Canadian Solar Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 21, 2025

Key Takeaways

  • Neutral Sentiment: In Q2, Canadian Solar shipped 7.9 GW of modules (near the high end of guidance) and 2.2 GWh of storage, generating $1.7 B in revenue and a 29.8% gross margin, but reported net income of $7 M (a $0.08 per share loss).
  • Neutral Sentiment: The “One Big Beautiful Bill” Act introduces more stringent FEOC requirements and import deadlines impacting up to 23 GW of existing U.S. solar capacity, with ITC credits phasing out by 2027, though management expects long-term demand growth.
  • Negative Sentiment: Rising polysilicon, ingot and wafer costs—driven by Chinese supply-side measures and U.S. tariffs—are expected to outpace module price increases in H2 2025, while storage margins normalize as lithium carbonate cost benefits taper.
  • Positive Sentiment: In 2024 sustainability efforts, Canadian Solar cut greenhouse gas emissions by 54%, reduced waste intensity by 53%, recycled 94% of waste, and completed 147 supplier ESG audits, earning silver RBA VAP recognition at two facilities.
  • Positive Sentiment: Recurrent Energy’s global development pipeline now totals 27 GW of solar and 80 GWh of storage, with 1.6 GW of U.S. projects safe-harbored and its first merchant 200 MWh Texas storage project energized and financed.
AI Generated. May Contain Errors.
Earnings Conference Call
Canadian Solar Q2 2025
00:00 / 00:00

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Canadian Solar Second Quarter 2025 Earnings Conference Call. My name is Darrell, 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 would now like to turn the call over to Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

Operator

Thank you, Operator, and welcome everyone to Canadian Solar's Second Quarter 2025 Conference Call. Please note that today's conference call is accompanied with slides, which are available on Canadian Solar's Investor Relations website within the Events and Presentations section. Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President of Canadian Solar's subsidiary CSI Solar; Ismael Guerrero, Corporate Vice President and President of Canadian Solar's subsidiary Recurrent Energy; and Xinbo Zhu, Senior Vice President and CFO. All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will go over some key messages for the quarter. Yan and Ismael will review business highlights for CSI Solar and Recurrent Energy respectively, and Xinbo will go through the financial results. Shawn will conclude the prepared remarks with the business outlook, after which we will have time for questions.

Operator

Before we begin, I would like to remind listeners that management's prepared remarks today, as well as their answers to questions, contain forward-looking statements that are subject to risks and uncertainties. The company claims protection under the Safe Harbor of a forward-looking statement that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of risks and uncertainties can be found in the company's annual report on Form 20-F, filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of SEC Regulation G regarding Generally Accepted Accounting Principles or GAAP.

Operator

Some financial information presented during the call will be provided on both a GAAP and non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to enable further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn Qu. Shawn, please go ahead.

Speaker 2

Thank you, Wina, and thank you all for joining our Second Quarter Earnings Call. Please turn to Slide 3. In the second quarter, we delivered 7.9 GW of modules near the end of our guidance. Near the high end of our guidance, storage shipment reached 2.2 GWh below guidance due to tariff impacts, which shifted deliveries into the second half. Revenue totaled $1.7 billion for the quarter, also impacted from certain project sales delays. Gross margin exceeded guidance at 29.8%, driven by a higher mix of North America module shipments, with notable contributions from our Texas module factory, which has made strong progress in ramping up. Robust storage performance further supported margins. Profitability was weighted down by certain non-recurring operating expenses, including the impairment of remaining legacy manufacturing assets.

Speaker 2

As a result, we reported net income attributable to shareholders of $7 million or a net loss of $0.08 per diluted share due to the PIK accounting for a preferred shareholder of Recurrent Energy. Over the past few months, our industry faced a challenging policy environment. While the industry continues to adjust to the recently passed One Big Beautiful Build Act, I would like to discuss some potential impacts at this time. Please turn to Slide 4. The One Big Beautiful Build Act has swept implications for both supply and demand in the U.S. On the supply side, solar and storage domestic onshoring is challenged by increasingly stringent FEOC requirements and higher workloads on both equipment and components. According to Wood McKinsey, up to 23 GW of operating solar module capacity could be affected. Cell capacity, which requires a more complex manufacturing process and higher capital expenditure, could also moderate.

