Canadian Solar Q1 2025 Earnings Report

Canadian Solar EPS Results

• Actual EPS: -$1.07
• Consensus EPS: -$1.50
• Beat/Miss: Beat by +$0.43
• One Year Ago EPS: $0.19

Canadian Solar Revenue Results

• Actual Revenue: $1.20 billion
• Expected Revenue: $1.11 billion
• Beat/Miss: Beat by +$89.11 million
• YoY Revenue Growth: -10.00%

Canadian Solar Announcement Details

• Quarter: Q1 2025
• Date: 5/15/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 15, 2025
• Conference Call Time: 8:00AM ET

Canadian Solar (NASDAQ:CSIQ), together with its subsidiaries, provides solar energy and battery energy storage products and solutions in in Asia, the Americas, Europe, and internationally. The company operates through two segments, CSI Solar and Recurrent Energy. The CSI Solar segment designs, develops, and manufactures solar ingots, wafers, cells, modules, and other solar power and battery storage products. It offers standard solar modules and battery storage solutions; solar system kits, such as inverters, racking systems, and other accessories; power electronic products; and engineering, procurement, and construction (EPC) services, as well as operates battery energy storage projects. The Recurrent Energy segment engages in the development, construction, maintenance, and sale of solar power and battery storage projects; and operation of solar power plants; and sale of electricity. This segment provides operation and maintenance (O&M) services, including monitoring, inspections, repair, and replacement of plant equipment; and site management and administrative support services for solar projects, as well as asset management services. It has a fleet of solar and battery energy storage plants in operation with an aggregate capacity of approximately 1,005 MWp and 600 MWh. It serves distributors, system integrators, project developers, and installers/EPC companies, as well as utility companies or grid operators, public utilities, licensed suppliers, corporate offtakers, and commercial, industrial or government end users. It sells its products primarily under its Canadian Solar brand name. Canadian Solar Inc. was incorporated in 2001 and is based in Guelph, Canada.

Canadian Solar Q1 2025 Earnings Call Transcript

Key Takeaways

• Canadian Solar reported a solid first quarter with module shipments of 6.9 GW, revenue of $1.2 billion (at the high end of guidance) and a gross margin of 11.7%, resulting in a net loss of $34 million due largely to lower storage contributions, tariffs and intercompany eliminations.
• Management is addressing a global market downturn driven by structural overcapacity, pricing pressure and tariffs with a profit-focused strategy that includes careful volume management in less profitable markets, blended supply chains, bundled sales and disciplined operating expense and capex controls.
• The company unveiled several new technologies, including an anti-hail panel in Australia, 660 W TopCon Gen 2 modules with 24.4% efficiency, the Solbank 3.0+ LFP battery offering a 25-year lifespan and 12,000 cycles at 95% efficiency, and the award-winning EP Cube residential storage system.
• Energy storage remains a growth driver, with a record pipeline of 91 GWh (including $3.2 billion in contracted backlog) and major wins such as a 912 MWh system for the Chilean Atacama project.
• For 2025, Canadian Solar updated its guidance to 25–30 GW of module shipments and 7–9 GWh of storage deliveries, projecting full-year revenue of $6.1–7.1 billion, and anticipates Q2 shipments of 7.5–8 GW in modules and 2.4–2.6 GWh in storage with gross margins of 23–25%.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's First Quarter twenty twenty five Earnings Call. My name is Sherry, 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.

[Operator]

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Weina Hong, Head of Investor Relations at Canadian Solar. Please go ahead.

[Wina Huang, Head of Investor Relations at Canadian Solar]

Thank you, operator, and welcome, everyone, to Canadian Solar's first quarter twenty twenty five conference call. Please note that today's conference call is accompanied with slides, which are available on Canadian Solar's Investor Relations website within the Events and Presentations section. Joining us today are Doctor. Sean Hsu, Chairman and CEO Yan Guanc, President of Canadian Solar's subsidiary CSI Solar is Mal Guerrero, Corporate VP and President of Canadian Solar subsidiary for Current Energy and Simborg Zhu, Senior VP and CFO. All company executives will participate in the Q and A session after management's formal remarks.

[Wina Huang, Head of Investor Relations at Canadian Solar]

On this call, Sean will go over some key messages for the quarter. Yan and Ismail 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.

[Wina Huang, Head of Investor Relations at Canadian Solar]

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.

