Canadian Solar Inc.

Solar. Please go ahead. Thank you, Operator, and welcome everyone to Canadian Solar's third quarter 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 Dr. Sean Chu, Chairman and CEO, Yan Zhuang President of Canadian Solar Subsidiary CSI Solar, Ismael Guerrero, Corporate VP and President of Canadian Solar Subsidiary Recurrent Energy, and Simbo Zhu, Senior VP and CFO. All company executives will participate in the Q&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. Sean 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, Dr. Sean Hughes. Sean, please go ahead.

Thank you, Wyeth, and thank you to everyone for joining our third quarter earnings call today. Please turn to Slide 3. In the third quarter, we shipped 8.4 gigawatts of solar modules and 1.8 gigawatt hours of battery energy storage solutions. Revenue totaled 1.5 billion U.S. dollars, and gross margin surpassed guidance at 16.5 percent. Last November, we began to experience the most intense involution in the history of solar. By involution, 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 disputes, to name a few. These combined factors have kept the industry in a cyclical low. However, every downturn serves as a stress test, stringing Strengthening the company's resilience and competitiveness thus 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 four. Two years ago, OpenAI launched ChatGPT, 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 20%. to around 12% by 2030, 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 installations have cumulatively reached nearly two terawatts. But to achieve global carbon neutrality, we will need close to 20 terawatts of solar capacity. Similarly, Storage capacity is projected to continue growing rapidly with annual installation exceeding 300 gigawatt hours by 2030. 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 five. Being a market leader means more than just operational scale. It also requires innovation and leadership. Our recent partnership with SolarCycle 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 the energy and utility sector on Newsweek's 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 is our commitment to delivering high quality, reliable products. Our continuous investment in research and development ensures that we remain at the forefront of technological innovation in both the solar and energy storage sector across our suite of products and solutions. Finally, let me update you on our American manufacturing plan. Please turn to page six. We are making long-term investments in the U.S. for both solar and energy storage. Our taxes 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, eStorage, we will build a state-of-the-art battery cell module and packaging manufacturing facility in Shelbyville, Kentucky. This project will be built in two phases, with phase one kicking off this year. We will invest more than $300 million in the first phase to build a production capacity of three 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 battery management system and US-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 meet it 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 billion to American manufacturing, with plans to employ more than 4,000 people across Texas, Indiana, and Kentucky. 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, 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.

Thank you, Sean. Please turn to slide seven. In the third quarter of 2024, we shipped 8.4 gigawatts of modules. We generated revenue of $1.7 billion and achieved a gross margin of 18.6 percent. CSI Solo delivered an operating income of $111 million. 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 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. These two drivers were key contributors to our third quarter performance. Moving on to the market and Canadian solar supply chain, please turn to slide eight. 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&D optimizing Topcon and other emerging technologies. Today, we're seeing Topcon cell efficiencies at mass production levels reaching as high as 26.7%. 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 plans. 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 nine. In the third quarter, we achieved record shipments of 1.8 gigawatt hours globally. 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 as demonstrated by our inaugural contract in Chile. and other global projects, we are delivering eStorage's latest proprietary solutions, the SoulBank 3.0. This system offers exceptional performance and safety, featuring high-density LFP battery cells and advanced battery management system and innovative liquid-coating thermal management system. Its compact design with five megawatt hours of capacity per 20-foot container optimizes land use and reduces costs. The SoulBank 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, eStorage is already a consistent top 10 player in the global energy storage market. In key markets like the United States, the United Kingdom, and Canada, we hold very strong market shares. eStorage 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 great knowledge, effective risk management, long-term services, and more. In today's to 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&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 anti-dumping and 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 Ismael who will provide an overview of Recurrent Energy, Canadian Solar's global project development business.

Ismael, please go ahead. Thank you, Jan. Please turn to slide 11.

Better quarter financials were modest. as certain project sales have been delayed into the next quarter and next year. We reported $45 million in revenue with a gross margin of 32% and an operating loss of $21 million. In the absence of significant project sales and with B2O projects still under construction, P&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 million investment from BlackRock. 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 one 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 recovery 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 three 20-year tolling agreements, collectively covering 1,800 megawatt hours of energy storage and 150 megawatts of solar capacity, enough to power approximately 72,000 homes for four hours with energy storage and 24,000 homes annually with solar. These agreements covered the Desert Bloom Storage and Papago Solar and storage projects in Maricopa County, Arizona. Notably, Papago Storage, a 1,200 megawatt hour standalone energy storage facility, is currently under construction and is scheduled to come online in 2025. Once operational, Papago Storage will be the largest standalone 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 one and a half gigawatts with leading technology companies around the world. many of which we have contracted across several regions, including the US, 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 one 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 three to eight 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, we're not planning according to the massive volume that is now coming online. Building a PV plant takes out on a year. The permitting process takes two to five, 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 six quarters, while projects under construction usually take six 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 operates in non-IPP 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 Shimbo, who will go through our financial results in more detail. Shimbo, please go ahead. Thank you, Ismael. Please turn to slide 14.

