Canadian Solar (NASDAQ:CSIQ) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.
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Summary
Canadian Solar recognized revenue on 3.1 gigawatts of solar modules and 3.3 gigawatt-hours of energy storage, generating $1.2 billion in revenue with a gross margin of 13.9%, despite a net loss of $77 million due to high freight costs and ramp-up expenses.
The company opened a new HJT solar cell facility in the U.S., aiming to expand capacity to 6.3 gigawatt peak by 2027, supported by strong demand and a 13 gigawatt peak contracted backlog valued at over $4.5 billion.
Energy storage shipments reached 3.7 gigawatt-hours, with significant contracts secured, including a project with a major U.S. utility. The total energy storage backlog stands at $3.5 billion.
Recurrent Energy, Canadian Solar's project development business, faced revenue delays but achieved operational milestones, including a new solar asset in Spain and project financing in California.
The company is actively investing in U.S. manufacturing, expecting capital expenditures to reach $1.3 billion in 2026, and aims to leverage new U.S. policies favoring domestic production.
Future guidance includes third-quarter revenue expectations between $1.3 and $1.5 billion, with increased module and storage shipments anticipated.
Management expressed confidence in the long-term positive impact of U.S. policy changes on domestic manufacturing and overall business strategy.
Full Transcript
OPERATOR (Melissa)
Ladies and gentlemen, thank you for standing by and welcome to Canadian Solar's second quarter 2026 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 question-and-answer session. As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the call over to Winna Wang, Head of Investor Relations at Canadian Solar.
Please go ahead.
Winna Wang, Head of Investor Relations
Thank you, operator, and welcome everyone to Canadian Solar's second quarter 2026 conference call. Please note that today's conference call is accompanied by slides which are available on Canadian Solar's Investor Relations website within the Events and Presentation section. Joining us today are Colin Parkin, CEO; Dylan Marks, CEO of Canadian Solar subsidiary Recurrent Energy; Dimbo Zhu, Senior VP & CFO; and Dr. Sean Hsu, Executive Chairman and CTO.
All company executives will participate in the Q and A session. After management's formal remarks on this call, Colin will deliver key messages for the quarter. Dylan will share updates for Recurrent Energy. Shinbo will go through the financial results and Sean will discuss sustainability and technology highlights. Colin 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 certain 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 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 provided in accordance with GAAP. And now I would like to turn the call over to Canadian Solar CEO, Colin Parkin. Colin, please go ahead.
Colin Parkin, CEO
Thank you, Winna, and thank you all for joining our second quarter earnings call. Beginning on Slide 3, we recognized on 3.1 gigawatts of solar modules within guidance. We exceeded our storage guidance, shipping 3.7 GWh and recognizing revenue on 3.3 GWh. Within the quarter, revenue totaled $1.2 billion at the high end of guidance. Gross margin was in line with guidance at 13.9%. Profitability was impacted by elevated freight costs from ongoing geopolitical uncertainties.
We also faced near-term ramp-up costs for our solar cell manufacturing facility in Jeffersonville. These factors led to a net loss attributable to shareholders of $77 million, or $1.40 per share. Turning now to Slide 4. Our manufacturing segment remains the key driver of our financial performance today. It is also where our strategic priorities lie. In our solar business, we continue to prioritize high-margin regions to ship nearly half of our quarterly module volumes to our North America home base.
In our energy storage business, we are scaling rapidly and executing well globally. In a single quarter, we delivered to utility-scale projects across North America, EMEA, Asia Pacific, and Latin America. We outperformed guidance due to accelerated deliveries for two projects in the US and Canada. Higher unit shipping costs and ramp-up expenses led to an operating loss of $49 million. As we finish ramping phase one of our solar cell facility and expand through phase two, these costs will normalize.
We expect overall module margins to improve as a result. Now turning to Slide 5. A major highlight this quarter was the official opening of our state-of-the-art HJT solar cell facility. This marks a historic milestone. Canadian Solar is now the first commercially operational HJT manufacturer in the United States. We are also proud of the facility's meaningful impact and contribution to the local economy and community. We are currently ramping up phase one capacity to 2.1 gigawatt peak.