[Wina Huang, Head of Investor Relations at Canadian Solar]

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 establish operational goals. Non GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now I would like to turn the call over to Canadian Solar's Chairman and CEO, Doctor.

[Wina Huang, Head of Investor Relations at Canadian Solar]

Sean Hsu. Sean, please go ahead.

[Operator]

Your line may be muted.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Thank you. Thank you, Wina, and thank you all for joining our first quarter earnings call. Please turn to Slide three. We began the year with a solid performance. Module shipments reached 6.9 gigawatts, slightly above our guidance.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Revenue totaled $1,200,000,000 at the high end of our range, while gross margin of 11.7% modestly exceeded expectations. Profitability was impacted by lower contributions from storage, due dates and tariffs, recurrence, ongoing transformation and intercompany eliminations. This resulted in a net loss to shareholders of $34,000,000 or $0.69 per diluted shares. 2025 will face many of the same challenges that define 2024. While near term headwinds remain, we are confident in the long term opportunities and will continue to invest in them.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Please turn to slide four. In the near term, we are tackling challenges that test us both operationally and financially. Structural overcapacity across the solar supply chain has prolonged the market downturn, putting pressure on module pricing in almost in most global market. In addition to fierce competition, tariffs and shifting policies are raising costs and squeezing margins. To navigate these challenges, we are maintaining a profit focused approach to our modules business, carefully managing volumes in less profitable market, leveraging a blended supply chain strategies and offering bundled sales.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Storage continues to be a key differentiator and profit driver. We are also rigorously managing operating expenses and capital expenditures to support our bottom line and cash flow. Recently, we held an internal town hall meeting where I posted a question on behalf of the broader renewable energy sectors. Does this industry still have a bright future? My answer is a resounding yes.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Global electricity demand is growing at its fattest pace in years, and the rise of AI and other energy intensive applications is widening the energy gap. Solar power, clean, affordable, and easy to deploy, can quickly meet this demand, especially when paired with storage. Canadian Solar has a proven track record of navigating policy shifts and market cycles, demonstrating our technological leadership and resilience in challenging times. While our operating environment continue to evolve, Our one constant is our commitment to R and D and leadership through innovation. Please turn to slide five.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Over the past two months, we have announced several new products showcasing our leadership across both solar and energy storage technologies. In solar, we completed our first deployment of Canadian Solar's innovative anti health technology in Australia. This technology protects solar panels from severe weather, reflecting our dedications to delivering durable, high performance solutions in even the most demanding environment. We also introduced our new n type high power TopCon Gen two modules for utility scale and CNI system. Built on our latest TopCon cell technology, these modules deliver a maximum power output of up to 660 watts and a conversion efficiency of up to 24.4%.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

By advancing our solar technology, we help customers lower their levelized cost of energy and improve project economics, reinforcing solar as one of the most cost effective energy generation options. On the storage front, we achieved key milestones in both utility scale and residential offerings. At InterSolar in Munich, we officially launched our Solbank three point zero plus enhancement to the lithium ion phosphate battery cell manufacturing process elevate its performance beyond the already successful SoftBank three point zero. This solution offers a twenty five year lifespan, near zero degradation for the first four years, and up to 12,000 cycles at 95% round trip efficiency. SoBank three point zero plus can significantly reduce our customers' operational costs by boosting overall lifetime energy throughout throughput by over 13%.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

We are also proud that our residential energy storage solution, EP Cube, received the prestigious 2025

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

YES Design Award and Gold at the 2025 NEWS Design Awards. EP Cube combines a aesthetically pleasing design important to homeowners with functional advantages like easy installation and flexible capacity options. It continues to gain strong traction in global market. With that, I will now turn the call over to Yan, who will provide more details on our CSI solar business. Yan, please go ahead.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Thank you, Sean. Please turn to Slide six. In the first quarter of twenty twenty five, module shipments increased by 9.4% year over year to 6.9 gigawatts. We slightly exceeded our module shipment guidance, driven by incremental shipments to China as the industry rushed to complete installations ahead of new policies taking effect on June 1. Storage deliveries aligned with guidance totaling eight forty nine megawatt hours.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Revenue reached $1,200,000,000 and our gross margin declined by six forty basis points quarter over quarter to 13.4%, primarily due to lower energy storage shipments. While costs rose slightly partly from non refundable VAT changes in China effective last December and slightly higher manufacturing costs in Southeast Asia under our blended supply chain strategy. Average selling prices improved with a higher share of shipments to North America. With shipping costs declining sequentially due to softening global shipping rates and our rigorous management of our operating expenses, we achieved operating income of $2,000,000 Now turning to e storage. Please refer to Page seven.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