For the third quarter, we reported revenue of $1.5 billion with a gross margin of 16.4%. Gross margin contracted by 80 basis points quarter over quarter, primarily reflecting lower third-party batteries energy storage volumes and the reduced module margins. Operating expenses for the quarter totaled $247 million. The sequential increase was driven by modest rises in R&D expenses and the shipping costs, which we expect to gradually decline in the coming quarters. Net interest expense remains stable, rising slightly to $20 million. 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, while the net loss attributable to Canadian solar was $14 million. or 31 cents per diluted share. This includes the impact of dividends payable in time on the recurrent energy redeemable preferred shares associated with BlackRock's investment, which had the dilutive effect on earning per share of 10 cents. 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&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, GSI Solar delivered substantial volumes to recurrent public gold storage projects. As Ismael 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 third quarter was $231 million. 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, with gross debt totaling $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. In the third quarter, we invested approximately $237 million 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 $1.2 billion. 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.

Thank you, Xinbo. Please turn to slide 16. For the fourth quarter of 2024, we anticipate solar module shipment by CSI Solar. 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 a total shipment 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 fourth quarter to fall between $1.5 and $1.7 billion. 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 to 35 gigawatts. For battery energy storage, we expect shipments to be in the range of 11 to 13 gigawatts. gigawatt hours in 2025. These estimates include approximately one gigawatt of solar module and one gigawatt hours of source of storage allocated to our home project. As we move into next year, we anticipate continual 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 With that, I would now like to open the floor for questions. Operator?

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. A confirmation tone will indicate your line is in the question queue. 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. Our first question comes from the line of Colin Rush with Oppenheimer & Company. Please proceed with your question.

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 the ongoing crisis increases in wholesale electricity prices for data center supply?

Hi, I would like Ismael to address this question. Ismael? 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 of doing is is start to operate and once we have enough volume around two three gigawatts in operation i start selling chunk of it and keeping the the majority ownership that's that's the initial intention but it's open to whatever we believe is the best at the time thank you uh 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?

Yen, Yen will address this question.

Please, Yen.

Okay, thanks. Thanks, Chong. Well, so I think On contract, on sales side, we actually, for the volume that to be delivered after January 1st, 2026, we already, the contract price already accounted for the 25% of duty. And for earlier volume, we actually, it's accounting for the current duty rate, which is 7.5%. However, we always have a change of law of protection. so for any possible changes beyond, you know, within or beyond 301. And we also have announced, you know, the Kentucky storage project, and we're also actively evaluating and looking for different supply options.

So I hope this answers your question.

Absolutely. Thank you so much.

Thank you. Our next question comes from the line of Pranit Satish with Wells Fargo. Please proceed with your question.

Thanks. Good morning. I guess first question, you know, broadly you have a 30% market share in the U.S. How do you think about, 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 building out more manufacturing capacity with the potential for, you know, some of this foreign entity of concern language that's out there?

Yeah, this is Sean.

Now, I will address this question, and then I'll ask Yan and Thomas to provide further comment. Now, as you mentioned, Canadian soldiers have 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 tariffs, but solar cell has less value, so obviously less tariffs if we ship it to U.S. to make it into a module in our factory in Texas. And we are also building a solar cell factory in Indiana. And we expect to see output from that factory in 2026. That's another solution. And also, 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 a suite of different options and weapons, all 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 eight or nine. We're going to ship around eight to nine 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 30,000 feet overview. Now, I would like to introduce Thomas Kernel, our Senior VP for Sales and Marketing. And he may have more insight to share with you or further for you.

Thomas? 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 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 US 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.

Got it. Now that's very helpful comments.

And I wanted to add... And let me add one more. Sorry.

Okay.

Yeah, sure. Regarding FUC, actually, as you know, there's no FUC items in the current IRA law for solar and energy storage. So for that, you know, for any revision of that, it requires a process, a legal process of the Congress. 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.,

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. 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.

