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spk01: Good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the second quarter ended June 30, 2021, as well as the company's outlook for the third quarter of 2021. With me today are C.V. Landau, Chief Executive Officer, and Ronan Fire, Chief Financial Officer. C.V. will begin with a brief review of the results for the second quarter ended June 30, 2021. Ronan will review the financial results for the second quarter followed by the company's outlook for the third quarter of 2021. We will then open the call for questions. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statements contained in our press release and the slides published today for a more complete description. All material contained in the webcast is a sole property and copyright of SolarEdge technologies with all rights reserved. Please note, this presentation describes certain non-GAAP measures, including non-GAAP net income and non-GAAP net diluted earnings per share, which are not measures prepared in accordance with US GAAP. The non-GAAP measures are presented in this presentation as we believe that they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. Listeners who do not have a copy of the quarter-ended June 30, 2021 press release or the supplemental material may obtain a copy by visiting the investor section of the company's website. Now, I will turn the call over to CeeDee.
spk05: Thank you, Erica. Good afternoon, and thank you all for joining us on our conference call. In my remarks today, I'll discuss the trends and momentum in our different business segments, update on new product releases, in particular, the introduction of our residential battery, and at the end, discuss how we are navigating the much talked about global supply and logistics challenges. We are happy to report record revenues in both our solar and non-solar segments for the second quarter of 2021. Our total revenues this quarter were $480 million, consisting of a record $431 million from our solar business and a record $49 million of revenue from our non-solar business. Overall this quarter, we shipped 5 million power optimizers and approximately 180,000 inverters. The record solar revenues reflect strong demand for our solar products across all segments and geographies. In particular, we saw this quarter record revenues in Europe, led by record revenues in the Netherlands, Italy, and Poland, as well as record revenues in what we call rest of the world, representing all regions outside of North America and Europe. In the U.S., this was the third consecutive quarter of growth in delivery of residential products, In U.S. commercial, revenue grew more than 80% quarter over quarter. In addition to the revenue growth, we are seeing consistent increase in sell-through and installation rates of both our residential and commercial products globally. If in recent quarters we discussed healthy inventories in residential and relatively high inventory levels in commercial, today In most channels, inventory levels are below historical normal levels, both in residential and commercial. On the product side, we continue to see very good acceptance of the Energy Hub backup ready inverter in the US residential market. And in this quarter, we began shipping the Energy Hub to Australia. Later in the year, we expect to begin shipping the European version of the Energy Hub as well. I want to take a couple of minutes to elaborate on the capabilities of the energy hub, which make it so attractive to our customers. As reflected in its name, the energy hub inverter is designed to accommodate and control multiple energy elements of the home. For example, already today, in addition to the battery, we ship a SolarEdge EV charger as well as an electric water heater controller, all of which are controlled by the energy hub inverters. Homeowners manage all of these functionalities through our recently released MySolarEdge app that has more than 2 million users to date. Referring specifically to the storage capability, our energy hub inverter is DC coupled with a battery in a way that maximizes utilization of the energy coming from the solar system. The importance of the additional energy from a DC coupled system is critical in particular during backup scenarios. As we explained in the past, when the grid is down, a DC-coupled system will harvest all of the energy generated by the modules and feed it into the battery even when the power generated by the solar system exceeds the nameplate capacity of the inverter. As frequencies and durations of outages are becoming more prevalent, the benefit of this architecture is accentuated and we see more and more homeowners benefiting from the use of this feature. In California alone in the past three months, more than 6,500 homes benefited from 45,000 hours of backup energy provided by their SolarEdge system. On that note, as planned, we initiated shipment of our SolarEdge Energy Bank residential battery to the United States and Europe. The DC-coupled 10-kilowatt-hour battery uses Samsung SDI cells and has been designed based on our knowledge and experience from more than 30,000 SolarEdge installed systems with batteries. The availability of our battery means that our installers and homeowners can enjoy the benefit of