In the first quarter, we recognized revenue from eight forty nine megawatt hours of shipped solutions. The softer performance was due to contract timing, and we expect a much stronger second quarter. Understandably, the ongoing U. S.-China tariff negotiations remain top of mind for all stakeholders. While we cannot predict final outcomes, it is critical to recognize that these U.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

S. Energy storage projects essentially for great resilience and energy dispatchability took years of planning and a significant investment. While clarity may take some time, the industry will work together to advance these projects. Like old market participants, we're navigating this uncertainty. For e storage, The U.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

S. Accounts for upwards of one third of our energy storage business expected for this year. We are actively engaging with customers to mitigate risks and ensure smooth project execution. Notably, we are well positioned with our global blended manufacturing strategy. Beyond our planned Kentucky storage facility, we have cell manufacturing capabilities and supplier partnerships that will allow us to offer customers flexible options starting in 2026.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Demand for storage is stronger than ever, not just in The US, but globally. As of March 31, our record pipeline of 91 gigawatt hours, including $3,200,000,000 in contracted backlog, highlights the structural growth potential of energy storage worldwide. For example, we recently secured another major project in Latin America. Please turn to slide eight. ProGrom, a leading Chilean power generation company, selected eStorage to supply a nine twelve megawatt hour battery energy storage system for the Diago De Almagro project in Chile's Atacama region.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Like many in eStorage's global track record, now exceeding 11 gigawatt hours, this project highlights the value of energy storage. It strengthens grid reliability, optimizes renewable energy use, and ensures secure continuous power for industrial demand. Now let me hand the call over to Ismail, who will provide an overview of Recurrent Energy, Canadian Solar's global project development business. Yves Mill, please go ahead.

[Ismael Arias, Corporate VP & CEO of Recurrent Energy at Canadian Solar]

Thank you, Jan. Please turn to Slide nine. In the first quarter, we generated $125,000,000 in revenue. Gross margin was 18.6%, driven by project sales in Latin America. Due to the operating costs of our platform and the ongoing scaling of our IPP portfolio, we posted an operating loss of $12,000,000 for the quarter.

[Ismael Arias, Corporate VP & CEO of Recurrent Energy at Canadian Solar]

Regarding our business transformation, we remain focused on execution. Currently, we have 1.2 gigawatts peak of solar and 1.4 gigawatt hours of energy storage projects under construction in Europe and The U. S. In January, our 35 megawatts peak Mont Alto project in Lazio, Italy reached commercial operation. The PV project was contracted with AXPo with an attractively priced PPA.

[Ismael Arias, Corporate VP & CEO of Recurrent Energy at Canadian Solar]

In addition, Montalto is also one of the first co located PV and best projects in the Italian market. The BEST portion won a fifteen years fixed capacity payment in a public auction, and it is now under construction. In The U. S, we secured tax equity and project finance for Fort Duncan, a 200 megawatt hours merchant project merchant storage project in ERCOT, Texas. This is testament to the strength of our projects and financing teams, as well as the strong support from our capital partners in enabling innovative solutions to drive impact.

[Ismael Arias, Corporate VP & CEO of Recurrent Energy at Canadian Solar]

Construction for Fort Duncan is complete and under commissioning as we speak. In line with our global growth strategy, we secured a $450,000,000 multi currency credit facility, which includes an accordion feature that allows for potential upsizing. This corporate facility provides flexible and scalable financing with disbursements in U. S. Dollars, euros, British sterling, and Australian dollars, supporting our strategy to expand our IPP portfolio across diverse markets and geographies.

[Ismael Arias, Corporate VP & CEO of Recurrent Energy at Canadian Solar]

Given the uncertain policy environment in The U. S, we are proactively implementing safeguards for all major IPP projects, including safe harboring equipment. While the long term effects of tariffs remain to be seen, we expect very limited impact given recent progress in trade negotiations. Now please turn to Slide 10 for an update on our pipeline. As of 03/31/2025, we have secured interconnections for nine gigawatts of solar and 16 gigawatt hours of storage globally, excluding projects already in operation.

