Partners. Please proceed with your question.
Speaker Change: Hi, everyone. Thank you for taking my questions. I think Thomas just talked about how pricing is already going higher.
Speaker Change: following the anti-dumping preliminary determination. Our check suggests pricing is already up at least $0.02 to $0.03, and then when we get the final determination, we could get another $0.03 to $0.04 of price going higher. Does that sound reasonable? What are your price expectations? So that's the first question. Second question, as it relates to anti-dumping and the Southeast Asia tariffs, have you guys had to cancel any of your contracts because of how high the Southeast Asia ADCBD country rates have been? Are you exposed to any of the critical circumstances? Thanks.
Speaker Change: You mentioned Thomas, so I will ask Thomas to share his view with you. Thomas?
Thank you.
Thomas Kernel: So, at this point, as you mentioned, yes, prices have started to come up. I cannot talk about their specifics. That's very individual, customer by customer. But the demand and the customer's feedback towards cadena solar products and our supply remains actually very strong. We did not have any cancellations or anybody too concerned. And as Sean said, we're currently shouldering the need to adjust together with customers.
Thomas Kernel: cases and different strategies and channels. As you know, we have different cost-plus activities, we have other activities, and this is a pretty broad spread which helps us significantly for both sides.
we move forward and actually having further demand for 2025.
okay thank you Thomas and then are you guys
Speaker Change: evenly throughout the year. So for us, we don't have any critical circumstances.
Speaker Change: And our shipment shouldn't show any critical circumstances. Now, whether critical circumstances apply to the total shipment, we'll have to wait until, I think, we'll have to wait until the final ITC rules.
Speaker Change: Got it. Okay, thank you. So in terms of exposure to the cash deposits, is it fair to say that you don't have any now or you have some but you want to wait for what the final determination looks like?
Speaker Change: That's a good question. Well, I mean, we have been producing some of the products that we already produced.
Speaker Change: So maybe, I would say we're exposed to some of this ADCVD preliminary ruling, but how much we still have to calculate. You know, if the exposure is too high, we will diverge the product to somewhere else.
Great. Okay. Got it. Thank you for the call.
Speaker Change: If the customer, some customer willing to pay, and we might just, you know, eat the bullet and ship, import, and or deliver.
What if we can break you in?
Speaker Change: But if no customer wants to pay this kind of duty, then for some of the product we already produced or are already on the water, we may have to divert.
Speaker Change: But it's not a big amount compared with 8 to 9 gigawatt annual shipment from Canadian solar, annual sales from Canadian solar in the U.S. Whatever we have to divert at this moment is a small amount.
Speaker Change: These hyperscalers are very hungry for power. You guys have your recurring business. There's a lot of uncertainty, as you highlighted in your release and remarks, in the U.S. market.
Speaker Change: Power demand is going higher, but it doesn't seem like the hyperscalers are willing to pay a premium on power thus far.
Speaker Change: When do you think they might be willing to pay higher prices?
that can support
Speaker Change: economics in the development of solar in the U.S. You know, there's so much uncertainty in the higher price, you know, with the ITC risk of it being compressed or going away. Not, it won't go away, but we think it might get compressed. What are your thoughts as to the timing as to when hyperscalers are willing to pay higher prices to offset some of this uncertainty and the potential weaker economics? Thanks.
Speaker Change: I would like to take this question because I just released two short videos of my public speech in a forum. I was talking about how the solar and energy storage can help the hyperscalers to be built.
Speaker Change: And our calculation, actually, see, my calculation, I will say my calculation, not just my...
Speaker Change: I put on my Ph.D. hat and did some of this modeling together with our team, all right? And our modeling says, even for California,
where you can't install Wind.
Speaker Change: and also where the seasonal difference of solar from winter to summer is really big. In California, the winter output of our solar system is only 43% of the summer. And for those of you who see, I know this number by heart now.
convenient place to have solar.
Speaker Change: provide 12-month, 24-hour, 24-7 continuous power. Even in that situation, our calculation shows that
we will be able to provide
Tua California, Harper's Gaylord
Speaker Change: and with the same price, more or less the same price as the grid price. So they don't have to pay a higher price. They just have to pay whatever they have to give to the grid. And as you know, these days, sometimes it's not a price, but whether you can get a permit and clearance to build a data center.
Speaker Change: So I believe that people will see that and we are going to build, I would like to build a few demo cases.