Phase one is set to enter full-scale production on October 1st. Before the end of the year, we will begin installing equipment for phase two, which will bring our Jeffersonville total nameplate cell capacity to 6.3 gigawatt peak in 2027. This facility will be the largest crystalline silicon cell manufacturing plant in North America. Paired with our 10 gigawatt peak module facility in Texas, CS PowerTech solidifies its place as one of North America's largest and premier integrated photovoltaic manufacturers.
These expansions are backed up by strong customer demand for our high-performance US solar products which offer valuable domestic content benefits. Turning to Slide 6. CS PowerTech has secured over 13 gigawatt peak in contracted backlog for our domestically manufactured HJT and TOPCon N-type bifacial modules. Deliveries are scheduled through 2029. This backlog includes multiple long-term master service agreements with leading US utilities, IPPs, developers, and EPCs.
These commitments continue to grow daily and already represent north of $4.5 billion in value. On the policy front, President Trump released a new Section 232 announcement this month which is focused on imported polysilicon and its derivative products. We view this new policy structure as supportive of our long-term investment in domestic manufacturing. Key details include minimum import pricing, tariff provisions, and potential manufacturing offsets for companies investing in domestic manufacturing capacity.
The Department of Commerce will work to approve US investment plans. We will continue to be in active, constructive, ongoing dialogue with the Department of Commerce and will continue to participate throughout the 120-day implementation period. Our current evaluation indicates that these measures will reinforce US solar pricing, and we are actively working with our customers to navigate this period of uncertainty. Overall, we view this policy direction as net positive for Canadian Solar, and we welcome the Administration's support for American industrial growth.
Now turning to Slide 7 for e-Storage. We shipped 3.7 gigawatt hours of energy storage solutions this quarter and recognized revenue on 3.3 gigawatt hours after accounting for the more than 400 megawatt hours to internal projects under execution. At the end of this quarter our contracted backlog stood at $3.5 billion. This includes long-term service agreements covering 34 gigawatt hours of contracted projects. We see demand from data centers transitioning from conversations to contracted opportunities.
Earlier this year, e-Storage secured a contract with a major US utility for a 500 megawatt, 2.5 gigawatt hour DC project designed to support data center grid infrastructure and resiliency. Energy-intensive data centers and their stakeholders face two primary hurdles: securing power and maintaining grid stability. Interconnection approvals and transmission builds require years to complete. Battery energy storage unlocks the higher throughput from existing infrastructure, responds dynamically to load swings, fortifies grid resilience, and protects mission-critical computing hardware from power disruptions.
For on-site, behind-the-meter facilities, energy storage integrates seamlessly with other energy generation technology including natural gas and renewable power generation. We are actively engaging with data center hyperscalers, developers, and utility customers to deliver solutions that help overcome these challenges. Our market value extends well beyond supplying battery containers. We produce our own battery cells, design the SolBank platform, integrate the power conversion and proprietary energy management controls, deliver full EPC and commissioning services, and provide ongoing support through long-term service agreements.
This end-to-end, full-stack model offers customers a single accountable partner while supplying us with real-world operating data to refine future solutions. Now let me hand the call over to Dylan to review updates for Recurrent Energy, Canadian Solar's global project development business. Dylan, please go ahead.
Dylan Marks, CEO of Recurrent Energy
Thank you, Colin. Starting on Slide 8, we generated $117 million of revenue in the second quarter. Revenue declined sequentially primarily because several project sales moved into the second half of the year. Electricity sales revenue rose quarter-over-quarter, supported by the commercial operation of a large solar asset in Spain. With muted project sales during the quarter and a $24 million impairment charge related to an upcoming project sale in Latin America, operating expenses rose quarter-over-quarter.
As a result, we recorded an operating loss of $19 million. Despite the lowered financial performance, we continued to hit key operational milestones throughout the second quarter. Earlier in the quarter, we brought a 426 megawatt solar asset in Spain into commercial operation which began contributing recurring revenue. Our partnerships with leading global technology companies further validate our development platform. In Australia, we recently connected the 150 megawatt CarWarp project which is backed by a long-term power purchase agreement with Microsoft.
We also continue to secure competitive large-scale project financing. Recently, we closed a $695 million construction financing and tax equity package for our 330 megawatt Cobalt Solar facility in California. MUFG and NORDLB provided the construction loans while Wells Fargo provided the tax equity. Turning to Slide 9 for our portfolio pipeline update. As of June 30, 2026, we have secured grid interconnections for approximately 6 gigawatts of solar and 13 gigawatt hours of energy storage globally.