Speaker 2

On the demand side, outlooks across solar energy storage and distributed generation appear mixed. Other than for projects that have been safe-harbored, the investment tax credit or ITC for solar will phase out by the end of 2027. Meanwhile, energy storage projects must navigate annual FEOC thresholds to maintain developer credits. Despite this near-term uncertainty, the long-term outlook of our industry remains strong. AI, cryptocurrency, and other energy-intensive applications are driving rising electricity demand, and solar plus storage is among the most cost-competitive solutions to meet this demand. Future growth will continue to be underpinned by solid fundamentals. As with challenges we have overcome in the past two decades, we believe that a new paradigm creates new opportunities. Today, every part of our business is deeply engaged in the U.S. market. We deliver both solar and storage solutions across utility scale, CNI, and residential applications.

Speaker 2

We are a domestic manufacturer and a local project developer. We remain committed and will do what is necessary to continue prioritizing this market. Another ongoing commitment is our focus on sustainability. On May 29, we released our 2024 Sustainability Report. Please turn to Slide 5. We are proud of our continued progress in our sustainability journey and reporting standards. In 2024, Canadian Solar reduced greenhouse gas emissions, energy, water, and waste intensities by 54%, 37%, 75%, and 53%, respectively, compared to 2017 levels. Consistent with our commitment to improving our environmental footprint, we increased the percentage of recycled and reused waste to 94% in 2024, while maintaining 100% recycling or reuse of all packaging materials used in our production process. We also continue to uphold the highest standards of ethical business conduct across our supply chain.

Speaker 2

After receiving silver-level recognition in 2023 for the RBA VAP audit of our Thailand module facility, we achieved another silver-level recognition this year for our solar cell factory in Suzhou, Jiangsu Province, China. In 2024, we conducted 147 supplier ESG audits, including 31 on-site evaluations, surpassing our 2023 totals. Following collaborative consultations and corrective action plans, all suppliers met our stringent ESG criteria. 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.

Speaker 1

Thank you, Shawn. Please turn to Slide 6. In the second quarter of 2025, module shipments reached 7.9 GW, near the high end of our expectations. Energy storage deliveries were below guidance due to tariff impacts, shifting some shipments to the second half. Despite this, we still delivered one of our strongest quarters with 2.2 GWh of storage shipments. Revenue reached $1.7 billion, with gross margin expanded 890 basis points quarter over quarter to 22.3%. This increase was primarily driven by a stronger mix of North American module volumes and the installation surge in China, which increased both industry-wide volumes and pricing. As a result, we achieved a sequentially higher average selling price in our module business. Strong storage volumes and a healthy margin further reinforced gross margin performance. Given the phase-out of legacy PERC technology, we wrote down our remaining related assets.

Speaker 1

Together with other smaller non-recurring items, operating expenses rose sequentially from 13.2% to 15.3% of revenue, and we delivered $121 million in operating income. Although costs in the module business remained stable in the second quarter, we are now seeing rising supply chain costs driven by the anti-involution campaign in China. Combined with tariffs, duties, and the incremental impact of underutilization, these factors will raise unit costs in the second half. While module pricing shows signs of improvement, we expect price increases to lag rising costs, creating pressure on module profitability. We expect additional pressure from normalizing storage margins. The cost benefit from decreasing lithium carbonate prices, which supported gains in 2024 and the first half of this year, is now tapering off. For more details on this business, please turn to Slide 7.

Speaker 1

In the second quarter, we recognized revenue on 2.2 GWh of storage solutions, with sizable deliveries to customers in Europe, North America, and Latin America. Due to tariffs, some opportunities shifted into the second half in 2026. Importantly, these are not lost opportunities. Demand remains robust, and we continue to actively support customers in navigating trade-related uncertainties. As of June 30, contracted backlog, including long-term service agreements, was $3 billion. To support our growth, we are expanding our globally diversified capacities from 10 GWh of DACs and 3 GWh of battery cells today to 24 GWh and 9 GWh, respectively, by the 2026 year-end. The expanded DAC capacity will enable us to scale shipments as needed from quarter to quarter, with additional headroom if we add working shifts.

