Canadian Solar, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Shawn Qu: In the third quarter, shipped 8.4 gigawatts of solar modules and 1.8 gigawatt hours of battery and energy storage solutions. Revenue totaled US $1.5 billion and gross margin was 16.4%. Discussed the solar industry facing pressures like geopolitical challenges and price competition. Highlighted solar and storage's role in addressing AI infrastructure energy needs. Updated on American manufacturing plans, including Texas solar module facility, Indiana solar cell facility, and Kentucky battery facility.
• Yan Zhuang: CSI Solar shipped 8.4 gigawatts of modules, revenue $1.7 billion, gross margin 18.6%. Market and supply chain challenges with module ASPs declining. Actively investing in R&D for TOPCon and other technologies. eSTORAGE had record shipments and backlog growth, delivering SolBank 3.0 solution, and solidifying presence in established and emerging markets.
• Ismael Guerrero: Recurrent Energy had modest third quarter financials. Successfully closed $500 million investment. Managing large number of projects. Highlighted partnership with Arizona Public Service and challenges in permitting and interconnection processes. Large project pipeline with significant delays but confidence in future growth.
• Xinbo Zhu: Third quarter revenue $1.5 billion, gross margin 16.4%. Gross margin contracted due to lower battery volumes and module margins. Operating expenses increased slightly. Net loss of $6 million. Discussed cash flow, balance sheet, and capex plans.

Segment Performance

• CSI Solar: In the third quarter of 2024, shipped 8.4 gigawatts of modules, generated revenue of $1.7 billion, and achieved a gross margin of 18.6%. Delivered an operating income of $111 million. Shipments to the North American market accounted for over 30% of total shipments, and energy storage shipments reached 1.8 gigawatt hours.
• Recurrent Energy: Third quarter financials were modest with $45 million in revenue, a gross margin of 32%, and an operating loss of $21 million. Successfully closed a $500 million investment from BlackRock. Managing execution of a large number of projects, including approximately 1 gigawatt peak of solar capacity under construction in Spain and Italy, and additional projects in the U.S.
• eSTORAGE: Achieved record shipments of 1.8 gigawatt hours globally in the third quarter. Backlog grew to a record $3.2 billion as of November 30. Delivering the SolBank 3.0 solution in projects like Chile Huatacondo, offering exceptional performance and safety.

Guidance

• Fourth Quarter 2024: CSI Solar expects solar module shipments to be in the range of 8 to 8.5 gigawatts (including ~500 megawatts for own projects). Battery energy storage shipments expected to range between 2 to 2.4 gigawatt hours (including ~1.2 gigawatt hours for own projects). Total revenue forecasted to be between $1.5 billion and $1.7 billion, with gross margin expected to be in the range of 16% to 18%.
• Full Year 2025: Projected total solar module shipments to be between 30 to 35 gigawatts. Battery energy storage shipments expected to be in the range of 11 to 13 gigawatt hours. Includes approximately 1 gigawatt of solar module and 1 gigawatt hour of storage allocated to own projects.

Risks

• Industry faces geopolitical challenges, trade barriers, fierce price competition, and ongoing patent disputes.
• Project development has delays due to bottlenecks in permitting and interconnection processes, taking 3 to 8 years depending on the country.
• Uncertainties regarding tariffs and potential changes in trade regulations affecting battery supply and project monetization.

Question and Answer

• Q: Speak to your plans for monetizing the project pipeline in light of the ongoing increases in wholesale electricity prices for data center supply A: Ismael Guerrero: Seeing high demand from customers for PPAs. Strategy is to operate projects and sell portions when appropriate, remaining open to best ways to add value to shareholders.
• Q: How are you planning to navigate potential tariffs, and how much are your conversations with new non-Chinese suppliers? A: Yan Zhuang: For sales delivered after January 1, 2026, contract price accounts for 25% duty; earlier volume accounts for 7.5% duty. Have change of law protection and are evaluating different supply options.
• Q: 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? A: Shawn Qu: Have a suite of options including U.S. factories, shipping cells from Thailand, and maintaining relationships with third party suppliers. Aim to protect market share while protecting gross margin.
• Q: 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? 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 ADCVD country rates have been? Are you exposed to any of the critical circumstances? A: Thomas Koerner: Prices have started to come up, demand for Canadian Solar product remains strong, no cancelations. Shawn Qu: Haven't had to cancel existing contracts, shipments shouldn't show critical circumstances.
• Q: Shifting to the other topic on AI and data centers, 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.? A: Shawn Qu: Calculations show solar plus storage can provide 72% of power to California hyperscalers at similar grid prices. Expect to build demo cases in the U.S. to show benefits, with people seeing the value in 2 years.