Excluding projects already in operation, our total development pipeline stands at nearly 22 gigawatts of solar and 84 gigawatt hours of energy storage. Our strategy for this pipeline remains focused on high-quality, high-margin opportunities that drive real value. We are actively pruning lower-margin assets. For instance, we scaled back our EMEA pipeline following detailed evaluations of permitting, technical, and commercial viability. At the same time, we are moving decisively where we see attractive upside.
Our team is actively positioning us to compete in Brazil's upcoming energy storage auction, which expanded our early-stage pipeline in Latin America. For the second half of the year, our priority remains the selective monetization of certain operating assets, under-construction assets, and development assets. These transactions are intended to support our capital recycling strategy, improve financial flexibility, and address leverage levels over time while preserving our ability to invest in high-return growth opportunities.
Now let me hand the call over to Shinbo who will go through our financial results in more detail. Shinbo, please go ahead.
Jimbo Zhu
Thank you, Dylan. Beginning on Slide 10, in the second quarter we recognized revenue on 3.1 gigawatts of modules and 3.3 gigawatt-hours of energy storage solutions, both sequentially higher. Module performance was bolstered by strong U.S. volumes, while storage guidance due to accelerated project deliveries in North America, despite light contributions from Recurrent due to deferred project sales. Solid execution in the manufacturing segment lifted total revenue to $1.2 billion, reaching the high end of our guidance.
Gross margin was 13.9%, in line with guidance. The sequential and year-over-year margin jumps reflect two non-recurring items: first, the tariff refund benefits recognized last quarter; and second, the release of unrealized profit upon sales from the current fleet of a U.S. project in the prior-year period. Operating expenses rose 21% sequentially. This was driven by a combination of elevated freight rates and non-logistic ramp-up costs at our Jefferson Wells solar cell plant.
Net interest expense rose to $43 million from $36 million in the first quarter, primarily due to lower capitalized interest. We recorded a net foreign exchange loss of $9 million, primarily driven by strong appreciation in the Chinese yen. CSI Solar recorded a $41 million mark-to-market gain in investment income from its equity investment in a battery equipment company, helping buffer our bottom line. As a result, Canadian Solar recorded total net loss attributable to shareholders of $77 million, or $1.40 per share.
Now let's turn to cash flow and the balance sheet on Slide 11. Net cash flow used in operating activities during the second quarter of 2026 was $181 million, driven primarily by change in working capital. Total assets grew to $16.1 billion. This increase primarily reflects ongoing consumption of U.S. solar and storage projects, along with inventory expansion to support our U.S. manufacturing strategy. Total debt increased to $7.1 billion, mainly from non-recourse construction financing for solar and storage projects under Recurrent Energy in the U.S. As we monetize operating, under-construction, and development assets, we expect to deleverage the projects development business. At the same time, our manufacturing segment will take on incremental debt to fund strategic U.S. manufacturing investments, which we expect to expand profitability and cash flow in 2027 and beyond. Capital expenditures in the second quarter were $172 million, primarily directed toward our U.S. manufacturing initiatives.
We anticipate full-year 2026 CapEx to total around $1.3 billion. This implies higher capital outlays in the second half as we begin phase two equipment installation at Jefferson Wells, double capacity at our Mesquite module plant, and scale up our energy storage facility in Southeast Asia. We closed the quarter with a cash balance of $1.9 billion, providing us with solid liquidity to execute on our strategic priorities. Now let me turn the call to Sean, who will discuss our sustainability achievements and the technology roadmap.
Sean, please go ahead.
Sean Hsu (Executive Chairman and CTO)
Thank you, Jimbo. Turning to Slide 12, in June we published our 2025 Corporate Sustainability Report. This highlights our commitment to driving the global clean energy transition through sustainable and responsible business practices. The report tracks our focus on value-driven growth. Notably, the Science Based Targets initiative validated our net-zero greenhouse gas target. We also advanced our resource efficiency, achieving significant energy and water savings alongside two zero-carbon factory certifications.
Furthermore, we reinforced our supply chain transparency and ethical labor standards. These efforts are backed by independent audits and certifications across our manufacturing footprint and key suppliers. Overall, this report demonstrates that environmental stewardship, social responsibility, and strong governance are fundamental to how we build long-term stakeholder value. At the core of everything we do is technological innovation. Turning to Slide 13, we continue to execute on a multi-generation technology roadmap across both solar PV and energy storage solutions.