Speaker 1

Our battery cell capacity also strengthens our upstream strategy by helping us manage risk across cycles while providing customers with greater supply chain flexibility. The market is growing quickly, and we are scaling alongside it. To remain competitive, we must continue to uphold the highest safety standards and drive product innovation. Please turn to Slide 8. In June, we successfully completed large-scale fire testing for our Solbank 3.0 energy storage system. The test confirmed that our system meets key fire safety criteria by containing thermal events within the single enclosure. The results were independently witnessed and verified by both CSA Group and the Energy Safety Responses Group. In residential storage, EPQ won the Japan International Pioneer Design Award, or IDPA, in the Electrical Products category. This award was established in 2018 in Tokyo and has since become one of the most influential international design awards for pioneering design globally.

Speaker 1

This quarter, our proprietary residential energy storage system also earned the prestigious Red Dot Award, often described as the Oscars of industrial design. These recognitions are in addition to the IF Design Award and the MUSE Design Gold Award that EPQ received earlier this year. EPQ has made strong progress in its target markets since we earned the prestigious JET compliance certification. Shipments to Japan have surged, now approaching 1,000 units per month. We are also steadily advancing in Europe and the U.S. We expect significant growth ahead in this business, and we continue to develop other emerging profit drivers, such as bundled cell solutions. With that, let me hand the call over to Ismael, who will provide an update on Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead.

Speaker 3

Thank you, Yan. Please turn to Slide 9. In the second quarter, we generated $106 million in revenue. Revenue was sequentially lower, primarily due to lighter project sales. We monetized over 200 megawatts of projects in Europe and Japan, including our first profitable sale of a battery storage project in Italy, while a large project sale in Latin America shifted into the second half of the year. Gross margin was 32.4%, reflecting healthy project sales returns and stable margins in electricity sales from our operating portfolio and growing power services business. The solar power system breakdown in Latin America, combined with other non-recurring expenses, led to elevated operating expenses and an operating loss of $74 million. We remain focused on disciplined execution while managing ongoing trade and policy risks. We energized our first merchant 200 megawatt-hour Duncan Storage project in Texas.

Speaker 3

Despite Duncan being a merchant storage project, we were able to secure both project finance and tax equity for this project. Within the quarter, we also achieved an important milestone at Blue Moon Solar in Kentucky, closing $260 million of project financing and tax equity. The off-taker for this project is Constellation, who will purchase power and renewable energy certificates generated at this nearly 100-megawatt facility. Please turn to Slide 10 for an update on our pipeline. As of June 30, 2025, we own interconnections for 8 gigawatts of solar and 16 gigawatt-hours of storage globally, excluding projects already in operation. Our total pipeline now stands at 27 gigawatts of solar and 80 gigawatt-hours of storage. In the U.S. and Europe, we have 500 megawatts of solar and about 1.7 gigawatt-hours of storage already in operation.

Speaker 3

Meanwhile, we are building more than 1.3 gigawatts of solar and 600 megawatts of storage in these markets as we speak. This positions us with one of the largest and most globally diversified pipelines in the industry, giving us significant runway to grow in the future and the flexibility to focus our resources to advance the most attractive projects and markets. In the U.S., we have already safe-harbored 1.6 gigawatts of solar projects that are in execution or late-stage development. We continue to execute our safe-harbor strategy on an additional 2.3 gigawatts of solar through offsite start of construction, providing both increased flexibility over the coming years and a competitive advantage as U.S. assets gain value under the updated tax credit policies. At the same time, we are expanding our battery storage pipeline, particularly in the U.S., Europe, and Japan, where we already hold strong market positions.

Speaker 3

Our O&M business continues to gain traction, with 10.5 gigawatts currently in operation and 3.2 gigawatts contracted coming into service in the next quarters. Finally, we are advancing the development of our data center sites in both the U.S. and Spain, where we expect to have the first projects ready within the next few quarters. Now, I will hand the call to Xinbo to review our financial results. Xinbo, please go ahead.

