Canadian Solar (NASDAQ:CSIQ) Inc. reported a larger-than-expected loss for the third quarter of 2024, with earnings per share (EPS) falling short of forecasts. The company posted an EPS of -0.21, missing analysts' estimates of -0.11. Revenue also came in below expectations at $1.5 billion, compared to the forecasted $1.71 billion. Following the announcement, Canadian Solar's stock fell 4.05% in after-hours trading.
Key Takeaways
- Canadian Solar's Q3 EPS missed forecasts by 10 cents.
- Revenue of $1.5 billion fell short of the $1.71 billion forecast.
- Pre-market trading showed a 2.49% decline in stock price.
- Company focuses on "profit first" strategy amid market pressures.
- Expansion plans include new manufacturing facilities in the U.S.
Company Performance
Canadian Solar faced a challenging third quarter as it reported a net loss of $6 million, with a net debt position of $3.3 billion. The company shipped 8.4 gigawatts of solar modules and 1.8 gigawatt hours of battery energy storage solutions. Despite the financial setback, Canadian Solar continues to expand its manufacturing footprint in the U.S. and invest in research and development to enhance technology efficiency.
Financial Highlights
- Revenue: $1.5 billion, down from the forecasted $1.71 billion
- Earnings per share: -$0.21, missing the forecast of -$0.11
- Gross margin: 16.4%, exceeding company guidance
- Net loss: $6 million
- Capital expenditures: $237 million in Q3
Earnings vs. Forecast
Canadian Solar's actual EPS of -0.21 was 10 cents below the forecasted -0.11, marking a significant miss. The revenue shortfall of $210 million also highlighted the company's struggle to meet market expectations. This performance contrasts with previous quarters where the company had managed to align more closely with analyst forecasts.
Market Reaction
Following the earnings release, Canadian Solar's stock dropped by 4.05% in after-hours trading, with a further 2.49% decline in pre-market trading. The stock's performance is now closer to its 52-week low of $10.91, reflecting investor concerns about the company's ability to navigate current market challenges.
Company Outlook
Looking ahead, Canadian Solar projects Q4 2024 revenue between $1.5 billion and $1.7 billion, with solar module shipments of 8-8.5 gigawatts and battery energy storage shipments of 2-2.4 gigawatt hours. For 2025, the company aims to ship 30-35 gigawatts of solar modules and 11-13 gigawatt hours of battery energy storage solutions.
Executive Commentary
CEO Sean Chu remarked, "Every downturn serves as a stress test, strengthening the company's resilience." He emphasized the importance of solar and storage in meeting the energy demands of AI infrastructure. Yan Zhuang, President of CSI Solar, reiterated the company's commitment to technological and operational differentiation.
Q&A
During the earnings call, analysts inquired about Canadian Solar's strategies for managing U.S. anti-dumping duties and the potential for solar-plus-storage solutions for data centers. Executives also addressed questions regarding manufacturing expansion and maintaining market share.
Risks and Challenges
- Declining module average selling prices (ASPs) could pressure margins.
- High net debt levels may limit financial flexibility.
- Global solar market faces significant pressures and competition.
- Supply chain disruptions could impact manufacturing and delivery timelines.
- Macroeconomic factors, such as interest rate hikes, may affect investment and demand.
Full transcript - Canadian Solar Inc (CSIQ) Q3 2024:
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Third Quarter 20 24 Earnings Conference Call. My name is Melissa, and I will be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a Q and A session.
As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Winah Huang, Head of Investor Relations at Canadian Solar. Please go ahead.
Winah Huang, Head of Investor Relations, Canadian Solar: Thank you, operator, and welcome, everyone, to Canadian Solar's Q3 2024 Conference Call. 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. Joining us today are Doctor. Sean Chu, Chairman and CEO Yan Zhuang, President of Canadian Solar's subsidiary, CSI Solar Ismael Guerrero, Corporate VP and President of Canadian Solar subsidiary of Recurrent Energy and Simbo Zhu, Senior VP and CFO. All company executives will participate in the Q and A session after management's formal remarks.