Starting with solar PV, our near-term priority through 2028 is the mass production and optimization of our next-generation HJT, or heterojunction, and TOPCon architectures across our core utility, C&I, and residential market. We are scaling module efficiency from 23.2% up to 24.4% while aggressively reducing silver consumption from 6.5 milligrams per watt down to 3 milligrams per watt to drive down this key input cost. Looking slightly further ahead, we expect mass production of our premium QBC architecture by 2028.
Designed primarily for the premium residential market, QBC aims to deliver efficiencies between 24.8% and 25.2% with ultra-low silver usage of just 1 to 2 milligrams per watt. Beyond terrestrial single-junction silicon, where we approach physical limit at around 25% to 26% module efficiency, we are expanding into frontier applications and multi-junction technologies. We have already begun collaborating on space PV opportunities using our HJT cell technology, with planned shipments in 2029.
For extreme space environments where radiation tolerance and thermal cycling resilience are critical, for long-term utility-scale expansion our ultimate efficiency frontier lies in tandem cells targeted for commercial shipment in 2030 to break through the 30% module efficiency area. Given that perovskite reliability will require another five to ten years of validation before large-scale ground deployment, space applications may well serve as the initial commercial stepping stones to these next-generation tandem structures.
Turning to our energy storage and power electronics roadmap on Slide 14, we are building a foundation for sustainable, high-density, and long-duration storage assets. We are currently mass producing SolBank 3.0, which delivers 5 megawatt-hours in a standard 20-foot enclosure using 314 Ah LFP cells. We will soon begin shipping the next iteration, SolBank 4.0, starting 2027. This solution increases energy density by 25%, delivering 6.25 megawatt-hours in the same 20-foot footprint, utilizing high-capacity 588 Ah LFP cells.
To complement these larger battery systems, our power electronics hardware is scaling in tandem. We are transitioning from our air-cooled mid-voltage ... 1.0 to our liquid-cooled mid-voltage ... 2.0, which integrates 32 of 450-kilowatt inverters to achieve 14.4 megawatts in a 40-foot layout. Further out on our 2030 roadmap, we're exploring solid-state transformers, a 2.5 megawatts 34.5 kV AC to 800 volt DC solutions achieving over 98.5% conversion efficiency that has the potential to replace traditional PCS units and integrate directly into fast platforms as cost and reliability mature.
To address long-duration storage and harsh-environment requirements at a potentially lower levelized cost of storage, or LCOS, we are actively validating our containerized sodium-ion platform. This would eventually deliver an exceptional cycle life of over 15,000 cycles. Sodium-ion technologies offer compelling structural advantages: abundant raw materials free from geopolitical restraints, performance in extreme cold temperature, and simplified cooling requirements that could meaningfully reduce long-term operational expenditures.
It also delivers important safety advantages, such as significantly reduced thermal runaway risk. We are also developing a high-capacity energy storage product designed for deployment inside AIDC server room to deliver millisecond-scale energy management solutions. Ultimately, unifying these solar and storage developments advances our vision of Canadian Solar as a total energy technologies providers. By pairing these technology roadmaps with robust end-to-end capabilities and full visibility across our supply chain, we are uniquely positioned to deliver the mission-critical clean energy infrastructure of tomorrow to our global customers.
We will unveil more cutting-edge energy technologies in the future, so stay tuned. Now let me turn the call back to Colin, who will conclude with our guidance and business outlook. Colin, please go ahead.
Colin Parkin, CEO
Thank you, Sean. Turning now to Slide 15, for the third quarter of 2026, we expect to recognize revenue from 3.5 to 3.8 gigawatts of solar modules. We expect energy storage deliveries to range between 3.4 and 3.8 GWh, driven by sequentially higher manufacturing volumes. We project third quarter revenue to be between $1.3 and $1.5 billion, with gross margin expected to range between 13.5% and 15.5%. We anticipate U.S. solar and storage shipments to accelerate in the second half, with each remaining quarter delivering higher volumes than the last.