high efficiency, easy installation, and seamless integration with our energy hub inverter that optimizes self-consumption while connected to the grid and maximizes power during outage events. We are gradually ramping production of the battery and plan to ship between 25 to 30 megawatt hour of batteries in the third quarter. In order to meet the strong demand, we have signed an agreement with Samsung SDI for the supply of one gigawatt hour of cells to be provided in 2022. We are excited about this cooperation with a leading high quality cell manufacturer. From the second half of 2022, we expect to be shipping batteries based on cells manufactured in our Sela2 factory in Korea, currently under construction. Just as we have our own Sela1 manufacturing facility for inverters and optimizers, which gives us speed and flexibility for initial volume of new products, augmented by high volumes from contract manufacturers, we expect that Sela2 will give us similar flexibility for cell and battery needs for our various businesses, while cooperating with Tier 1 partners in supplying the high volumes needed to meet demand. Moving to trends in our CNI business. As anticipated, we are seeing steady growth in sales and installations of our commercial products. This coincides with the release of our new 120-kilowatt synergy inverter that is targeting both rooftops and ground mount installations. We recently began shipping the 120-kilowatt synergy inverter to the U.S., which we believe will give a boost to our recent momentum of penetration to community solar ground mount installation segments, where in recent months we have installed more than 50 megawatts in more than 40 projects. In other regions as well, we are seeing progress in penetrating the market of small-scale utility projects. For example, we have a 35 megawatt project currently being installed in Japan, and a 77 megawatt project in Taiwan expected to begin delivery in the third quarter. Moving to our non-solar business, where we reported record revenues of $49 million this quarter, primarily driven by the ramp of production of powertrain units and batteries for the Fiat e-Ducato in Europe. We expect these volumes to continue and increase in the coming quarters. Also contributing to the growth in non-solar revenue this quarter were initial deliveries by COCOM of batteries for the first of two utility scale energy storage projects, one in Australia. Moving to the operational side. Like other industries, our industry is also dealing with issues around component shortages, logistic costs, and the impact of COVID. As we discussed in last quarter's call, from a component supply point of view, the multi-source strategy we put in place several years ago enables us to meet the current and we believe future growth and demand. At times, this comes at a higher cost due to expedited logistics. A temporary challenge is the COVID outbreak in Vietnam. As of a couple of weeks ago, production in our contract manufacturers factory in Vietnam is at a reduced level due to a government mandated lockdown. We are mitigating this short-term challenge by increasing output in our manufacturing facilities in China, Hungary, and Israel. This will require some expedited shipments and additional tariffs due to a higher portion of shipments coming from China to the United States. All in all, based on current visibility, thanks to the flexibility that we have built into our operational strategy, we are confident in our ability to continue and meet the growing demand we are experiencing for our products. And with this, I hand it over to Ronen, who will review our financial results.
spk14: Thank you, Sivi, and good afternoon, everyone. This financial review includes a GAAP and non-GAAP discussion. Full reconciliation of the pro forma to GAAP results discussed on this call is available on our website and in the press release issued today. Total revenues for the second quarter were $480.1 million, an 18% increase compared to $405.5 million last quarter, and a 45% increase compared to $331.9 million for the same quarter last year. Revenues from the solar segment were $431.5 million, a 15% increase compared to $376.4 million last quarter. The quarter's revenue do not include residential battery shipments which we initiated at the end of the quarter. US solar revenues this quarter were $175.1 million and represented 40.6% of our solar revenues. Solar revenues from Europe were a record $200.7 million or 46.5% of our revenues and the rest of the world's solar revenues were a record $55.7 million, or 12.9% of our total solar revenues. On a megawatt basis, we shipped 580 megawatts to the United States, 745 megawatts to Europe, and 319 megawatts to the rest of the world. 