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 Simba will go through the financial results. Son will conclude the prepared remarks with the business outlook, after which we will have time for questions. 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.
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. 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.
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. Management uses non GAAP measures to better assess operating performance and to establish operational goals. Non GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now, I would like to turn the call over to Canadian Solar's Chairman and CEO, Doctor. Sean Hsu.
Sean, please go ahead.
Sean Chu, Chairman and CEO, Canadian Solar: Thank you, Waihe, and thank you to everyone for joining our Q3 earnings call today. Please turn to Slide 3. In the Q3, we shipped 8.4 gigawatts of solar modules and 1.8 gigawatt hours of battery energy storage solutions. Revenues totaled US1.5 billion dollars and gross margin surpassed the guidance at 16.4%. Last November, we began experience the most intense evolution in the history of solar.
By evolution, I mean the industry competes internally on cost with no significant outward market expansion. Nearly a year later, this intense competition remains. The solar market continues to face significant pressures, geopolitical challenges, trade barriers, fierce price competition and ongoing patent dispute to name a few. 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 that in turn drives improvements in economics of solar and energy storage solutions further expanding their applications.
Speaking of applications, let's discuss the growing role of solar and storage in broader energy applications on Slide 4. 2 years ago, OpenAI launched Chat GPT, marking the beginning of a global AI revolution. 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. According to McKinsey, in the United States, the largest data center market, power demand from data center is projected to grow from 3% to 4% of total energy consumption to around 12% by 2,030 and higher beyond that. Data centers are not only growing in number, but also in size.
Research from BCG shows that the average size of individual data centers is currently around 40 megawatts, but there's a growing pipeline of data center campuses sized at 250 Megawatts or more. Solar and storage will be crucial in addressing the energy needs of AI infrastructure, providing reliable and sustainable power. A year ago, I also spoke about the potential of reaching the terawatt generation for both solar and energy storage. Today, global solar installation have cumulatively reached nearly 2 terawatts of 2 terawatts. But to achieve global carbon neutrality, will remain close to 20 terawatts of solar capacity.
Similarly, storage capacity is projected to continue growing rapidly with annual installation exceeding 300 gigawatt hours by 2,030. Solar and storage are still in their early stage and Canadian Solar is well positioned for these long term growth opportunities. As we move into the new era of growth, differentiation will be the key. Please turn to Slide 5. Being a market leader means more than just operational scale.
It also requires innovation and leadership. Our recent partnership with Solar Cycle is a prime example of our leadership in and committed to advancing sustainability. Through this collaboration, Canadian Solar becomes one of the first crystalline silicon solar module manufacturers to offer comprehensive recycling services to U. S. Customers.
In a time when trust is in short supply, we are proud to be named the World's Most Trustworthy Company in Energy and Utility Sector of Newsweek 2024 World's Most Trustworthy Companies list. This recognition is a testament to our ongoing commitment to transparency, sustainability and delivering high quality service across our global operations. At the core of our business it's our commitment to delivering high quality reliable product. 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 across our suite of products and solutions. Finally, let me update you on our American manufacturing plan.
Please turn to Page 6. We are making long term investments in the U. S. For both solar and energy storage. 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. For our solar cell facility in Indiana, we expect to be operational by the end of 2025. We are also excited to announce that through our subsidiary e storage, We will build a state of art battery cell module and packaging manufacturing facility in Shelbyville, Kentucky. This project will be built in 2 phases with Phase 1 kicking off this year.
We will invest more than $300,000,000 in the first phase to build a production capacity of 3 gigawatt hours annually. Once the first phase is completed, we plan to invest in a second phase to double the capacity of our facility. With our in house factory management system and U. S. Sourced thermal management system, we will be able to meet domestic content requirements.
The products built in the Shelbyville factory will be ready to be installed into energy storage projects nationwide by fall of 2025. While this is an ambitious timeline, we are confident in our ability to media, thanks to the support of Shelbyville community, the Governor's office and our talented workforce. Following our storage manufacturing decision, Canadian Solar will have committed nearly $2,000,000,000 to American Manufacturing with plan to employ more than 4,000 peoples across Texas, Indiana and Kentucky. These jobs will span manufacturing, engineering and R and 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, we are proud to play a role in revitalizing American manufacturing.