Speaker 6

Thank you, Ismael. Please turn to Slide 11. In the second quarter, we delivered 7.9 GW of modules near the high end of our guidance. We shipped 2.2 GWh of storage below expectations due to delayed shipments. With the additional impact of delayed project sales, total revenue was $1.7 billion. Gross margin was 29.8%, elevated by a cell type that is related to a U.S. project and an AD/CVD two-up adjustment. Excluding this one-time impact, gross margin would have been 21.6%, sequentially higher due to a stronger North American module mix and the storage volumes. Operating expenses increased to $378 million, primarily due to non-recurring items, including impairment charges related to certain solar and storage assets, as well as manufacturing assets. Without these items, operating expenses would have been $259 million, or 15.3% of revenue, compared to 16.3% in the first quarter.

Speaker 6

Net interest expense rose from $28 million in the first quarter to $35 million, reflecting higher borrowings in Recurrent Energy and the lower interest income. Net foreign exchange loss was $13 million, primarily driven by dollar weakness. Net income attributable to shareholders was $7 million, or a net loss of $0.08 per diluted share. This result included a positive $30 million HLBV impact, or $0.45 per share from tax equity arrangements tied to certain U.S. projects. $0.19 per diluted share of preferred dividend impact led to the diluted loss per share to shareholders. Please turn to Slide 12 for cash flow and the balance sheet. Net cash inflow from operating activities was $189 million, compared with an outflow of $264 million in the first quarter. Cash inflow was primarily driven by change in working capital, specifically a decrease in inventories.

Speaker 6

Total assets grew to $14.8 billion, with project assets rising to $1.7 billion. Solar power systems and battery energy storage systems now stand at $2 billion. CapEx totaled $173 million, mainly reflecting payments for existing capacities. Our full-year 2025 CapEx outlook remains unchanged at approximately $1.2 billion, primarily driven by investment in U.S. manufacturing initiatives. Total debt increased to $6.3 billion, mainly due to new borrowings for project development and the operational assets. We closed the quarter with a cash position of $2.3 billion. Looking ahead, we remain focused on disciplined debt management and prudent liquidity oversight, aligned with industry dynamics and our financial fundamentals. In light of ongoing profitability pressures in both manufacturing and the project development businesses, we expect to gradually reduce leverage from current levels over the next month.

Speaker 6

Now, let me turn the call back to Shawn, who will conclude with our guidance and the business outlook. Shawn, please go ahead.

Speaker 2

Thank you, Xinbo. Please turn to Slide 13. For the third quarter of 2025, we expect to deliver module volumes between 5 to 5.3 gigawatts. For energy storage shipments, we expect to deliver 2.1 to 2.3 gigawatt-hours, including about 250 megawatt-hours to our own projects. We project third-quarter revenue to be in the range of $1.3 to $1.5 billion, with gross margin expected to be between 14% to 16%. Sequential lower margins reflect the impact of rising solar manufacturing costs, driven in part by supply chain price increases and normalizing storage margins. For the full year of 2025, we are narrowing our module volume guidance to 25 to 27 gigawatts, including approximately 1 gigawatt to our own projects. The reduced midpoint of our module guidance primarily reflects our self-restraint, which results in a decision to reduce exposure to less profitable markets.

Speaker 2

For energy storage shipments, given increased near-term visibility in the trade environment, we are maintaining our storage shipment guidance of 7 to 9 gigawatt-hours for the full year of 2025, including approximately 1 gigawatt-hour allocated to our own projects. We are revising our full-year revenue guidance to between $5.6 and $6.3 billion. This reflects the delay of certain project sales into 2026 and more conservative module pricing in the second half, driven by weakening demand in China. With that, I would like to now open the floor for questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. If you would 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 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment for your first questions. Our first questions come from the line of Colin Rusch with Oppenheimer & Company. Please proceed with your questions.

Speaker 5

Thanks so much, guys. Could you talk a little bit about the PERC write-down here and the impact ultimately on margins? I'm just trying to get a sense of how much that really impacts, from a % basis on your margin sale or on your module sales. Does that start to look like two or three points or is it a little bit more than that?

Speaker 2

We decided to roll off, pretty much roll off our PERC equipment asset this quarter because in Q2, we stopped the manufacturing of PERC products. We think this is the right time for the write-off. The write-off was, I believe, was quite a big impact. Yeah, it's $4.86 million.