43% of this amount were commercial products, and the remaining 57% were residential. This quarter, our top 10 solar customers represented 61.4% of our solar revenues. Two US customers accounted for more than 10% of our solar revenues. Blended ASP increased by approximately 20.5% compared to the last quarter, since the ratio of optimizers to inverters was higher than usual due to temporary manufacturing and logistic optimization. In general, The pricing environment remained stable this quarter, while for the third quarter, we notified our customers of a modest price increase to support increased freight expenses. This quarter, revenues from our non-solar segments were a record $48.5 million. These record revenues were led by the e-mobility division, where sales of powertrain systems to Stellantis continue to grow, and by increased sales, of COCAMs, lithium-ion batteries, and cells. We expect the non-solar segment revenues to continue and grow as a proportion of the total revenues in the upcoming quarters. Gap gross margin for the quarter was 32.5% compared to 34.5% in the prior quarter and 31% in the same quarter last year. Non-gap gross margin this quarter was 33.9% compared to 36.5% in the prior quarter, and 32.4% in the same quarter last year. Gross margin for the solar segment was 37.4% compared to 39.7% in the prior quarter, and above our long-term solar gross margin target of 36% plus minus 1%. In comparison to the last quarter, solar segment gross margin was affected by approximately 150 basis points by higher logistic costs resulting from increased freight costs. This quarter, 88% of the products imported to the United States came from non-tariff manufacturing sites. Gross margin for our non-solar segment was positive at 3.3% compared to minus 4.7% in the previous quarter, due to increased production level of powertrains from our e-mobility business, combined with healthy margins from the storage business. On a non-GAAP basis, operating expenses for the second quarter were $81.5 million or 17% of revenues, compared to $76.2 million or 18.8% of revenues in the prior quarter, and $61.1 million or 18.4% of revenues for the same quarter last year. This increase is mainly a result of increased headcount in our R&D and sales departments, as well as salary increases that came into effect on April 1st. Our non-GAAP solar operating expenses as percentage of solar revenues were 15.8% compared to 17% last quarter. Non-GAAP operating income for the quarter was $81.3 million compared to $71.9 million in the previous quarter and $46.6 million for the same quarter last year. This quarter, the solar segment generated an operating profit of $92.9 million compared to an operating profit of $85.5 million last quarter. This number represents 21.5% of our solar revenues and is in the midpoint of our 20% to 23% long-term operating profit model. The non-solar segment generated an operating loss of $11.6 million, an improvement compared to an operating loss of $13.6 million in the previous quarter. Non-GAP financial income for the quarter was $1.7 million, compared to a non-GAP financial expense of $6.3 million in the previous quarter, due to the relatively stable foreign currency exchange rates. Our non-GAAP tax expense was $10.5 million compared to $10.1 million in the previous quarter and $8.1 million for the same period last year. GAAP net income for the second quarter was $45.1 million compared to a GAAP net income of $30.1 million in the previous quarter and $36.7 million in the same quarter last year. Our non-GAAP net income was $72.5 million compared to a non-GAAP net income of $55.5 million in the previous quarter. GAAP net diluted earning per share was 82 cents for the second quarter compared to 55 cents in the previous quarter and 70 cents for the same quarter last year. Non-GAAP net diluted EPS was $1.28 compared to $0.98 in the previous quarter and $0.97 in the same quarter last year. Turning now to the balance sheet. As of June 30, 2021, cash, cash equivalents, bank deposits, restricted cash deposits, and investments were $1.1 billion. Net of debt, cash, cash equivalents, bank deposits, restricted bank deposits, and investments were $509.3 million. During the second quarter of 2021, we generated $38.7 million in cash from operation and continue to invest in the construction of our Sella 2 cell factory in Korea, as well as in increased manufacturing capacity with our contract manufacturers. Accounts receivable net increased this quarter to $343.7 million compared to $271.7 million last quarter. Their sales outstanding this quarter in the solar business was 76 days, an increase from 73 days last quarter, a result of higher revenues generated at the later part of the quarter and an increase in sales to large customers that enjoy more favorable credit terms in the overall mix. As of June 30, our inventory level net of reserves was at $321.9 million compared to $340 million in the prior quarter. Most of this reduction is related to finished good levels in the solar segment, while raw material decreased to a lower extent in the solar segment and slightly increased in the non-solar segment where we continue to ramp up production. Moving now to our guidance for the third quarter of 2021. We expect revenues for the third quarter of 2021 to be within the range of $520 million to $540 million. Revenues of the solar segment are expected to be within the range of $460 million and $480 million. In the third quarter, we expect to ship 25 to 30 megawatt hour of residential storage systems to the United States and Europe as we continue to ramp the manufacturing of this product. We expect non-GAAP gross margin to be within the range of 32% to 34%. Gross margin of the solar segment is expected to be within the range of 35% to 37%. I will now turn the call to the operator to open it up for questions. Operator, please.
