Canadian Solar Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2026

Key Takeaways

  • Positive Sentiment: Q1 results beat expectations, with revenue of $1.1 billion at the high end of guidance, module shipments of 2.5 GW and storage revenue recognition of 2.1 GWh both above plan. Gross margin came in at 25.1%, helped by tariff refunds, though the quarter still ended with a net loss attributable to shareholders of $32 million.
  • Positive Sentiment: The company highlighted major progress in U.S. manufacturing, including first trial production at the Jeffersonville, Indiana HJT cell plant and a planned ramp that would make it the largest crystalline silicon solar cell manufacturer in the U.S. Mesquite, Texas module capacity is also being doubled to 10 GW by the second half of 2026.
  • Positive Sentiment: Energy storage remains a key growth engine, with 2.6 GWh shipped in the quarter and a $3.5 billion contracted backlog, including 34 GWh of operating projects under long-term service agreements. Management also said internal LFP cell production is now below third-party market pricing, improving competitiveness.
  • Neutral Sentiment: Canadian Solar announced a CEO transition: Shawn Qu will move to Executive Chairman and CTO, while Colin Parkin becomes CEO. The board described the succession as planned and aligned with the company’s shift toward value-driven leadership.
  • Neutral Sentiment: Management expects a weaker Q2 gross margin of 13% to 15% and noted ongoing solar market pressure, shipping congestion in storage, and exposure to lithium carbonate pricing. For full-year 2026, the company reiterated U.S. shipment guidance of 6.5-7 GW for modules and 4.5-5.5 GWh for storage.
AI Generated. May Contain Errors.
Earnings Conference Call
Canadian Solar Q1 2026
00:00 / 00:00

There are 10 speakers on the call.

Speaker 5

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's first 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 would now like to turn the call over to Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

Speaker 8

Thank you, operator, and welcome everyone to Canadian Solar's first quarter 2026 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 Presentation section. Joining us today are Dr. Shawn Qu, Executive Chairman and CTO, Colin Parkin, President, Ismael Guerrero, Chief Executive Officer of Canadian Solar subsidiary Recurrent Energy, and Xinbo Zhu, Senior Vice President and Chief Financial Officer. 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. Colin and Ismael will review business highlights for manufacturing and Recurrent Energy respectively, and Xinbo will go through the financial results. Colin will conclude the prepared remarks with the business outlook, after which we will have time for questions.

Speaker 8

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 G regarding generally accepted accounting principles or GAAP.

Speaker 8

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 to GAAP. Now I would like to turn the call over to Canadian Solar's Executive Chairman and CTO, Dr. Shawn Qu. Shawn, please go ahead.

Speaker 7

Thank you, Winna, and thank you all for joining our first quarter 2026 earnings call. Beginning on slide 3, we started the year with strong momentum. We recognized revenue on 2.5 gigawatts of solar modules and 2.1 gigawatt hours of energy storage solution, both of which exceeded our guidance range. Revenue totaled $1.1 billion, reaching the high end of our expectations. Gross margin of 25.1% outperformed our forecast, aided by the accrual of IEEPA tariff refunds. Profitability was impacted by elevated non-logistics operating expenses, foreign exchange losses, and tax expense accruals related to the tariff refund. This led to a net loss attributable to shareholders of $32 million, or $0.71 per diluted shares. The solar downturn has lasted longer than expected. Against this backdrop, we have consistently made the right strategic decisions.

Speaker 7

We have repositioned our solar module business to focus on key attractive markets, culminating in the formation of CS PowerTech, which is now leading our efforts in the domestic reshoring of manufacturing in the U.S. At the same time, we have strategically dialed back volumes in less profitable markets, maintaining a steadfast profit-first strategy. Furthermore, energy storage represents a pioneering strategic move for us. Throughout this business, we have transformed from a pure PV module manufacturer into an integrated energy solutions provider. The boom in artificial intelligence has also provided new clarity. As the world chases digital breakthroughs, our core foundation is still physical power infrastructure. With rising global geopolitical friction and the push for energy independence, nations are increasingly seeking self-sufficient, reliable, local energy solutions. Renewable energy paired with energy storage has become an inevitable imperative.