At Recurrent, we expect to finalize the project sales delayed from the second quarter. This will drive a sequentially stronger third quarter. For the full year of 2026, we reiterate our U.S. volume guidance of 6.5 to 7 gigawatts of module shipments and 4.5 to 5.5 gigawatt-hours of energy storage shipments. With that, I would now like to open the floor for questions. Operator, please go ahead.
OPERATOR (Melissa)
Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 key. We do ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Colin Rush with Oppenheimer and Company.
Please proceed with your question.
Colin Rush, Analyst at Oppenheimer & Co.
Thanks so much, guys. You know, Sean, if you look at the roadmap that you just articulated from the technology perspective, it's pretty robust. There's a lot of activity. So I want to understand two dynamics. One, just trend lines on overall spending on the R&D line to bring all of this to fruition. And then secondarily, where, from a regionalization perspective, where is that work going to happen and where is the IP going to sit as you bring looks like five or six pretty significant technology evolutions to market.
Sean Hsu (Executive Chairman and CTO)
Yeah, Colin, thank you. Because our revenue base is big, so although the R&D spending is significant, but usually, typically, it's around 1% to 2% of the total revenue. So we are controlling it well.
Colin Rush, Analyst at Oppenheimer & Co.
And from an IP perspective, where is that going to sit? In the U.S.? Is it going to sit outside the U.S.? Is that not a concern? Is it more around just know-how and understanding how to manufacture these things where you guys feel like you have an advantage?
Sean Hsu (Executive Chairman and CTO)
Yeah, Colin, this is a good question. Yes, we develop more and more of the manufacturing and also process R&D capabilities in the U.S. We will see more and more IP set in the U.S., but meanwhile we also develop a lot of good technology in Canada. I also see more and more IP set in Canada, especially the IP related to the power electronics and either from inverter to the PCS for the energy storage system.
Colin Rush, Analyst at Oppenheimer & Co.
Excellent. And just the follow-up here is really around shipping expense and kind of practical ways that you guys can manage that or start passing that on in a more material way to customers here over the next six to twelve months.
Colin Parkin, CEO
Good morning, Colin. Thanks for the question. Colin here. Regarding the shipping expense, yeah, we do build that into our contracts and pass that along. But of course the dynamic of the shipping cost, logistics costs start to change when you look at us continuing to scale in North America. Obviously we don't have as significant overseas freight, so we'll start to see that shipping cost start to decrease just as, primarily due to, the onshoring in the U.S.
Colin Rush, Analyst at Oppenheimer & Co.
Okay, thanks, guys.
OPERATOR (Melissa)
Thank you. Our next question comes from the line of Mahip Mandaloy with Mizuho Securities. Please proceed with your question.
Maheep Mandaloy
Hey, thanks for taking the questions and for the color on the new bookings, and one question on that. You talked about the 13 gigawatts of bookings through '29. The pricing seems to be in mid 30 cents per watt. Could you clarify if that already includes any impact of this new Section 232 on polysilicon and, if not, then what prices are you seeing, and is there any flexibility to go to the existing customers on higher prices if the spot prices move up on Section 232?
Colin Parkin, CEO
Yeah, good morning, Maheep. Thanks for the question. Colin here, and we have Thomas on the line as well, but I'll start. You know our contracts are structured with change-in-law and adjustment mechanisms with all this anticipated. So what we see is this is all very new. I think, as you know, this is only fresh in the last couple of weeks with the new 232 related to poly. But we already see the market adjusting. We think it will definitely drive for accelerated deliveries in the second half of this year in advance of the proclamation implementation, I think on December 4th.
So we're going to see a rush, and with that it's driving an increase in price and demand and correlating demand. So we are seeing that start to adjust. We are seeing the market start to adjust, but it is a relatively new change to the market. But I think overall, from Canadian Solar's standpoint, with the backlog that we mentioned — the 13 gigawatts backlog — it shows a strong demand for our U.S.-based products, and our customers are certainly willing to work with us as they have to adjust as well.
So Thomas, would you add anything to that if you have anything to add on top of that?
Thomas
Good morning. Colin is spot on. The only comment I would make is that this backlog and the respective revenue value does not include a 232 adjustment yet, so this is going to increase and grow further as we are adjusting contracts and agreements with customers. But it includes, of course, a certain portion of down payments, certain shipment cost — some are further away, some are closer away — so you can take that all into account. But the 232 announcement will push the respective value upwards as we discuss and readjust and renegotiate with customers.