[Ismael Arias, Corporate VP & CEO of Recurrent Energy at Canadian Solar]

Our total project pipeline now stands at 27 gigawatts of solar and 76 gigawatt hours of energy storage. While we continue to expand our pipeline, the availability of easy to develop land with relatively cheap interconnections is becoming increasingly scarce. We are now prioritizing our core markets, The U. S. And Europe, while in other regions, we focus primarily on low cost greenfield development.

[Ismael Arias, Corporate VP & CEO of Recurrent Energy at Canadian Solar]

Now, let me hand the call over to Simba, who will go through our financial results in more detail. Timo, please go ahead.

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

Thank you, Ismail. Please turn to Slide 11. In the fourth quarter, we shipped 6.9 gigawatts of modules, slightly above guidance and delivered eight forty nine megawatt hours of energy storage solutions in line with expectations. Revenue reached $1,200,000,000 at the high end of our forecast. Gross margin of 11.7% exceeded guidance.

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

The two sixty basis point sequential decline was primarily due to lower energy storage shipments, while the seven thirty basis point year over year decline was driven by lower module ASP. Operating expenses decreased 4% year over year, driven by lower shipping costs. Last quarter's results included non recurring impairment charge related to certain manufacturing and solar assets, making the year over year comparison more reflective of our ongoing operational performance. Net interest expense in the first quarter was $28,000,000 compared to $9,000,000 in the fourth quarter of twenty twenty four and less than $1,000,000 in the first quarter of twenty nineteen. The current quarter reflects a more normalized interest expense as prior comparative periods benefited from non recurring interest income items.

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

Net foreign exchange loss was $14,000,000 primarily due to dollar weakness and tariff related pressures. Total net loss was $34,000,000 or $0.69 per diluted share. These results included a positive HLBV impact of $26,000,000 or $0.38 per share from tax equity arrangements tied to certain U. S. Operating projects.

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

Now let's turn to cash flow and the balance sheet. Please turn to Slide 12. Net cash flow used in operating activities during the first quarter of twenty twenty five was $264,000,000 This outflow was primarily driven by increased inventories and project assets. Total assets grew to $13,900,000,000 driven by investments in project assets and solar power systems positioning us for longer term value creation. In the first quarter, we allocated $256,000,000 in capital expenditures, primarily toward U.

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

S. Manufacturing initiatives. Our full year 2025 CapEx outlook remains unchanged at around $1,200,000,000 We ended the quarter with a cash balance of $2,000,000,000 and total debt of $5,700,000,000 reflecting borrowings for capacity expansion, working capital and the project and operational assets development. Now let me turn the call back to Sean, who will conclude with our guidance and business outlook. Sean, please go ahead.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Thank you, Xinbo. Please turn to Slide 13. For the second quarter of twenty twenty five, we anticipate CSS Solar's module shipment will range between 7.5 to eight gigawatts, including approximately 500 megawatts allocated to our own project. We also expect to deliver between two point four and two point six gigawatts of energy storage solutions during this period. We project total second quarter revenue to be in the range of $1,900,000,000 to $2,100,000,000 with gross margin expected to be between 2325%.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

The anticipated margin improvement reflects strong energy storage shipment and includes a sizable margin contribution from the deconsolidation of US project. This deconsolidation was released previously eliminated intercompany gross margin on CSI solar components installed within the project. We continue to operate in an environment marked by global pricing volatility and evolving policy uncertainty, which limits our margin visibility. Based on our recent assessment of market and geopolitical development, we are updating our full year guidance as follows. For the full year of 2025, we update module volume guidance to 25 to 30 gigawatts, including approximately one gigawatt to our own project.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

For energy storage shipments, we provide conditional guidance between seven to nine gigawatt hours, including approximately one gigawatt hour allocated to our own projects. The reduced module volumes primarily reflect our strategic reduction of exposure to a less profitable market, while the expected storage adjustment relate to US volumes affected by trade negotiations. As a result of these volume adjustment, we now expect full year revenue to be between $6,100,000,000 and $7,100,000,000 With that, I would now like to open the floor for questions. Operator?

[Operator]

Thank you. We will now be conducting a question and answer session. Our first question is from Colin Rusch with Oppenheimer and Company. Please proceed.

[Colin Rusch, Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.]

Thanks so much guys. There's a lot of variables here and Sean obviously you've gone through a variety of policy shifts. One element that I'd love to get a bit more detail on is around the FEOC provisions that were released in the budget. I guess as you guys look at how that might evolve and get solidified in the budget, how does that impact your plans for U. S.