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 Zhuang, President of CSI Solar, Canadian Solar: Thank you, Sean. Please turn to Slide 7. In the Q3 of 2024, we shipped 8.4 gigawatts of modules. We generated revenue of $1,700,000,000 and achieved a gross margin of 18.6%. CSI Solar delivered an operating income of $111,000,000 This quarter, we continued to execute our profit first strategy, prioritizing orders that meet our profitability criteria.
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. However, as evidenced by our strong performance in the generally loss making industry, we are focused on achieving sustainable growth and recognize the natural trade off between volume and profitability. Shipments to the North American market continued to increase, accounting for over 30% of total shipments in the 3rd quarter, while energy storage shipments reached 1.8 gigawatt hours, marking new highs in both volume and profit contribution. These two drivers were key contributors to our Q3 performance. Moving on to the market and Canadian solar supply chain.
Please turn to Slide 8. The solar market continues to face significant pressure. Upstream costs are stabilizing, while module ASPs continue to decline, albeit at a slower pace than seen in the first half of the year. With costs below those of PERC and increasingly strong power output performance, Topcon Technology has now become the industry standard. As Sean mentioned earlier, we continue to actively invest in R and D, optimizing Topcon and other emerging technologies.
Today, we're seeing Topcon sell efficiencies at mass production levels reaching as high as 26.7%. The current market environment demands more surgical rather than sledgehammer approach. We remain prudent not only in our go to market strategy, but also in our manufacturing plants. In the near term, our capacity investments will focus on strategic areas, namely those in the United States. Now to our e storage business.
Please turn to Slide 9. In the Q3, we achieved record shipments of 1.8 gigawatt hours globally. Despite the large quarter of shipments and revenue recognition, we have now grown our backlog to a record $3,200,000,000 as of November 30. We continue to solidify our presence in established regions, while also expanding into emerging markets, as demonstrated by our inaugural contract in Chile. For the Chile Huata Condo and other global projects, we are delivering e storage latest proprietary solution, the SolBank 3.0.
This system offers exceptional performance and safety, featuring high density LFP battery cells, an advanced battery management system and innovative liquid cooling thermal management system. Its compact design with 5 megawatt hours of capacity per 20 foot container optimizes land use and reduces costs. The SoftBank (TYO:9984) 3.0 also boosts an IP55 protection rating, making it an ideal solution for demanding environments. So what is our competitive advantage? Please turn to Slide 10.
Despite only a few years of commercialization, e storage is already a consistent top 10 player in the global energy storage market. In key markets like the United States, the United Kingdom (TADAWUL:4280) and Canada, we hold very strong market shares. E Storage is differentiated by our ability to deliver comprehensive integrated solutions and services. For DC systems, safety, reliability and cost are the primary factors, with cost often being the most significant consideration. For AC solutions, success depends on a more balanced set of factors, including system integration, local grid knowledge, effective risk management, long term services and more.
In today's geopolitical environment, customers also need to be confident in the long term consistency and reliability of the services they receive. We're one of the few players with expertise spanning both upstream and downstream. On the upstream side, we can leverage our experience across R and D, supply side management and cost control. Downstream, we offer complete implementation, differentiated parent company guarantees and long term service capabilities. We remain firmly committed to driving technological and operational differentiation, while further strengthening our leadership in global channels to build long term sustainable value.
Finally, I would like to briefly address the ongoing antidumping
: and
Yan Zhuang, President of CSI Solar, Canadian Solar: the countervailing duty proceedings. 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. 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. It is important to note that even once final, these rulings will serve as estimates of cash deposits. The definitive rates would still be determined on a company by company basis during the annual administrative review. Now let me turn the call over to Ismail, who will provide an overview of Recurrent Energy, Canadian Solar's Global Project Development Business.
Ismail, please go ahead.