Hope this answers.
Maheep Mandaloy
That's great. Thanks for the color and maybe just a different follow-up on the tariff or the duty exemption in lieu with domestic capex. Just want to understand how much could we expect on that for you guys for capex? I think there's some language on that exemption is only applicable for new capex — if the R&D capex could be used for that or certain capex. Thank you.
Sean Hsu (Executive Chairman and CTO)
Well, the 232 does allow the U.S. manufacturing project to offset the tariff and duties. So as Colin said, we will actively engage with the Department of Commerce. I think we're in good standing, and we'll try to go through this process. And yes, we will apply for the tariff and MIP exemptions related to our U.S. manufacturing.
Maheep Mandaloy
Thanks for the color. I will turn back on.
OPERATOR (Melissa)
Thank you, Maheep. Thank you. Our next question comes from the line of Philip Shen with Roth Capital Partners. Please proceed with your question.
Philip Shen, Analyst at Roth Capital Partners
Thank you for taking my questions. As a follow-up to Maheep's second question on the tariff rebate program, Sean, you just mentioned that you have good standing with the Commerce Department, so I was wondering if you might be able to elaborate on that, and specifically, do you expect to qualify for the tariff rebate program and, if so, can you give us some color on why and how? Thanks.
Sean Hsu (Executive Chairman and CTO)
Well, we do expect we are qualified. We qualify for the tariff relief program because we are the one who invested into U.S. manufacturing through our solar module factory in Mesquite and also the solar cell factory in Jacksonville, plus the energy storage factory in Shoppingville. So we are putting real dollars into onshoring U.S. manufacturing. So we believe we are qualified. However, as I mentioned, we will go through the process, so I guess I shouldn't comment too much before we finish the dialogue and the process with the Department of Commerce.
Philip Shen, Analyst at Roth Capital Partners
Okay, thank you. And then earlier Colin and Thomas talked about pricing already moving, and so I was wondering if you guys might be able to quantify the magnitude of the price increase that you've seen thus far and then where you expect things to change. So if your existing bookings are at X, do you think we see a 5 cent move in pricing to the upside, or do you think it's 10 cents or maybe more? Thanks.
Colin Parkin, CEO
Philip. I think we're just like everybody else. We're monitoring the market and seeing what the opportunity looks like. I think it might be a little premature for us to speculate how fast those changes and the magnitude. So I think we're only a week or two into this new proclamation, and we're still waiting for, as a matter of fact, new guidance to come. So that could also shape things as well. So I'd hesitate to give a specific amount, but I can tell you that we do feel it's going to be accretive to CSI PowerTech overall.
Philip Shen, Analyst at Roth Capital Partners
Okay, thanks Colin. One last follow-up as it relates back to the tariff rebates program based on U.S. capex, what happens and what do you guys do if you cannot qualify for that tariff rebate program?
Sean Hsu (Executive Chairman and CTO)
Well, that's a good question. I think the MIP requirements will help to strengthen the U.S. manufacturers' advantages. The overall price will go up. If the overall solar module price goes up, it will help us even in the case that we don't fully receive the rebate related to our capex. So overall, without rebate, we think that this decision will be, you know, accretive to CSI, to CSI PowerTech, and any real meaningful manufacturers investing in the U.S.
Philip Shen, Analyst at Roth Capital Partners
Great. Appreciate the color. Thank you Sean. And thanks Colin as well.
Colin Parkin, CEO
Thank you, Philip. Appreciate the questions.
OPERATOR (Melissa)
Thank you. Our next question comes from the line of Alan Lau with Jefferies. Please proceed with your question.
Alan Lau, Analyst at Jefferies
Thanks for taking my question. Would like to ask management about the recent policy coming out from the White House last night on the bulk power system. We'd like to know, because Canadian Solar actually has battery cell and pack plant in the U.S., what's your view on complying with that U.S. manufacturing requirement, especially in relation to energy storage?
Colin Parkin, CEO
Alan, I would like to just hold off responding on that because it's something very new and we haven't had a chance to fully study that. I will just generally say that in all respects our ability to comply with U.S. requirements is strong, generally because our supply chain has already evolved to supporting the domestic content requirements and our U.S. manufacturing plans have been structured around that. I don't want to comment on such a recent policy change, but I would only say that at the moment I expect we'll be able to address any changes.