[Colin Rusch, Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.]

Capacity investment? And how should we think about that, some of those elements impacting the variability in your guidance?

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Well, thanks, Cody. It's a good question, but also a tough question. Now the new draft of the FCOC was only released two days ago by the House Ways and Means Committee, and it's only the first draft. We believe it will not look like this at the final bill, final reconciliation bill. So it's hard to comment at this moment because in the next two, three years, there will be we believe there will be change.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

We will also put our opinion and all suggestions to, you know, through the the relevant representative and senators and also to the administration. So I will not comment now because it's only two days old draft and only the first draft from the house waste, I mean, Colin.

[Colin Rusch, Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.]

Perfect. Appreciate the appreciate that answer. And then just shifting gears to the balance sheet. As you move through this year, we've seen some of the long term debt increase, assuming that the bulk of that is around projects. How should we think about target ratios for you guys from a cash flow perspective and a leverage perspective?

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Simba, do you want to answer this question?

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

From recurrent perspective, we are still in the transition of from the project developer to our parcel IPP. So we are continuing to do our projects and at non recourse. So the leverage of recurrent will increase a little bit. For sensor solar, we will maintain similar leverage ratio to balance the growth and our capital structure.

[Colin Rusch, Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.]

Okay. Thanks, I'll hop back in queue.

[Operator]

Our next question is from Philip Shen with ROTH Capital Partners. Please proceed.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Hi. Thanks for taking my questions. In terms of the 2025 guidance, you lowered your module shipments by 15% and battery shipments, I think, by 30%, but the revenue guide only came down 10%. Can you walk us through again, or just walk us through how revenue is able to be down only 10%? Do you expect pricing to go higher?

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Sorry if I missed some of your explanation. Thanks.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Yeah. Maybe, Wei, you are at best position to answer this question.

[Wina Huang, Head of Investor Relations at Canadian Solar]

Hi, So as Sean mentioned, we are maintaining a profit first strategy, which means that the volumes we reduced for modules in a is in less profitable market, whereas for storage, this is our best estimate given the ongoing trade negotiations. So this is still very fluid. As you can see, it's a pretty wide revenue guidance range.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Okay, thank you guys. And as it relates to the draft House bill, I know, Sean, you talked about the FIAAC rules and how that might need to changed, or you expect it to be changed ahead. They also have new rules as it relates to the ITC and PTC. If they were to pass, now they're looking to get placement service requirements instead of construction starts to secure the ITC and PTZ. How would you expect that to impact your installations over the next two years?

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Do you think there would be modest limited impacts on the recurrent business? Or do you think there might be some challenges with that new language? Thank you.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Yeah, Philip, this is also a very good question. The FULC is important, and the ITC schedule is also very important. So we are paying lots of attention to the draft from the Wei and Ming Committee. And as I said, I expect this to change. It it looks like it's still far from the final law.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

However, the ITC does means a lot to developers and also to manufacturers. So and and Canadian sold are both developers and manufacturers. So indeed, ITC will have a impact, a significant meaningful impact if it is scaled back. Our calculation shows the one year of ITC acquiring means several hundred millions of dollars to Canadian Solar loan, not to mean not to mention the whole industry. So it's very important.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

And we will put in our suggestion and our, you know, opinions. But on the other hand, Philip, if you remember, there has been talking of ITC phase out several times in the past ten, fifteen years. And I believe ITC was first introduced during President Bush, right, time.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

And

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

then every year, not every year, President of the world and also the House of Finance reduced extended this ITC. So that we also have been preparing for ITC phase out and for just for recurrent. But I remember recurrent had, like, safe harbored four modules and other equipment several times in the in the past fifteen years. And every time ITC got extended. So ITC seems to have good longevity.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

So we'll see how it looks like this time. But the industry and also recurrent plus Canadian Solar, we are prepared to go through another round. I believe the solar project and energy storage project, You know, the price is very economic these days. And also, the electricity demand is high. So whatever the ITC yes.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Think the industry will adjust, eventually will adjust and then continue to grow, Philip.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Thanks, John. I had a follow-up question on the Q2 margin guide. And you gave some detail around the strength is due to storage and I think the deconsolidation of The U. S.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Project. Can you share a little more color there? What is the expectation for storage margins these days? Historically, think you guys have talked about 20 ish percent, but is it closer to mid-20s percent or even higher? And just provide a little bit more detail on the deconsolidation.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Thanks.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Provide comments on the energy storage and margin. And then, Shimbo, you may want to explain the deconsolidation of solar project. Ian?