spk03: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. In order to accommodate as many questions as possible, we do ask that you please limit yourself to one question before reentering the queue. Once again, that is star 1 if you would like to ask a question. We'll take our first question from Mark Strauss with JP Morgan. Please go ahead.
spk06: Yeah, thank you very much for taking our questions. Just a high-level question. I wanted to ask you about the competitive environment. It sounds like from your commentary that the pricing is relatively stable. But what are you seeing as far as market share? And can you kind of broadly speak, not just within smart inverters, but against your traditional string inverter-based competitors as well? Just focusing on the solar side, if you can. Thank you.
spk05: Mark, the tracking on a quarterly basis, the market share in this industry is tough. When there were indications that we are losing market share, we were cautious with those type of indications. And similarly, when it seems as if we are gaining market share, I don't think we can say with confidence that we have hard evidence to support that. The market is growing rapidly. in most geographies under the current circumstances. And when we look at the markets, we believe that we're growing at the faster pace in many of the markets. Our focus in this regard is really about our customers, the installers that install our equipment. We believe that if they have equipment to install, especially in this environment, chances are that they're gaining share in their respective markets. regions or locations. And if they're gaining share, it translates to us gaining share. So that's really the dynamic we're focusing on is to make sure that our loyal installers have the products that they need to serve the growing demand. And we believe that it is contributing to positive momentum.
spk06: Okay, great. And then just a quick follow-up. As far as the 3Q gross margin outlook goes, can you just tell us kind of what your assumptions are as far as transportation, logistics costs? Do you assume status quo? Do you think things get worse, better? Just kind of what's baked in there?
spk14: So what's actually based is a combination of two elements. The first one is the freight expenses and which stabilized at a higher level. And right now, at least, we do not see a lot of ease in this area, although we do not see, by the way, increase in these costs. But when it comes to the cost themselves, it's also a question of whether we will need to expedite some of the shipments due to the fact that, again, customers will need more goods in order to install, and we will decide to use air shipments instead of ocean freight in order to be there on time. So I think that it's not coming from the price, but actually from our decision about how much to expedite. The second area which will affect, and I think that most of the, if you take the midpoint now and you compare it to the gross margin level of the second quarter, which is, of course, now you see that Q3 is lower, a lot of it is also related from the fact that Sivi mentioned when the Vietnam manufacturing facility is working at reduced capacity due to the government-enforced lockdowns there, We are expanding our manufacturing in China. We're lucky to have manufacturing areas both in Vietnam, China, Hungary, and Israel, and therefore we can maneuver between them. But when you are manufacturing more in China, that means that you're paying more tariffs when you enter into the United States, and a lot of the decrease that you see in the expectation of gross margin for the next quarter is actually coming from there. It's not necessarily just from the shipments.
spk03: Thank you. We'll take our next question from Steven Bird with Morgan Stanley.
spk10: Good afternoon. Thanks so much for taking my question. You had mentioned talking with customers about price increases, and I'm just curious in terms of just your views on the impacts there in terms of customer willingness to pay that, sort of contractually how that is dealt with. How do you use sort of see that in terms of the impacts to your bottom line?
spk05: The impact is not dramatic. The increase is in low single-digit levels, and it varies depending on the geography, as is associated with the additional logistic costs that are specific to that geography. So in that regard, it makes the conversation very constructive and transparent. We shared with the customers the actual increases and we are not shifting all of the additional expense to them, but we are somehow splitting it between us and the customers understand that as things return to normal, so will this additional expense. So we have a history of dealing with our customers in a transparent way, and I think it gives us credibility when we come to them with this topic, and the dynamic has been quite smooth so far.
spk10: That's really helpful. And then just shifting to storage, exciting developments in terms of your growth in storage. You mentioned that supply agreements Is it possible to give us a sense for the volume of capacity total that you would have in 2022? I mean, we're quite bullish about the growth globally of energy storage. We see lots of demand around the world. I'm just curious, sort of given everything you're seeing on the positive side in terms of supply agreements, but also on the negative in terms of just all the supply chain constraints, Can you speak at a high level to sort of how you think about your overall capacity in 22 to deliver product to customers?