Alan Lau, Analyst at Jefferies
Understood. So regarding another previous FTC investigation, I think there was clarification on the 20th of August that inverters that were produced in the U.S. and are eligible for 45X would not be classified as foreign-produced. I recall the company previously was having third party as a supplier for inverters, but also the company is starting to do PCS as well. So I wonder if management has any comment in regards to previous restrictions on this front.
Colin Parkin, CEO
Yeah Alan, a good question. First of all, our inverters are not currently being moved into the U.S., so it's not an issue for us in terms of our current supply chain. But as you mentioned, we do procure significant amounts of third-party inverters, PCS, for example, and we are actively involved with our supply chain to ensure that they meet all the FCC requirements and/or have the path to have those FCC requirements in place. We don't see any issues with any of our business activities at this time related to the recent changes.
I know there's just recent clarification provided with respect to the communication protocols, which we're looking at very carefully, but we don't see any impact to our business at the moment with respect to the new SEC requirements.
Sean Hsu (Executive Chairman and CTO)
Yeah, I would like to add a little bit of color on top of what Colin just said. We also noticed in the new guidance that FCC said anything qualified for the 45X — which means qualified for local manufacturing and eligible for 45X — will be considered domestic, therefore will not require FCC approval. I think this is a very interesting policy clarification. As you mentioned, we do have our own PCS. We have that technology centered in Canada. So we have started to actively look into the feasibility of manufacturing PCS and inverters in the U.S., utilizing the advantage that Canadian Solar already has — PowerTech, which is the 45X-qualified structure in the U.S. So yes, we are actively reviewing the feasibility of that.
Alan Lau, Analyst at Jefferies
Thanks both, that's very clear, because I recall the company actually has a very strong record in U.S. manufacturing and has already secured 45X credits for other products like modules already. So that might actually be a positive opportunity for the company to take share. So that's why the question is coming from. Switching gears to the technology part, because I noticed that Sean has spent quite a lot of time — I think that is quite new in this quarterly results briefing — would like to know, because Sean has mentioned about space PV.
So I suspect if there has already been some form of discussion with major clients in the aerospace industry, or it's more a product development stage, or there's actually already some early stage navigation already.
Sean Hsu (Executive Chairman and CTO)
Yeah, space PV is a very interesting direction, although I don't expect it to contribute meaningfully this next year. But in the long run, you know, space is what everybody is looking at, including Canadian Solar and MSL. And you realize that Canadian Solar is a strong participant in the so-called HJT, or heterojunction, solar cell architecture, and this is what the industry considers very favorable for silicon-based space PV applications. And the research so far shows that the so-called P-type heterojunction will have better tolerance to the high-energy particle radiation bombardment in space.
Therefore P-type heterojunction, especially the thin P-type heterojunction, is considered to be a leading candidate for silicon-based solar cell application in space. So we do manufacture the P-type. As you know, our Jefferson solar cell factory adopted the heterojunction, the HJT solar cell structure, and so far we use N-type for the terrestrial applications. However, it's very easy for us to convert that into P-type, and we already use very thin wafers, and the wafer to be processed in our Jeffersonville factory averages at 110 micron thickness, which is one of the thinnest wafers used for commercial production.
Now, also on the R&D side, we have designed and processed even thinner — to 50 micron thickness — with P-type heterojunction, and very successfully, so we can supply that. So we are at the leading front of space. Now we are talking to other space and especially the satellite companies about this application. We are collaborating — now I can't disclose the customer name right now — but yes, we have close collaborations with space-related partners.
Alan Lau, Analyst at Jefferies
Understood. So it's also interesting that your view on the space PV is on HJT. Having mentioned about HJT, there are some market views that TOPCon might have some issues in relation to the Section 337 patent investigation. Is it one of the reasons that you are selecting HJT technology in the U.S. because it is not the mainstream technology outside of the U.S., or is it really other reasons like labor or shorter production process?
OPERATOR (Melissa)
Thank you, ladies and gentlemen. That concludes our question-and-answer session. I'll turn the floor back to Mr. Parkin for final comments.
Colin Parkin, CEO
Thank you for joining us today and for your continued support. If you have any questions or would like to set up a call, please contact our investor relations team. Take care, everybody, and have a great day. Thank you.
OPERATOR (Melissa)
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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