Ismael Guerrero, Corporate VP and President of Recurrent Energy, Canadian Solar: Thank you, Jan. Please turn to Slide 11. 3rd quarter financials were modest as certain project sales have been delayed into the next quarter and next year. We reported $45,000,000 in revenue with a gross margin of 32% and an operating loss of $21,000,000 In the absence of significant project sales and with beam to haul projects still under construction, P and L will experience near term pressure. However, we remain disciplined in managing our operating expenses to optimize our financial performance.
This quarter, we successfully closed the previously announced $500,000,000 investment from BlackRock (NYSE:BLK). This marks an important milestone providing us with the capital needed to accelerate the transformation of our business toward a partial IPP model. We are currently managing execution of the largest number of projects in the history of our development business. This includes approximately 1 gigawatt peak of solar capacity under construction in Spain and Italy and an additional 127 megawatts peak of solar capacity along with 1.4 gigawatt hours of best capacity under construction in the U. S.
This builds on the 300 megawatts of solar projects we successfully brought to commercial operation earlier this year. As part of our business model transformation, we are securing long term competitive offtake agreements to establish recurring predictable revenue streams. Please turn to Slide 12 for one such example. We have significantly expanded our partnership with Arizona Public Service or APS. This includes 3 20 year tolling agreements, collectively covering 1800 megawatt hours of energy storage and 150 megawatts of solar capacity, enough to power approximately 72,000 homes for 4 hours with energy storage and 24,000 homes annually with solar.
These agreements cover the Desert Bloom Storage and Papago Solar and storage projects in Maricopa County, Arizona. Notably, Papago Storage, a 1200 megawatt hours turn alone energy storage facility, is currently under construction and is scheduled to come online in 2025. 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. In Europe, we are observing a trend toward declining prices, reflecting broader market dynamics.
Conversely, in the U. S, particularly in regions experiencing high demand, projects with interconnections have more favorable pricing. Notably, as Sean mentioned earlier, AI is driving a surge in energy demand. Our key differentiator in this space is our extensive global footprint, which positions us to meet the growing demand for renewable energy solutions in any geography. To date, 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 U.
S, Europe, Japan and Australia. 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. We continue to build and maintain 1 of the largest and most mature solar and storage project development pipelines in the industry, now standing at more than 26 gigawatts of solar and 66 gigawatt hours of battery energy storage capacity. The total cycle from early pipeline to in construction is taking longer, and we are seeing significant delays due to bottlenecks during permitting and in the interconnection process, which now take 3 to 8 years depending on the country and the project.
It is one of our challenges as we are dependent on government agencies that are clearly overwhelmed by the huge number of applications they receive. 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 PV plant takes around a year. The permitting process takes 2 to 5 depending on the country, mainly waiting on queues, and the same applies to interconnections. Projects in backlog are expected to start construction within the next 6 quarters, while projects under construction usually take 6 to 18 months to be operational depending on size and permitting.
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. 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. For operation non ITP regions, we can sell at any time once they enter our backlog.
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. Now let me hand the call over to Simbo, who will go through our financial results in more detail. Shimbao, please go ahead.
Simbo Zhu, Senior VP and CFO, Canadian Solar: Thank you, Ismail. Please turn to Slide 14. For the Q3, we reported revenue of $1,500,000,000 with a gross margin of 16.4%. Gross margin contracted by 80 basis points quarter over quarter, primarily reflecting lower third party battery energy storage volumes and reduced module margins. Operating expenses for the quarter totaled $247,000,000 The sequential increase was driven by modest rises in R and D expenses and the shipping costs, which we expect to gradually decline in the coming quarters.
Net interest expense remained stable, rising slightly to $20,000,000 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 $4,000,000 We reported a total net loss of $6,000,000 while the net loss attributable to Canadian Solar was $14,000,000 or $0.31 per diluted share. This includes the impact of dividends payable in time on the recurring energy redeemable preferred shares associated with Flat Rock's investment, which had a dilutive effect on earnings per share of $0.10 This quarter's financial results reflect the ongoing transformation of Recurrent Energy's business model, notably the absence of project sales by Recurrent and the significant intra group transaction eliminations recorded for energy storage sales to projects in the U. S.