Speaker 7

Turning to slide 4, our journey from our founding in Ontario, Canada, to our current position as a global leader in integrated clean energy is a testament to our enduring resilience. Today, we are navigating a pivotal shift from volume-driven expansion to value-driven leadership. This evolution calls for strategic succession. I am proud to transition the Chief Executive Officer's role to Colin Parkin. Colin is a veteran of the company and renewable energy industry. He previously served as President of Canadian Solar and was pivotal in establishing our first mover advantage in the energy storage sector as President of e-STORAGE. This transition follows a thoughtful long-term succession planning process approved, and unanimously by the board of directors.

Speaker 7

I will transition to the role of Executive Chairman and Chief Technology Officer, focusing on our technology roadmap and long-term R&D strategy, while working closely with Colin to execute this transition. With that, I will now turn the call over to Colin. Colin, please go ahead.

Speaker 1

Thank you, Shawn. It is an honor to take over the chief executive role, and I look forward to your continued guidance as we navigate our next phase of growth. Beginning on slide 5, as Shawn highlighted, the first pillar of our global strategy is U.S. manufacturing. Since our last update, we have achieved critical milestones in reshoring the renewable energy supply chain. Phase 1 of our flagship solar cell factory in Jeffersonville, Indiana, produced its first trial HJT solar cell at the end of March. With a nameplate capacity of 2.1 gigawatts peak, it will be the first and only commercial operational HJT solar cell facility in the United States once it ramps up over the next 2 quarters. In response to strong customer demand, we are increasing our domestic solar cell capacity beyond the original planned 5 gigawatts peak.

Speaker 1

We expect to begin trial production for phase 2 the beginning of next year. This expansion will add 4.2 gigawatts peak of capacity, bringing our total U.S. solar cell nameplate capacity to 6.3 gigawatts peak and making us the largest crystalline silicon solar cell manufacturer in the country. Parallel to this is the expansion of our successful solar module factory in Mesquite, Texas. This facility reached full ramp last year, and we are currently expanding capacity at the existing site. By the second half of this year, we expect nameplate capacity to double to 10 gigawatts peak, allowing us to fulfill all future U.S. volumes from this Texas facility. Now let's walk through this quarter's manufacturing numbers. Turning to slide 6. In the first quarter of 2026, we delivered 2.5 gigawatts of solar modules globally.

Speaker 1

We maintained a disciplined approach, strategically managing volumes in response to elevated feedstock costs, including silver, to mitigate losses. Our domestic manufacturing in the U.S. contributed robust margins as we maintained an optimized geographic mix of volumes. Storage shipments recognized as revenue reached 2.1 GWh, slightly above guidance, supported by steady construction progress across multiple customer sites. Revenue for the manufacturing segment reached $950 million, and our gross margin was 29.1%. The sequential 1,460 basis point increase was driven by healthy energy storage volumes and the tariff refund. With unit shipping costs holding steady and disciplined management of operating expenses, we achieved operating income of $127 million. Now referring to slide seven regarding e-STORAGE.

Speaker 1

We shipped 2.6 GWh of energy storage solutions this quarter, including 500 MWh to internal and external projects under execution, recognizing revenue on 2.1 GWh of volume. We are now delivering to a diversified global customer base within a single quarter what we delivered in a full year just a few years ago. We have also significantly advanced our manufacturing capabilities. For example, our internal production of lithium iron phosphate prismatic cells is proving to be a distinct advantage in today's market. As we have now achieved a cost basis below the market price of third-party cells. This strategic vertical integration provides an economic buffer during cyclical fluctuations, while equipping us with the proprietary technical expertise necessary to drive further innovation.

Speaker 1

To support our global momentum and markets, we are also expanding capacity at our integrated battery energy storage system and battery cell factory in Southeast Asia. We plan to double both our battery cell and SolBank capacities to ensure strong coverage of annual volumes with internally sourced compliant solutions. The new production lines are currently being constructed and will come online in the first half of 2027. As we focus on maintaining our stellar execution track record, we are also balancing growth and profitability. As of May, our contracted backlog totaled $3.5 billion, including 34 gigawatt-hours of operating projects under long-term service agreements. As we continue to scale our storage business, these recurring revenue streams will also increase. Finally, we continue to actively pursue opportunities within both front of the meter and behind the meter data center applications.