spk14: So in this case, actually, the capacity is going to be more dependent on the supply and the sales and the pace of their arrival rather than our own capabilities, because the battery that we've developed is our own battery. We developed it from sales, and we, of course, developed all of the mechanical and the packing and BMS and all of the other systems around it. But that means that Most of the work that we're doing is actually the assembly based on the cells. As we mentioned on the call, first of all, we will have the agreement with Samsung that will provide us with approximately 250 megawatt per quarter, give or take, because, of course, there are always a little bit of shipment changes or something like this. But in general, it should be evening across the year. And as much as we can get sales at the time that we can get sales, we can basically turn them into batteries and ship them to the field.
spk04: Thank you. We'll take our next question. I apologize. We'll take our next question from Philip Shin with Roth Capital Partners.
spk09: Hi, everyone. Thank you for taking my questions. Just to follow up there, Hernan, on the storage topic, I think in the prior call, you were targeting 100 to 150 million of revenue in 2021 for storage and 300 million in 2022. Are you able to reaffirm those targets? I know you gave, I think, a 25 to 30 megawatt hour target for Q3, but was wondering if you could help translate that to the prior targets.
spk14: Sure. So as the answer, the question follows the previous one, the answer actually follows the previous question as well, answer as well, because our ability to supply is basically dependent on the supply of sales from Samsung in this case and our ability to turn them into sales. What we see this year is that due to some of the logistic challenges, we are getting sales a little bit late into the year. And therefore, it's basically dependent on their arrival time and our processing time in order not only to manufacture them, but also to ship them using ocean freight into the U.S. And in Europe, it's a little bit more easier. So here, I'm not sure if we will be able to meet all of this capacity this year. However, whatever capacity we are not going to utilized this year, we're going to basically turn into the next year. So if we're missing something, let's say in Q4, it will simply spill over into Q1. And since the demand, at least right now, seems to be higher than we can manufacture, I believe that it's just a matter of splitting it between the quarters. One thing to mention, though, of course, is also the fact that when we talk about the next year is that to this supply agreement, we will have our own Sela 2 cells that are supposed to join at the second half of the year. And again, if the demand is there, we will know how to turn those into revenues, which of course can get us to a higher number.
spk03: Thank you. We'll take our next question from Colin Rush from Oppenheimer.
spk08: Thanks so much, guys. Given the ratio of inverters to optimizers that you're reporting, Can you talk a little bit about the growth in the commercial sector and the size of the systems that you guys are expecting to drive a lot of the growth here in the second half?
spk05: Yeah, Colin. So, indeed, the change in the ratio is also because of growth in commercial and growth in large projects in commercial and the availability of a higher power inverter, all of which are translating to more optimizers per inverter, which is part of the scalability of a DC architecture like the one that we have. And actually, in some cases, specifically to this quarter, because people wanted the 120 kilowatt, the new inverter, and we weren't yet at high volume, they still took the optimizers early so that they begin installing them in the field because that takes a fair amount of time and it's the task that is usually done first and then the inverters can follow later. So that also contributed to the skewed ratio this quarter compared to two previous ones. But overall, as I discussed in the In the prepared remarks, the number of large projects that we are involved in is growing nicely and in all geographies, not only in the U.S. and the Europe where we were traditionally strong in commercial and Australia, of course, but also in Asia Pacific and places like Taiwan, Thailand, beginning in Korea as well. So the momentum is positive, and definitely we are finding ourselves in larger and larger ground mount installations around the world.
spk04: Thank you. We'll take our next question from Brian Lee with Goldman Sachs. Hey, guys. Thanks for taking the questions.