And Asia contributed to the net loss at Canadian Solar level. In the near to mid term Recurrence sells fewer projects, but continues to build projects that have not yet reached commercial operation. This may result in pressure on Canadian Solar's P and L in certain periods. However, it's important to emphasize that this doesn't imply a reduction in the value of the projects. Rather the value will be realized in a more consistent and long term manner.
For example, during this quarter, GSS Solar delivered substantial volumes to recurrence public gold storage projects. As Ismail discussed, this is a landmark project for which we have already secured a long term toll agreement with Arizona Public Service. Now let's turn to our cash flow and balance sheet. Please turn to Slide 15. Net cash used in operating activities for the Q3 was $231,000,000 This outflow was primarily driven by increased project assets and the lower short term notes payable.
Our net debt position stands at $3,300,000,000 with gross debt total being $5,400,000,000 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. In the Q3, we invested approximately $237,000,000 in manufacturing capital expenditures. 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 $1,200,000,000 Looking ahead, we expect next year's CapEx to be around the same level as we prioritize strategic investment in the U. S. Now let me hand the call back over to Sean, who will provide our guidance and the business outlook.
Sean, please go ahead.
Sean Chu, Chairman and CEO, Canadian Solar: Thank you, Xinbo. Please turn to Slide 16. For the Q4 of 2024, we anticipate solar module shipments by CSS order to be in a range of 8 to 8.5 gigawatts, including approximately 500 Megawatts to our own projects. In terms of battery energy storage, we expect total shipments to range between 2 to 2.4 gigawatt hours with only 1.2 gigawatt hours with around 1.2 gigawatt hours allocated to our own project. Even accounting to intra group eliminations, this will mark our largest storage quarter to date.
We forecast total revenue for the Q4 to fall between $1,500,000 and $1,700,000 with gross margin expected to be in the range of 16% to 18%. For the full year of 2025, we project total solar module shipments to be between 30 gigawatts to 35 gigawatts. For battery energy storage, we expect shipments to be in the range of 11 to 13 gigawatt hours in 2025. These estimates include approximately 1 gigawatt of solar module and 1 gigawatt hours of source of storage allocated to our phone project. As we move into next year, we anticipate continued challenges in the solar module market as supply and demand dynamics work toward rebalancing.
On the storage, demand remains strong, costs are stabilizing and pricing is also adjusting. We will continue to manage through these market uncertainties with a focus on sustainable growth and rigorous risk management. With that, I would now like to open the floor for questions. Operator?
Operator: Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from the line of Colin Rusch with Oppenheimer and Company. Please proceed with your question.
Andre Adams, Analyst, Oppenheimer and Company: Hi, there. This is Andre Adams on for Colin. I was hoping you could speak to your plans for monetizing the project pipeline in light of the ongoing increases in wholesale electricity prices for data center supply?
Sean Chu, Chairman and CEO, Canadian Solar: Hi. I would like Ismail to address this question. Ismail?
Ismael Guerrero, Corporate VP and President of Recurrent Energy, Canadian Solar: Sure. Thank you, Sean. Look, we are I mean, basically, we are seeing a significant amount of customers looking for PPAs. That's how we see the high demand of data centers affecting us. And we are starting to explore how can we serve better our customers 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 the most value to our shareholders. So we will remain open all the time to see when is the best time. But initially, what we are thinking on doing is start to operate. And once we have enough volume around 2, 3 gigawatts in operation, start selling chunk 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. Thank you.
Andre Adams, Analyst, Oppenheimer and Company: 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?
Sean Chu, Chairman and CEO, Canadian Solar: Hi, Yan. Yan will address this question. Please Yan.
Yan Zhuang, President of CSI Solar, Canadian Solar: Okay. Thanks. Thanks, Sean. Well, so I think on contract on sales side, we actually for the volume that to be delivered after January 1, 2026, we already the contract price already accounted for the 25% of duty. And for earlier volume, we actually it's accounted for the current duty rate, which is 7.5%.