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Oh, so on the storage side, the Q2 storage shipment happened in Q1. So it was before this tariff war. So margin wise, I can only say it's above 20%. It was pretty healthy. And also volume wise, Q2 is going to be much higher.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

So the guidance is 2.6 to two point eight two point four to 2.6 gigawatt hour. So it's much higher than Q1.

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

Yes. Let me comment the deconsolidation. We have a storage project with fixed rate toll agreement covering about 80% of the project lifetime.

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

According to accounting standard, when the projects reach COD, the majority of the risks and controls are transferred to the counterpart. So according to accounting standard, we need to deconsolidate this project from our balance sheet and release the intercompany profit eliminated in early quarters. And it's a one time event contributing about 5% to 6% of gross margin in next quarter.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Okay, thank you. Would you expect this strength? Kind of gross margins could we see in q three and four? Thanks.

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

No. We are not guiding this.

[Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Appreciate it. Thank you, guys. I'll pass it on.

[Operator]

Our next question is from Brian Lee with Goldman Sachs. Please proceed.

[Tyler Bisset, Equity Research Associate at Goldman Sachs]

Hey, guys. This is Tyler Bissett on for Brian. Thanks for taking our questions. So you guys lowered storage volume expectations due to the trade negotiations. And can you provide some details on what sort of tariff assumptions are embedded in your guidance?

[Tyler Bisset, Equity Research Associate at Goldman Sachs]

I know there were some recent negotiations. So just want to confirm what's embedded there. And similarly, you mentioned offering some flexible sourcing capabilities. So can you provide some more details on kind of the pricing differentials of leveraging different sources versus your existing products?

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Yes. Yan, do you want to handle this question? Any storage new guidance?

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Yes. I think to the seven to nine gigawatt hour actually covered the different uncertainties already. So that included the study days exemption and also the uncertainties after that. So it can be as low as seven or as high as nine. So that's our assumption.

[Tyler Bisset, Equity Research Associate at Goldman Sachs]

Any sort of details on just pricing differential from different sourcing capabilities?

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Okay. And actually, the storage contracts, most of the we all have a change of law protection. Some of them are like capped pricing and the others with shared on tariff. So even with the different uncertainties, I think the seven to nine gigawatt hour, we continue to have a healthy margin.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Brian, just add one comment. The sourcing flexibility will only help us in 2026. The sourcing, we are seeing sourcing flexibility with our suppliers start to build and ramp up their capacities outside China. But most of this will only help us in Chinese, Chinese six. So Chinese, China five, we have to we have to deliver all the storage project

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Mhmm.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

From China. So the impact does have a no. The tariff does have an impact. And because of that, some of customers ask it to push their project deliver to next year. And when we have this non China battery cell option ready, so that accounts for most of the the change on the guidance.

[Tyler Bisset, Equity Research Associate at Goldman Sachs]

Super helpful color. Appreciate that. And then you discussed some pull forward of demand in China given some policy changes there. Do you have any sort of expectation for, like, shipment growth next year in China?

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Yan, do you want to answer this question? The shipment growth in China?

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Yes. So we're still waiting for policy clarification at provincial level, which is the action points, right? So before that, the investment decisions in China are mostly unhelped. So however, from our understanding about the market dynamics, we think it will have a few months of adjustment in China. But after that, once the clarification once we have the policy clarification, there should it should it will not be a disaster.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

The demand will start to pick up. But however, I think second half will be weak. Next year, we don't really know because there's a lot of uncertainty. We're still waiting for the policy clarification. However, we believe that the healthy demand for storage is going to come.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Because in the past, we most of the storage demand in China was kind of mandatory on solar. So but since this policy change, the policy 01/1933, I think it will be we'll have a free treat market. The treating market will actually bring in a real demand for storage. So we anticipate a healthy growth on high quality storage projects coming up next year.

[Tyler Bisset, Equity Research Associate at Goldman Sachs]

Perfect. Really appreciate the color. Thank you.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Thank you.

[Operator]

Our next question is from Alan Lau Please proceed.

[Alan Lau, Analyst at Jefferies]

Thanks for taking my question. A follow-up question on the 6% margin contribution from the consolidation of this project. So I would like to know there's a fixed rate agreement covering the project life. So based on accounting standard, it we will have to record the the profit. But we'd like to know, is it a one off just to confirm, is it a one off impact on Q2?