spk00: I had a couple here. First, Ronan, on the one gigawatt of cells from Samsung STI in 2022, I know that's not completely linear, but can you give us a sense of how much of that capacity you're expecting to be dedicated to the resi battery storage product versus other battery products in the portfolio? And then on the mix question, you just had a follow-up. If we look at sort of the price per watt metrics, it seems like it's up a decent amount in 2Q versus 1Q. I know that has some mix element attached to it. But given some of the moving parts here with respect to mix and then also the modest price increase you guys have announced here for 3Q, I guess how should we think about volume trends? Because you've seen sort of flattish volumes on a megawatt basis. Does that sort of revert back to a more normal sequential increase into the third quarter, or are we going to continue to see sort of more muted volume trends on that megawatt basis? Just given the mixed issues, I would love to understand that a little bit better for modeling. Thanks, guys.
spk14: Okay, so I'll answer one by one, and if I forget anything, please feel free to remind me. So with regards to the cells coming from our supply agreement, actually, all of them are going to go into our residential batteries. That means that, of course, if there is more demand than this amount, we can utilize once the Scylla 2 factory starts to work the COCOM cells for this business. And if not, there are other independent businesses that COCOM can do with those cells. But at least the Samsung cells are all designed towards our residential battery. And we hope that it will be consumed at these levels because it's a relatively large capacity compared to what comes today to the United States. When it comes to the volumes, actually, again, I think that this quarter, the ASP As we said and we noted, it was a little bit, I would say, artificial because when we're calculating the ASP per watt, of course, it's based on the nameplate capacity of the inverters. And when we sell more optimizers, the dollars come on the revenue, but the capacity does not go in. And in general, I think that the more commercial you will see, you see more ratio of optimizers to inverters. We do expect to see volumes growing in both of them. but since you can see that at least in the last two, three quarters, even though we are improving in commercial, the ratio was lower than in the past, then the ratio of higher amount of optimizers to inverters should be maintained in a sense. The one thing to say, though, is that the fact that, as TV mentioned in the previous answer, since some of this is actually related to new inverters that are now just produced, we do have a little bit of shifting from let's say Q3 into Q2 with the amount of optimizers. So it's a kind of a temporary jump in the number of optimizers that will go down in Q3, but in general, the more commercial you see and the more improvement you see there, you will see better ratio or higher ratio of optimizers to inverters. And lastly, again, when coming to the price increases, I think that the effect here is in general going to be minimal on almost all of the segments due to the fact that they are, first of all, very modest, as we said, low single-digit percentages of increase, and therefore we do not expect to have major impact on ASP due to these increases. Did I forget anything?
spk04: Okay. Nope, you captured it. Great, thank you.
spk03: Thank you. We'll take our next question from Mahit Mandwali from Credit Suisse.
spk11: Hey, thanks. I'll take your questions. Ronan, if we could just talk about the one gigawatt battery cell arrangement with Samsung, what's the duration and is it kind of recurring in nature and would it support the Sella 2 factory production or would Sella 2 kind of replace this arrangement going forward for you guys?
spk05: So as we said and then clarified, it's one gigawatt hour of cells from Samsung to be supplied more or less linearly over 2022 and all to be used in our residential battery. And a quick calculation will say for a 10 kilowatt hour battery, one gigawatt hour of cells, that translates to 100,000 batteries. This is in addition to the cells that will begin to come out of our factory in the second half of the year. And as I explained, as we do also in our inverter business, we have our own factory that is a very good mechanism to accelerate production initial production of new technologies. And we use lithium ion batteries in multiple segments and businesses. So we expect that Sela2 will provide us both capacity of cells to meet additional demand on top of the contract that we signed, and also the ability to introduce new products and manufacture the initial volume of those of those new products. So these are two separate sources of cells that are going into similar products in order to give us the flexibility to meet demand and develop new products rapidly.
spk04: Thank you. We'll move on to our next question from J.B. Lowe with Citi.
spk15: Hey, J.B., Ronan, Erica, how are you doing? My question was just to follow up on some of the storage data you guys gave. When you're going to be selling your new product, are you going to be selling it exclusively with a SolarEdge inverter, or are you going to be selling it to the houses that maybe have a competitor inverter already?
spk05: It's a philosophical question that we think about, but But in the foreseeable future, the demand for new installation and add on to that the huge installed base of our own systems that is out there, such that I think our focus will be on selling the batteries for new installations with our inverters and adding batteries to already installed SolarEdge systems. and less about the ability to attach the battery to non-solarage systems.