Hi, this is Shawn again. You are correct. We put out this number 30 to 35 gigawatts so that we maintain our market share while do not sacrifice the gross margin too much. Even at this price, at this range, maybe we will see less gross margin next year. As Thomas mentioned, there's additional duty for Southeast Asian product, and we believe our customer will have to handle and 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 see, DOC only announced the preliminary AD routing three 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 the all growth markets. Thank you.

Thank you. Our next question comes from the line of Philip Shen with Roth Capital Partners. Please proceed with your question.

Hi, everyone. Thank you for taking my questions. I think Thomas just talked about how pricing is already going higher following the anti-dumping preliminary determination. our check suggests pricing is already up at least two to three cents. And then when we get the final determination, we could get another three to four cents 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 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? Thanks.

You mentioned Thomas, so I will ask Thomas to share his view with you.

Thomas? Yeah.

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 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 basis 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 25.

Okay. Thank you, Thomas. And then are you guys impacted by critical?

Sorry, Sean. Go ahead.

Yeah. Yeah, I just want to add my comment now. Second part of your question. As far as I know, we haven't had to cancel any of the existing contracts. 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 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.

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?

That's a good question.

Well, I mean, we have been producing. So in the sum of the product that we already produced, so maybe I would say we exposed to some of this ADCVD preliminary. But how much we still have to calculate? You know, if the exposure is too high, we will divert the product to somewhere else.

Great, okay, got it. Thank you for the call.

Yeah, if the customer, some customer willing to pay and we might just, you know, eat the bullet and ship clay import and or deliver what if we can break even, but if no customer want to pay this kind of duty, then 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 the U.S., whatever we have to divert at this moment is a small amount.

Okay, thank you. Shifting to the other topic on AI and data center, you know, You know, these hyperscalers are very hungry for power. You guys have your recurrent business. You know, 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 with the ITC risk of it 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.

Philip, 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. actually see my calculation, also my calculation, not just my, you know, our calculation. I put on my PhD 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 and also where the seasonal difference of solar from winter to summer is really bad, you know, in California, the winter output of a 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, 24-7 continuous power. 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 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 grant. And as you know, these days, it's not, sometimes it's not a price, but whether you can get a permit and clearance to build a 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 parts of the 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-class storage can provide outside power to data centers. And, of course, with some help from the grid, but grid only have to supply 20% to 30%. power. And that's it. So I always say, you know, build a demo. The first demo always takes some time. So I will say maybe in two years, people will see how solar plus storage can handily provide on-site power to data centers.

Great. Thank you, Sean. I'll pass it on.

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 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 planned at CSI Solar and all the uses. I was wondering how do 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.

Yeah, that's a good question. Now, Canadian solar always pay attention to the cash flow, always maintain a good, you know, cash level to be healthy, you know, protect the balance sheet. Now, I have Shinbo, 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 color.

Yeah, okay.

This is Xinbo speaking. Sorry, your question is about how we are managing the cache at CSAQ and the CSA Solar site, right?

Yeah, just trying to understand, given the intensity, capital intensity at CSI Solar, how will you fund that capital intensity, the PV cells, the battery cells, the, you know, upgrading and keeping the legacy assets up to date, the CBP deposits and, you know, the buybacks at CSI Solar? How will you fund that? And what's the appropriate leverage level you're comfortable with?

Yeah, it's a big question. I will break it down into some smaller categories. For project development, 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. Okay. Then about the manufacturing site, we finance the factory partially from the bank payments from the supplier, from our customers, and also partially with the The facility we are raising in the U.S., we are closing a $450 million 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 deposit? Yeah, it's a part of the working capital. We have been closely monitoring our working capital, and we have more than $1.5 billion cash to support CSS Solar, the manufacturing and solution business. Yeah, we are confident that we have enough working capital to support our business volume.

Vic, 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.

Thank you.

And then I'm quickly wanted to clarify the if you can provide some color on what the geographical mix off shipments TV shipments will be next year. Should we expect us will still be around eight to nine gigawatts or that that mix is going to change. And you mentioned CSI Solar will maintain the margins. You've 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 appreciation from battery sales next year? Just trying to understand what are the puts and takes for margin next year?

Yeah, for the...

Well, first off, for the geographic distribution of the solar module cell next year, 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 December. We're not in 2025 yet. So whatever we say will be based on our current view. Now, Thomas, you want to share your view?

Yes. For the U.S. module 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 it 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 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, that concludes our question and answer session. I'll turn the floor back to management for any final comments.

All right. Thank you.

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