[Alan Lau, Analyst at Jefferies]

Or how does it amortize over the time, the quarter?

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

From

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

a timing perspective, yes, it's a one off impact on Q2 this year.

[Alan Lau, Analyst at Jefferies]

Okay. Thank

[Alan Lau, Analyst at Jefferies]

you. Thank you. That's clear. So Q3 onwards, unless you have other projects that are deconsolidated. Otherwise, this is only one off on Q2, right?

[Xinbo Zhu, Senior VP & CFO at Canadian Solar]

Correct.

[Alan Lau, Analyst at Jefferies]

Thank you. And then next question is a would like to follow-up on US policies because there's a lot of prevalence in the past one week. Would would like to check on your view because the language is actually saying that at least for the next two years, if a for FEOC is not having the majority stake, then we'll be still able to get 45 x. Just to reconfirm, our our company, CSIQ, is actually Canadian owned and also it's per your understanding, it's not an FUOC, or what do you think about

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Canadian Solar itself is Canadian owned and also, you know, traded on Nasdaq. So they are common shareholders from The US US stock market. Now Canadian Solar holds about 65% of CSI Solar, which is trading Shanghai Stockings, which is organized under the Chinese corporate law and is trading Shanghai Stock Exchange. And then CSI Solar invested into the facilities in US, including the module factory in Mesquite, also the cell in cell factory in Jeffersonville, Indiana, and a and its storage factory in Shelbyville, Kentucky. So if the current language in the new draft state as as yet, then all these three facilities will be impacted.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

We'll have to change the ownership structure you know, to to fit or as the comply with the new laws. But on the other hand, as you see that, CSIQ, which is a Canadian company, still holds 65, and it's the controlling shareholder for CSI Solar. So I suppose that it will be much easier for us to change the structure or maybe to invite some third party investors in order to make all three entities compliant with the new rules. But I also mentioned when I answered the previous question from Philip Shen that what we what released by the House Wey and Means Committee two days ago was only the first draft. We expect it to go through many changes before it become the law.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

So there's a question of how fast the reconciliation will go through. Some say it's July before the August recess, and some say it's September. So we're not expert in, you know, how the legislature bodies work. However, we are sending our comment and opinions through our channels. And so I hope the final bills will consider all this.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

And final bill will I I hope the final bill will truly help to make manufacturing back to get manufacturing, go back to China rather than otherwise. And that's I hope.

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Go back to The US. Sorry, Xiaoping.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Yeah. This is about US. I'm I've been talking about US is about a house way and main draft of the new requirement. And also, I answered your question on FEOC.

[Alan Lau, Analyst at Jefferies]

Thank you. So next question is a because I saw on a news mentioning Canadian Solar is having a actually, CSI is having a commitment in Ethiopia. So I would like to know what's your plan there in terms of modules or study plan for sales.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Yeah. That's not true. We they would you know, our business development people have, you know, trouble around the world, so they travel to Ethiopia. But we haven't made any committed, like, decision to any activities in Ethiopia yet.

[Alan Lau, Analyst at Jefferies]

I see. I see. So so there's some probably due diligence, but not up to the stage of any commitment yet.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Right. We are developing and exploring options, but, no, there has we haven't committed anything.

[Alan Lau, Analyst at Jefferies]

I see. I see. I see. So my last question is about so the guidance, we'd like to know, like, the the guidance actually, module guidance has came down. Would like to know if that main the difference versus last time, is that mainly The US volume?

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Yan, should you answer this question?

[Yan Zhuang, Director and President of CSI Solar at Canadian Solar]

Okay. So The US annual volume stays. So we don't have a new update on that.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

So the shipment to US is pretty much still what we guided before. And this volume reduction reflect the reduction of non unprofitable sales to other market.

[Alan Lau, Analyst at Jefferies]

Understood. That's very clear. I'll pass on. Thanks a lot for taking my questions.

[Operator]

Our next question is from Praneeth Satish with Wells Fargo. Please proceed.

[Praneeth Satish, Analyst at Wells Fargo]

Thank you. Good morning. Just going back to the FEOC draft legislation, I guess the question here is on your Indiana Kentucky facilities. Does it make sense to put those on pause? You maintained your CapEx guidance, 1,200,000,000, but until you get final clarity on the rules, is there a chance that maybe some of that CapEx comes down, you shift the projects out?