Speaker 5

Okay. I'll follow up on the manufacturing afterwards. Just with the Treasury rules that have come out, I think everybody's trying to understand how developers are going to approach their safe-harboring strategy and qualification. Can you guys give us a sense of where you're at from a safe-harboring perspective, what you're seeing from any of your customers on the module side, and how you anticipate some of the enforcement realities for the industry, given just your first look in less than a week of being able to evaluate the new rules?

Speaker 2

Yeah, Colin, as you know, our subsidiary Recurrent Energy is a long-term player with 20 years of operating in the U.S. market. We have been safe-harboring several times because ITC reached the deadline several times in the past 10, 13 years. Every time we approach the deadline, we safe-harbor. We are very familiar with the rule, and we are pleased to see that the newly released guidance, the new guidance for the safe harbor, pretty much confirmed that our standard and strategy for safe harbor is correct and also is prudent. Our current safe-harbored project, we see no change. As Ismael said in his speech, we are safe-harboring a little bit more. Actually, we are safe-harboring 2.3 GW more of projects. If Recurrent Energy achieves this goal, then 1.6 plus 2.3, we will be able to safe-harbor somewhere close to 4 GW.

Speaker 2

That will give us a very strong pipeline in the U.S. You know, 4 GW is almost equal to 1 GW each year. You can see that four years safe-harbor is pretty significant for us. It shows our strong ability, Recurrent Energy's strong ability, and very solid practice in the development procedure. As for the whole industry, that's a good question. We have been sending our antenna up, but it has only been a few days, so I don't have that much industry-wide safe-harbor information. However, I would say for the developers who have similar experience, they should see the same thing as Recurrent Energy. I think the industry is relieved that at least their work so far has been recognized. Ismael, do you want to add some more colors?

Speaker 3

Thank you, Shawn. I think, Colin, thanks for the question. I think we've been a little bit lucky too because many of our projects have local community others. We started to safe-harbor to make sure that we enjoy those others. As a result, we have a pretty advanced pipeline of safe harbor already online. We always use the offsite start of construction. It looks like the current regulation is not changing that. We've been a little bit lucky this time.

Speaker 5

Okay, thanks so much, guys.

Operator

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

Speaker 5

Hi, this is Matt Ingram on for Phil. Thank you for taking our questions. Given the OBBA and FEOC in the U.S., do you believe Canadian Solar and its subsidiaries are currently FEOC compliant? If so, could you please give some details around what gives you confidence? If not, what steps are you taking to comply with FEOC? Lastly, on FEOC, how are you planning for potentially stricter FEOC IRS guidance that could come out sometime next year?

Speaker 2

Mark, thank you for the question. I kind of expected this question. As you know, OBBA has different FEOC requirements for different years. Based on that yearly FEOC requirement, yes, Canadian Solar is compliant with OBBA requirements at this moment. We believe we will continue to be compliant for the future years. As you know, every year the FEOC condition changes, including the % change. We have a plan to make sure that Canadian Solar's three factories, which are the solar module factory, solar cell factory, and also the energy storage factory, continue to meet the OBBA requirement each year.

Speaker 5

On potential guidance, you know, they're going to release guidance on the FEOC restrictions, and those potentially could be a little bit stricter than kind of the language that's in the bill. Are you, how are you guys planning for that kind of situation?

Speaker 2

Our internal legal team, accounting team, and the external teams have debated and done due diligence in the past more than a month. Ever since July 4, when the OBBA was signed into law, we have been studying it, debating, and doing due diligence. We think our understanding of the bill is pretty conservative. While there may be some changes or some clarifications of the guidance, the IRS guidance might clarify some of the points. I believe as long as those are the guidance to interpret the OBBA, it can't change very much from the legal language itself in the bill. Therefore, we believe a little bit more restrictive or a little bit less restrictive guidance from the IRS will not change our judgment call.

Speaker 2

I think our current strategy is quite solid so that we can, first of all, make sure our customers will be able to claim their ITC because our shipment meets the OBBA rule of that particular year. Also, our factory, three factories in the U.S., will be able to claim the 45X for any of the particular year.