spk04: Thank you. We'll move on to our next question from Eric Lee with Bank of America.
spk16: Hey, thanks for taking the question. Just on storage with the 25 to 30 megawatt hour expectation for 3Q, Can you talk about the ramp expectations and the sequential improvements into 2022, given the 250 megawatt hour availability from Samsung per quarter that you cited? How do you think about the constraining factors for ramping volumes here? Thank you.
spk14: So in general, as we mentioned, I think that since the part of the production that we do is mostly the is mostly the, I would call it, assembly of the battery cells in the battery. The ramp-up is supposed to be relatively simple as it's not a very, I would call it, complicated or capital-intensive investment that is needed by our contract manufacturers. And therefore, the ramp is mostly, I would say, determined by the supply of cells rather than our own ability to process them into batteries. I don't think that it's going to be linear because by definition, the quantities that we still have for this year coming prior to the new agreement that will start in the beginning of 2022 are not even getting closer to the 250 megawatt hour that we will be able to provide next year per quarter. And therefore, I would assume that you should see, I would say, almost linear towards the end of the year from where we started. So that means about 25 to 30 megawatt increase in, let's say, the fourth quarter, maybe a little bit more, again, depends on the amount of sales. And then you will see an acceleration in Q1 that will get us up to 250. I do not expect that this will happen immediately in Q1. So I would say a kind of a linear growth of about 25 to 30 megawatt per quarter in Q3 and Q4 of ramp, then an increase that is steeper in Q1, and then somewhere in Q2, middle of Q2 at least, we should be, in a sense, stabilizing at 250 megawatt hour per quarter.
spk04: Thank you. We'll hear next from Cassie Harrison from Piper Sandler.
spk12: Thank you. Good evening. Thanks for taking my questions. So the third quarter guidance implies non-solar gross margins in 10%, which is a significant improvement relative to Q1 and Q2. Can you talk about what's driving the improvement in non-solar gross margins? And then as you think about ways to increase value for shareholders, do you think it might make sense for SolarEdge at some point to spin out the e-mobility business into a publicly traded equity? It seems like the public markets are more willing to reward standalone stocks exposed to EVs than maybe what's implied in your stock price? Thank you.
spk14: Okay, so I'll start from the margin, which is the easiest question here. At least in the margin, the main issue here is rent. Especially in the e-mobility area, the fixed assets or the fixed, I would call it, means of manufacturing that we have are putting away on the gross margin depends on the amount of vehicles and part train units that we are delivering. And we started to really deliver substantial amounts in Q1. Then, of course, we grew in Q2, and we expect to see steady growth towards Q3 and Q4. And that means that over these next quarters, this will actually generate a situation where all of these fixed amounts will be spread over much larger amount of units of course, improving the margins. In addition to this, we also believe that there is a growth that we see in the lithium ion business of kokum that is already characterized with a healthy gross margin. And the combination of one, the shrinkage of the negative effect of the immobility plus the increase in the battery that is coming with very good margins, at least at this stage, will help us to get to this, I would call it, positive and higher single digit to low double digits of gross margins on all of the non-solar. As of splitting the business of the immobility, at least today, we're not looking at the short-term, I would call it, optimizations just by the way that the capital markets are working. We truly believe that for the long term, and this was the reason that we acquired the mobility division to begin with, is that having a company that basically specializes in smart energy management and energy conversion and being able to have a one-stop shop coming from the generation of electricity into the, I would call it, storage of electricity, up to the utilization, not just by our e-mobility business, but also by our critical power businesses that will grow. This all provides much more value to the shareholders as one company, at least as we see it today.
spk04: Thank you. We'll take our next question from Jeff Osborne for the Cowan & Company.
spk03: Please go ahead.
spk07: Good afternoon, guys. Just two quick ones on the storage side. Can you talk about whether you expect the initial customers to be more tier ones selling direct or would you be selling through distribution is part one of the question. Part two is can you talk about what efforts you're doing are already underway around training and commissioning? Those are two factors that have stunted growth of other new entrants in the space. I'm just curious how you can overcome that.