[Praneeth Satish, Analyst at Wells Fargo]

Or are you confident that the draft language will change with the future revisions? You see a path here that, even if it doesn't change through ownership changes, bringing in third party investors that you can comply with the rules?

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

The Jefferson Jeffersonville in the Indiana factory, as you mentioned, is in the middle of the building, construction, and also the equipment. Well, they shipped in the phase or most of the phase one equipment. And and those phase one equipment, which is about two gigawatt of capacity, solar cell capacity, those equipment stay in in in a warehouse in Indiana right now, waiting for the building to complete. So I will I think our phase one of about two gigawatt. You know, the Jeffersonville facility, we have announced a proposal, a plan to reach five GW.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

We cut into phase one and phase two. So we are quite conservative when it come to actually spending money. So at this moment, phase one, as I said, the equipment are almost there. So I think we will complete the phase one. And the phase two decision will probably be made, you know, in the summer or after summer, the final decision.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

And so I hope they I I think this budget reconciliation will come to a conclusion, final form, either before the summer or after summer. So in a way that we are not spending a lot of money on the Jeffersonville, you know, other than what we already committed. And so the schedule is in parallel with the schedule of this budget reconciliation process. So if somehow, you know, we think the final language will be reasonable, final language about Feet, OC will be reasonable. And but also, as you said, we are ready to to change the capital structure once the policy is clear, the language is clear, the legal explanation is clear, then we will make our existing capacity to meet with the whatever the new language.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

But we don't want to completely stop, so we are still continuing with, you know, design, some final, like, detailed design of the factory and also certain civil construction work. Because the IRA itself only have a few years of shelf time. The previous original IRA already contains face down after 02/1930. And I think by twenty twenty thirty five, right, all the ITC and also the advanced manufacturing acquired for ITC, the so called 45 x will stop. So that's the only final time.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

So only finite amount of time, limited amount of time. So if we delay too much, the project will become uneconomic. So we'll balance this. We're spending some money to keep the construction and design work going. And, however, for most of the equipment, other than what we already shipped in, we will probably only be able to make decision, let's say, in August or September.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

I hope by that time, this budget reconciliation is already completed.

[Praneeth Satish, Analyst at Wells Fargo]

Okay. That's helpful. And maybe one more on the recurrent business here. So at least in The US, PPA prices are going up and we're seeing on the gas side for CCGT, costs and prices are going up a lot with data center demand. So is that giving you more headroom on the solar and storage side to increase PPA prices and absorb a lot of the cost increases that we're seeing from all the trade and policy uncertainty?

[Praneeth Satish, Analyst at Wells Fargo]

And then are you any more inclined for long term ownership of assets versus monetization in the current environment?

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Yeah. Ismail, this is a question for you.

[Ismael Arias, Corporate VP & CEO of Recurrent Energy at Canadian Solar]

Thank you, Sean. Thanks for the question. We see the market on a similar way as you do. We are experiencing the same the same things you are referring to. In general, with the capital we have, we have a limited capability to hold a certain amount of projects, and we are continuously assessing every time a project reaches the RTB status whether we should sell it or we should keep it in operation.

[Ismael Arias, Corporate VP & CEO of Recurrent Energy at Canadian Solar]

So how many projects we keep in operation is a decision taken based on the amount of money we have available and the status of the project and which are better to hold and better to sell. But the market remain very attractive. This is what we are seeing both in The US and Europe.

[Praneeth Satish, Analyst at Wells Fargo]

Got it. Okay. Thank you.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to management for closing remarks.

[Shawn Qu, Chairman, President & CEO at Canadian Solar]

Thank you, and 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. And take care, and have a great day.

[Operator]

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.

Participants

Executives

• Wina Huang, Head of Investor Relations
• Shawn Qu, Chairman, President & CEO
• Yan Zhuang, Director and President of CSI Solar
• Ismael Arias, Corporate VP & CEO of Recurrent Energy
• Xinbo Zhu, Senior VP & CFO

Analysts

• Colin Rusch, Managing Director - Head of Sustainable Growth & Resource Optimization Research at Oppenheimer & Co. Inc.
• Philip Shen, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC
• Tyler Bisset, Equity Research Associate at Goldman Sachs
• Alan Lau, Analyst at Jefferies
• Praneeth Satish, Analyst at Wells Fargo