Speaker 5

I really appreciate the color there, Shawn. If I could just squeeze in one more on policy, given the upcoming Section 232 case on silicon and its derivatives, as well as it seems like they're reinforcing UFLPA with Q cells getting recently detained, how are you guys looking at your upstream supply chain and maybe different strategies there for the U.S. capacity?

Speaker 2

You probably know that Canadian Solar filed our comment to the Department of Commerce for the Section 232 on polysilicon. I believe you can get access to our filings through your lawyer or whatever. Basically, we believe that polysilicon for solar is not a national security concern because I don't think the U.S. even wants that much solar anyway. Why is solar-grade polysilicon a national security control concern? The country has enough coal, oil, gas, you know, everything, right? The country is very socially planted so that based on that, we don't feel like polysilicon for solar should be a national security control. However, we are waiting for the process to run to the end. At this moment, I don't want to speculate.

Speaker 5

Okay, great. Thanks for the answer, Shawn.

Operator

All done. Thank you. Our next questions come from the line of Mahit Manloy with Mizuho Securities. Please proceed with your questions.

Speaker 7

Hi. Thanks for taking the questions. Let me just follow more on the FEOC side. I appreciate the color there. Can you just talk more about the 45X eligibility for the U.S. assets? I'm sorry, the U.S. manufacturing line, or the strategy to be compliant there? Do you need more information from Treasury guidance to help with that? I have a follow-up question on the status side.

Speaker 2

I think our team, including our internal legal team and our external consults, believe that OBBA is quite clear in terms of the FEOC and the material assistance definition and requirement. We pretty much understand the meaning of those language and clauses. As I mentioned, the IRS guidance may clarify a few points, but as long as those guidance follow the language in the OBBA itself, then I think our strategy is, you know, we have a good understanding. Therefore, our assessment is solid. For 45X, both the 45X and for any storage and for solar will continue according to the previous schedule. As you know, there's no change on the, like, in terms of the schedule, in terms of the timeframe, and also the ramp-down schedule of those incentives. However, there are different material assistance tables for each year.

Speaker 2

We just have to, every year, do our due diligence and calculate, and just to make sure that our product meets those tables. Fortunately, solar is a global manufacturing. Energy storage is also more or less a global manufacturer. There are suppliers of the key material for both solar and for energy storage from several different countries. I believe that gives us the ability to navigate and to meet, to comply with the material assistance requirement, the percentage for each year. You mentioned IRS guidance. People have been speculating, oh, how much, you know, maybe the IRS guidance can help people a little bit. For example, IRS published a table for the domestic content in the past, which stopped guessing, you know, each component, a guidance specified percentage. It makes the job easy and also standardizes.

Speaker 2

We will see whether the IRS guidance for material assistance follows the same path or maybe follows a different path. For me, you know, that's something we are waiting to see. If somehow it follows the same path, it stopped, then at least everybody will use the same table. Maybe it will follow a different path for material assistance. That's something we are waiting to see. However, as I said, the OBBA itself is already quite clear. For example, it defined the component to be, for example, over 60% for 2026 for energy storage, and I believe 55%, right? Or 50% for solar. That's pretty clear. Any company who has employed a few capable accountants can do their calculation. With the language, we can already calculate our %. If the IRS instead publishes a table for everybody to use, that also works.

Speaker 2

One way or another, we already calculated, looked at our product. We think our percentage will be way over above the minimum requirement for the next few years. That's why I think we have a good strategy to be OBBA compliant.

Speaker 7

Thanks. I appreciate the call on the material assistance. Let me just make a quick one on the 45X to get that. Do you anticipate reducing CSI Solar's ownership in the U.S. manufacturing? I'm just trying to understand the strategy there and the timeline on when to expect any changes in the structures of the U.S. manufacturing business.

Speaker 2

Yeah, this year we don't have to, you know, our structure compliance. Next year, and the year after, we will, every minute company will have to do something to make sure they always comply with the OBBA. Canadian Solar will do the same. As I said, we have a strategy, so we will be able to be, we will be, you know, I think we have a solid strategy to be OBBA compliant every year.

Speaker 7

Yeah, thanks for that, Colin. I'll take the rest of my time.

Operator

Thank you. Our next questions come from the line of Alan Lau with Jefferies. Please proceed with your questions.