spk05: So the answer for the first question, like many of the other questions, is both. And we also mentioned that we already are running in parallel both in Europe and the U.S. So it's also direct to some Tier 1 customers and also through distribution. And the answer to the second, we didn't want to elaborate on it too much, but we are employing a mechanism of both training and certifying installers prior to enabling them to install a SolarEdge battery and a system to monitor and control that so that the installations are done properly and with high quality. And of course, in the first phase, wave of installations, we will make every effort to have our people participate to the extent possible to give not only theoretical training, but also hands-on and accompany the installers during their first experience with the battery. And this is on the basis of of the system that we've been employing for training on the solar or the inverter equipment for years. And it's just a bit more deep and a bit more restrictive in the fact that we require to be certified prior to executing an installation.
spk04: Thank you. We'll take our next question from Moses Sutton with Barclays.
spk02: Thanks for taking the questions. Can you confirm on the storage product, just to continue on that, it's all fully certified UL and anything else? It's entirely clear to ship widely?
spk05: Yeah, so the battery has the required certification to be installed indoor and outdoor in Europe and the U.S., and I think the listings are either up or will be up shortly. I didn't... check lately. But the certifications are in that enable those type of installations.
spk03: Thank you. And once again, that's Star 1. If you'd like to ask a question, we'll hear next from Joseph Osha with Guggenheim Securities.
spk13: Hi there. I'd like to ask a question not about storage. You had talked previously about how the automotive business might get 120 million and change or so this year and maybe double next year. Curious in particular as to whether that rough target still stands for next year. And then, you know, to return to some of the questions and margin, the hope that maybe as we get out of next year that we might be kind of into the low single digits gross margin. I'm wondering if you can comment on those expectations. Thank you.
spk14: So first of all, with regards to the quantity, we mentioned $100 to $120 million for this year. We feel comfortable with this. And of course, since we said that the year was mostly characterized this year with growth, that means that, yes, once we stabilize on the higher levels, of course, we can increase this amount in the next year. We need to remember, though, that, of course, this is also an issue of the orders that Stellantis will have to the car itself, because the fact that we can actually manufacture it doesn't mean that it has customers. We believe that it has, and there are nice customers for this vehicle. But I think that this will be the thing that will determine the most what are going to be the revenues. And at least right now, we do not see a problem meeting the numbers. And I forgot, Joe, the second part of the question.
spk13: Just looking at gross margin, I think you guys have said that that business is probably running at a negative gross margin right now, but wondering if you can comment on what the trajectory of that is and whether it might get to sort of gross margin break even as we move through next year.
spk14: So the answer is yes in this case. First of all, this is a project that in many senses we inherited when we acquired the Immobility Division. And I would say that it was seeded before we acquired the company. And when we came to actually fulfill it, we found that we need to make this product more of automotive grade from quality, reliability, and safety, and therefore added a lot of cost. And in a sense, when we came to this project, the price was already locked. The cost was the only thing that we needed to increase in order to make it sustainable. a safe product. And therefore, we're relatively, I would say, at low margins when we go to full capacity in this project. It is a profitable project, though, once you go into mass production at the levels that Stellantis and I and we are agreed upon, because in general, we do not believe that you should do business where you're losing on every unit that you're shipping. So in a sense, The negative margin today is a kind of a learning curve that we have. It is not going to be an extremely profitable project as a whole as long as we stay with this specific configuration, but at least once we get to the end of the year or starting of next year when we level at the desired, I would call it level by Stellantis, this should be a positive low single-digit project.
spk03: Thank you. We'll now take a follow-up question from Moses Sutton with Barclays.
spk02: Just a quick follow-up on one of Jeff's questions. How many initial or beta systems have actually been installed for the storage, perhaps in total or in terms of how many installers have at least installed one?
spk05: It's in the range of tens, but we're not giving the specific number.
spk03: Thank you, and that does conclude today's question and answer session. I would like to turn the conference back over to Mr. Lando for any additional or closing remarks.
spk05: Thank you, and thank you, everyone, for joining our call. I just want to take this opportunity to thank our customers, employees, and suppliers for their support during this period. And while I'm satisfied with our performance and results, I'm even more excited about the opportunities that are ahead of us. So thank you all again, and have a good day.
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