However, we always have a change of law protection. So for any possible change beyond we don't know beyond 301. And we also we have announced the Kentucky storage project. And we're also actively evaluating and looking for different supply options. So hope this answers your question.
Ismael Guerrero, Corporate VP and President of Recurrent Energy, Canadian Solar: Absolutely. Thank you so much.
Operator: Thank you. Our next question comes from the line of Praneeth Satish with Wells Fargo (NYSE:WFC). Please proceed with your question.
Praneeth Satish, Analyst, Wells Fargo: Thanks. Good morning. I guess first question, broadly, you have a 30% market share in the U. S. How do you think about maintaining that market share given the anti dumping duties that were announced at 80%, 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 the strategy kind of building out the manufacturing presence or raising ASPs?
And then I guess how do you balance building out more manufacturing capacity with the potential for some of this foreign entity of concern language that's out there?
Sean Chu, Chairman and CEO, Canadian Solar: This is Sean. I will address this question and then I'll ask Yan and Thomas to provide further comment. Now as you mentioned, Canadian Solar has advantage. So we have a suite of weapons or options and we are going to use a combined strategy. 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 we are also building a solar cell factory in Indiana and we expect to see off port from that factory in 2026. That's another solution. And also, CEO, even for Thailand and for Southeast Asia, we always maintain a relationship with a few good third party suppliers. So this will be another option. So as I said, we have a suite of different options and weapons or weapons we can use to make sure we continue to deliver to our customers in U.
S. Now you mentioned 30%. I'm not sure if we had that much market share. We shipped around 8 or 9. We're going to ship around 8 to 9 gigawatt to U.
S. This year. And I believe U. S. Market should be like 40 to 50 gigawatt size.
So no, we are not 30%. We're probably 20 something percent. So I guess that's my like 30,000 feet overview. Now I would like to introduce Thomas Kurnall, our Senior VP for Sales and Marketing and he may have more insight to share with you. Thomas?
Thomas Kurnall, Senior VP for Sales and Marketing, Canadian Solar: Hi there. Good morning. How are you? So as Sean outlined, first of all, we are using different channels and different strategies to continue serving the U. S.
Market. The U. S. Factory and the U. S.
Capacity is further increasing coming along. But of course, for the Southeast Asian 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.
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.
Praneeth Satish, Analyst, Wells Fargo: Got it. No, that's very helpful comments. And I want to add
Yan Zhuang, President of CSI Solar, Canadian Solar: Let me add one more.
Simbo Zhu, Senior VP and CFO, Canadian Solar: Sorry. Regarding
Yan Zhuang, President of CSI Solar, Canadian Solar: FUC, actually, as you know, there's no FUC items in the current IRA law for solar and energy storage. So for that, for any revision of that, it requires a process, a legal process of the Congress. So we feel 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.
Praneeth Satish, Analyst, Wells Fargo: Okay. Makes sense. I wanted to ask on the 2025 module guidance of 30 to 35 gigawatts, maybe if you could provide any more details around how you came up with this forecast and the assumptions. Does it 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.
Sean Chu, Chairman and CEO, Canadian Solar: Hi, this is Sean again. You are correct. We put out this number 30 to 35 gigawatt, so that we maintain our market share, well, do not sacrifice the gross margin too much. Even at this price, at this range, maybe we will see the last gross margin next year. As Thomas mentioned, there's additional duty for Southeastern Asia product and we believe our customer will have to handle a shoulder part of the cost increase, but still we are shouldering the cost increase together with our customer.
So this will probably hit our gross margin a little bit, But DOC only announced the preliminary AD loading 3 days ago. So we are still analyzing and also we are still waiting for DOC to release more documents. So we understand exactly how they arrive in this number and 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 your question, yes, 30 to 35 gigawatt should allow us to more or less protect the same market share, but also to protect our gross margin.
Praneeth Satish, Analyst, Wells Fargo: Thank you.
Operator: Thank you. Our next question comes from the line of Philip Shen with Roth Capital Partners (WA:CPAP). Please proceed with your question.