Speaker 4

Just a quick live question. We'd like to ask, there was a meeting in China. I think it was probably on Tuesday in the Ministry of Industry and Information Technology. First of all, we'd like to know if Canadian Solar has participated in that meeting. Secondly, do you think the price hike in China would lead to a price hike in the rest of the world as well?

Speaker 2

Canadian Solar's representative, the Canadian Solar China factories received the invitation, so we sent the representative to the meeting. The government in Beijing is trying to resolve some of the supply-demand balance issues. I think it's a good approach. This is also, I think this is what other countries have been expecting China to do. I'm glad that the Chinese government got the message and started to work with the industry to a better balance of supply and demand.

Speaker 4

I see. I heard there was clear guidance on a higher module price after the meeting. In the results briefing, I remember we mentioned that we expect this manufacturing cost hike, I guess it's the cost hike in polysilicon and wafer. If module prices are higher, do you think that would actually improve your margins?

Speaker 2

I think, yeah, answer to your question, Yan said we have seen upstream material price increase. I'm not going to say hike that much, but we saw some increase, especially the polysilicon ink and wafer. Yan said he expects the module price to go up, but maybe lack the movement of the materials. Yan, you want to?

Speaker 4

Yeah, there's no top-down minimum pricing on module. However, there's an industry, a few, there's companies that volunteered to actually put on some more disciplined pricing, some predefined price, but that's not a top-down. That price was not carried with high efficiency, I have to say. It's basically few, mostly market-driven. The upstream is actually priced one up because it's easier for upstream because of the lack of a number of players. That's why I said module price is likely to go up as well, but maybe not as much as the upstream.

Operator

Yesterday night, President Donald Trump had.

Speaker 8

You're breaking. Sorry, you were breaking. We can hear you.

Speaker 2

Hello, can you hear me?

Speaker 8

Yeah, now it's better.

Speaker 2

Can you hear me?

Speaker 8

Yes, now it is clear.

Speaker 2

Yeah, we'd like to know your view on the U.S. solar demand because President Trump yesterday has posted that kind of he would not approve any projects, etc. How do you think the demand in the U.S. and how much projects might be affected with the federal land approval requirement? I don't know. We are not a market survey company, so you asked the wrong person. I don't want to comment on White House speech. Also, I don't want to comment.

Speaker 8

I see. Yes, sir. Thanks a lot.

Speaker 2

Thank you.

Operator

Our next questions come from the line of Vikram Baghri with Citi. Please proceed with your questions.

Speaker 7

Hi. Good morning, everyone. I apologize in advance for asking another question on FEOC. The press release mentioned that there have been some push-outs, and I saw that the storage backlog declined marginally also in the second quarter. I didn't see a pipeline number in the presentation. I was wondering if you saw any cancellations in the quarter, and if there is a common theme that explains the push-outs or cancellations in the quarter. Is FEOC playing a role? Are customers asking for confirmation of compliance in a contract before signing a contract, and that's sort of like creating an uncertainty or slowdown in backlog bookings? If you can just explain the push-outs and cancellations, and if it's somehow related to FEOC.

Speaker 2

The new FEOC requirement also takes effect next year. This year's project, because the project reached COD this year, there's no new FEOC requirement. However, we mentioned that there are some projects pushed to the second half due to tariff issues. Tariff is different from FEOC. I also want to clarify that our pipeline didn't go down. We delivered 2.3 GWh, but we added a new pipeline. Our new energy storage pipeline, in terms of dollar value, actually went up a little bit. You can find that in our press release. We do have some major deals that are at the very last stage of negotiation. There's some big numbers there.

Speaker 7

Got it. As a follow-up, you mentioned that the storage margins without the benefit of falling lithium carbonate pricing have been normalizing. Historically, you've mentioned 20% margins and later on 15% to 17% margins. Is the second half lower than 15%? Any indication on current margins or margin on backlog would be helpful?

Speaker 2

We're working on the 20% as a target.

Speaker 7

Got it. Thank you.

Operator

Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to management for any closing comments.

Speaker 2

Thank you for joining us today and for your continued support. If you have any questions, I would like to set up a call. Please contact our Investor Relations. Take care and have a great day.

Operator

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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