Speaker Change: in different parts of the world. Certainly, the U.S. is the biggest data center market, so we would like to do that in the U.S. And I think with one demo, people will see how wonderful the solar-class storage can provide on-site power to data centers.
Speaker Change: Of course, with some help from the grid, but the grid only has to supply 20% to 30% power.
Speaker Change: And that's it. So I would say, you know, build a demo. The first demo always takes some time. So I would say maybe in two years, people will see how solar blast storage can handily provide onsite power to data centers.
Great. Thank you, Sean. I'll pass it on.
Speaker Change: Hi, good morning, everyone. I wanted to talk about CapEx and liquidity requirements. In the presentation, you highlight $800 million for PV cells, $700 million for battery cells. I would imagine some maintenance CapEx on legacy assets over the next 12 months also, and combine that with cash deposits at CBP and buybacks.
Speaker Change: I was wondering how would you look to fund these, what would be the strategy, could you transfer the CSI solar cash which is in China to the U.S. to fund some of these expenses? How much is the minimum cash balance required on the balance sheet and what leverage are you comfortable with? If you can just help us understand the sources and uses of cash over the next 12 to 18 months.
Speaker Change: Yeah, that's a good question. Now Canadian solar always pay attention to the cash flow, always maintain a good, you know, cash level.
Speaker Change: Now I have Xinbo, the CFO of CSIQ, and also Stephen, the Chief Accounting Officer for CSI Solar. So I would like these two gentlemen to provide some additional comments.
Thank you.
Yeah, okay.
Speaker Change: This is Xinbo speaking. Sorry, your question is about how we are managing the cash at CSRQ and CSR solar site, right? Yes, that's right.
Thank you.
Speaker Change: Yeah, it's a big question. I will break it down into some smaller categories.
for project development.
Speaker Change: And the majority of the CAPEX is financed with non-recourse debt. The project financing, normally it covers 17% of the total CAPEX of the projects.
And we finance the project equity.
Speaker Change: Okay, about the manufacturing site, we finance the factory partially from the bank payments from the suppliers, from our customers.
and also partially with...
Speaker Change: The facility we are raising in the U.S., we are closing $450 million in the U.S. to support our manufacturing expansion in the U.S.
Speaker Change: Of course, we also invest some of our own equity into the factories.
Have I covered all your questions?
or about the working capital, right?
Speaker Change: It's a part of the working capital. We have been closely monitoring our working capital and we have...
Speaker Change: more than 1.5 billion dollars cash to support CSI Solar, the manufacturing and solution business.
Speaker Change: Yeah, we are confident that we have enough working capital to support our business volume.
Speaker Change: Also I just wanted to remind you that $2 billion is a total number, so it would be invested over the course of a few years.
Speaker Change: Thank you. And then I quickly wanted to clarify if you can provide some color on what the geographical mix of shipments, PV shipments will be next year. Should we expect the U.S. will still be around 8 to 9 gigawatts or that mix is going to change?
Speaker Change: You mentioned CSI Solar will maintain the margins. You have seen a very strong increase in battery sales, which has higher margins. Are you expecting the geographical mix to shift and offset some of the margin accretion from battery sales next year? Just trying to understand what are the puts and takes for margin next year?
Speaker Change: Yeah, for the margin, well, first off, for the geographic distribution of the solar module cell.
Speaker Change: next year. Now I would like to ask Thomas to give you some comments, but I want to clarify that we are still early, we are still in the summer, we are not in 2025 yet.
Speaker Change: So whatever we say will be based on our current view. Now, Thomas, do you want to share your view?
Yes.
Thomas Kernel: For the U.S. model shipment, as you mentioned, we should be able to at least have the same volume as this year, but we are also slightly positive to increase that slightly further into 2025.
Thomas Kernel: We'll see how the year goes and how our diversified strategy, ramping up U.S. capacities, other manufacturing activities and other bombs, help us to potentially further grow. The demand is definitely there in the market, and we're trying to capture that demand.
All right, thank you.
Thank you, ladies and gentlemen.
Speaker Change: That concludes our question and answer session. I'll turn the floor back to management for any final comments.
Speaker Change: All right, thank you. And thanks everyone for joining us today for your continuous support. If you have any questions or would like to set up a call, please contact our investor relations team. Take care and have a great day.
Speaker Change: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.