Winah Huang, Head of Investor Relations, Canadian Solar0: Hi, everyone. Thank you for taking my questions. I think Thomas just talked about how pricing is already going higher following the antidumping preliminary determination. Our checks suggest 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? That's the first question. 2nd question as it relates to anti dumping and 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.
Sean Chu, Chairman and CEO, Canadian Solar: Hi. You mentioned Thomas. So I will ask Thomas to share his view with you. Thomas?
Thomas Kurnall, Senior VP for Sales and Marketing, Canadian Solar: Yes. So at this point, as you mentioned, yes, prices have started to come up. I cannot talk about their specifics. It's very individual customer by customer, but the demand and the customer's feedback towards Canadian 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, and this can vary in different 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 to both sides to move forward and actually having further demand for 2025.
Winah Huang, Head of Investor Relations, Canadian Solar0: Okay. Thank you, Thomas. And then are you guys impacted by critical? Sorry, Sean, go ahead.
Sean Chu, Chairman and CEO, Canadian Solar: Yes. I just want to add my comment on second part of your question. As far as I know, we haven't had to cancel any of the existing contract. And also, we have been shipping producing and shipping to U. S.
Evenly throughout the year. So for us, we don't have any critical circumstances. And I mean, 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 (NS:ITC) rules.
Winah Huang, Head of Investor Relations, Canadian Solar0: 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?
Sean Chu, Chairman and CEO, Canadian Solar: That's a good question. Well, I mean, we have been producing. So and some of the product that we already produced, so maybe I always say we exposed to some of this ADCVD preliminary ruling. But how much we still have to calculate? If the exposure is too high, we will diverge the product to somewhere else.
Winah Huang, Head of Investor Relations, Canadian Solar0: Great. Okay. Got it. Thank you for the color.
Sean Chu, Chairman and CEO, Canadian Solar: Yes. If the customer some customer willing to pay and we might just eat the bullet and ship clay import and deliver what we can breakeven. But if no customer want to pay this kind of duty and for some of the product we already produced or already on the water, we may have to divert product. But it's not a big amount compared with 8 to 9 gigawatt annual shipment from Canadian Solar annual sales from Canadian Solar in U. S.
Whatever we have to divert at this moment, it's a small amount.
Winah Huang, Head of Investor Relations, Canadian Solar0: Okay. Thank you. Shifting to the other topic on AI and data center, these hyperscalers are very hungry for power. You guys have your recurrent business. There's a lot of uncertainty as you highlighted in your release and remarks in the U.
S. Market. And so, power demand is going higher, but it doesn't seem like the hyperscalers are willing to pay a premium on power thus far. When do you think they might be willing to pay higher prices that can support economics in the development of solar in the U. S.
There's so much uncertainty in the higher price with the ITC risk of that being compressed or going away. 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 in the potential weaker economics? Thanks.
Sean Chu, Chairman and CEO, Canadian Solar: Hi, Philip. I would like to take this question, because I just released 2 short video of my public speech in a forum. I was talking about how the solar and energy storage can help the hyperscalers to be built. And our calculation actually see my calculation, I would say my calculation, not just our calculation. I put out my PhD and did some of this model together with our team, all right.
And our model, it says, even for California, where you can't install wind 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 Philip, you'll see, I know this number by heart now. And so it's not a very like convenient place to have solar provide like 12 months, 24 hours, 20 fourseven continuous power. But even in that situation, our calculation shows that we will be able to provide 72% of the power from outside solar plus energy storage to our California hyperscaler and with at 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 brand. And as you know, these days, it's not sometimes it's not a price, but whether you can get permit and clearance to build their data center. So I believe that people will see that and we are going to build I mean, I would like to build a few demo case and in different part of world. Certainly, U.
S. Is the biggest data center market. So we would like to do that in U. S. And I think with one demo, people will see how wonderful the solar plus storage can provide outside power to data centers.
And of course, with some help from the grid, but grid only have to apply to supply 20% to 30% power and that's it. So I would say, build a damper, the first damper always takes some time. So I would say in maybe in 2 year, people will see how solar blast storage can handily provide on-site power to data centers. Great. Thank you, Sean.
I'll pass it on.
Operator: Thank you. Our next question comes from the line of Vikram Bagri with Citi. Please proceed with your question.
: Hi, good morning everyone. I wanted to talk about CapEx and liquidity requirements. In presentation you highlighted $800,000,000 for PV cells, $700,000,000 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 planned at CSI Solar and all the uses. I was wondering how would you look to fund these?
What will 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?
Sean Chu, Chairman and CEO, Canadian Solar: Yes, that's a good question. Canadian Solar always pay attention to the cash flow, always maintain a good cash level to be healthy, protect the balance sheet. Now I have Shimbu, the CFO of CSI Q and also Stephen, the Chief Accounting Officer for CSI Solar. I would like these two gentlemen to provide some additional color.
Simbo Zhu, Senior VP and CFO, Canadian Solar: This is Hsinghua speaking. So your question is about how we are managing the cash at SasaQ and Sasa Solar Site, right?
: Yes. Just trying to understand, given the intensity, capital intensity at CSI Solar, where do you how do you fund that capital intensity, the PV cells, the battery cells, the upgrading and keeping the legacy assets up to date, the CBP deposits and the buyback with CSI Solar, how will you fund that and what's the appropriate leverage level you're comfortable with?
Simbo Zhu, Senior VP and CFO, Canadian Solar: Yes, so big question. I will break it down into some smaller categories for project development and the majority of the CapEx is financed with non recourse debt. The project financing is normally it covers 17%
Ismael Guerrero, Corporate VP and President of Recurrent Energy, Canadian Solar: of
Simbo Zhu, Senior VP and CFO, Canadian Solar: the total CapEx of the projects. And we finance the project equity.
Winah Huang, Head of Investor Relations, Canadian Solar0: Okay.
Simbo Zhu, Senior VP and CFO, Canadian Solar: Then about the manufacturing side, We finance the factory partially from the bank payments from the supplier from our customers and also partially with the facility we are raising in the U. S. We are closing $450,000,000 debt in the U. S. To support our manufacturing expansion in the U.
S. 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, about the
Yan Zhuang, President of CSI Solar, Canadian Solar: deposit or Yes, just a negative question.
Simbo Zhu, Senior VP and CFO, Canadian Solar: Yes, it's a part of the working capital. We have been closely monitoring our working capital and we have more than 1 $500,000,000 cash to support CICI Solar, the manufacturing and solution business. Yes, we are confident that we have enough working capital to support our business volume.
Winah Huang, Head of Investor Relations, Canadian Solar: Vik, also I just wanted to remind you that $2,000,000,000 is, it's a total number, so it would be invested over the course of a few years.
: Got it. Thank you. And then quickly wanted to clarify the if you can provide some color on what the geographical mix of shipments, PV shipments will be next year. Should we expect U. S.
Will still be around 8 to 9 gigawatts or that mix is going to change? And you mentioned PSI Solar will maintain the margins. You have you've seen like 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 like what are the puts and takes for margin next year?
Sean Chu, Chairman and CEO, Canadian Solar: Yes. For the margin well, first of all, for the geographic distribution of the solar module cell next year, I would like to ask Thomas to give you some color. But I want to clarify that we are still early. We are still in December. We're not in 2025 yet.
So whatever we say will be based on our current view. Now Thomas, you want to share some share your view?
Thomas Kurnall, Senior VP for Sales and Marketing, Canadian Solar: Yes. So 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're also slightly positive to increase that slightly further into 2025. We'll see how the year goes and how our diversified strategy, ramping up U.
S. Capacities, other manufacturing activities and other bonds help us to potentially further grow. The demand is definitely there in the market and we're trying to capture that demand.
Sean Chu, Chairman and CEO, Canadian Solar: All right. Thank you.
Winah Huang, Head of Investor Relations, Canadian Solar: Thank you, ladies and gentlemen.
Operator: That concludes our question and answer session. I'll turn the floor back to management for any final comments.
Sean Chu, Chairman and CEO, Canadian Solar: All right. Thank you. And thanks everyone for joining us today and 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.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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