Speaker 1

While most commercialized demand today is manifesting through front of the meter contracts, we are seeing steady industry progress in the planning, permitting, and technical development required for future behind-the-meter opportunities. As this market gradually matures, we remain closely aligned with the key stakeholders driving these opportunities forward. Now let me hand the call over to Ismael, who will provide an overview of Recurrent Energy, Canadian Solar's global project development business. Ismael, please go ahead.

Speaker 3

Thank you, Colin. Beginning with slide eight. We generated $139 million in revenue in the first quarter. Revenue improved sequentially, primarily driven by the sale of the Fort Duncan project. However, the overall contribution of this project sale was offset by related tax equity arrangement, as we had recognized tax equity gains when the project was placed in service. Fort Duncan is a milestone. It is the first standalone BESS project in our portfolio that was financed with non-recourse project finance and had no capacity contract in place. We have now successfully monetized and sold the asset profitably, demonstrating that we can also achieve profitable sales for these merchant market project types. With relatively muted project sales this quarter and ongoing platform operating costs, we posted an operating loss of $60 million.

Speaker 3

As we continue to monetize more operating and under construction assets, the P&L impact may not be optimal in the near term. This strategy remains necessary to deliver our balance sheet and recycle capital. Turning to slide 9. As of March 31st, 2026, we have secured interconnections for 7 GW of solar and 14 GWh of storage globally, excluding projects already in operation. Our total project pipeline is comprised of 24 GW of solar and 81 GWh of energy storage. Our focus in 2026 is to reduce debt and mature our pipeline. Our pipeline is one of the largest in the industry, with a focus on the most stable geographic markets. Our strategy will also allow us to reduce operating expenses by concentrating fewer geographies within our core footprint. We are now focused on unlocking the value of the existing pipeline as it matures.

Speaker 3

At the same time, we see the rising global energy demand trend and growing appetite for these projects. Our O&M platform continues to grow steadily and holds a contracted portfolio of 15 gigawatts, of which 11.2 gigawatts are already operational. The remainder is currently under construction and will join our managed project portfolio over the coming quarters. Now let me hand the call over to Xinbo, who will go through our financial results in more detail. Xinbo, please go ahead.

Speaker 9

Thank you, Ismael. Beginning with slide 10. In the first quarter, we recognized revenue on 2.5 gigawatts of modules and 2.1 gigawatt hours of energy storage solutions, both slightly above guidance. As a result, revenue reached $1.1 billion at the high end of our forecast. Gross margin of 25.1% strongly exceeded guidance. It increased both sequentially and year-over-year due to the accrual of tariff refunds, which contributed 860 basis points. Without this one-time benefit, our gross margin still exceeded guidance on strong storage volumes and a healthy geographic mix of solar modules volumes. Operating expenses increased 5% sequentially as lower freight costs were offset by the absence of one-time gains recorded in previous quarters. Net interest expense in the first quarter was $36 million, down from $39 million in the first quarter of 2025.

Speaker 9

Cost of debt was lower following refinancings in the project development business. Net foreign exchange loss was $29 million, driven by appreciation in the Chinese yuan and the weakness in the U.S. dollar. Total net loss attributable to Canadian Solar was $32 million or $0.71 per diluted share. Let's turn to cash flow and the balance sheet on slide 11. Net cash flow used in operating activities during the first quarter of 2026 was $209 million. This upflow was primarily driven by increased inventories associated with the U.S. solar and storage business. Total assets grew to $15.5 billion, driven by increased inventories to support the U.S. solar and storage business as well as U.S. manufacturing investments. In the first quarter, we invested $173 million in capital expenditures, primarily toward U.S. manufacturing initiatives.

Speaker 9

We expect 2026 CapEx to total around $1.3 billion. We ended the quarter with a cash balance of $1.9 billion and total debt of $6.8 billion. Total debt increased mainly due to new convertible notes issued to support U.S. manufacturing. Let me turn the call back to Colin, who will conclude with our guidance and business outlook. Colin, please go ahead.

Speaker 1

Thank you, Xinbo Zhu. Turning to slide 12, for the 2Q of 2026, we expect to recognize revenue on 3.1 and 3.3 gigawatts of solar modules. We expect to deliver between 2.8 and 3.2 gigawatt hours of energy storage solutions, including approximately 400 megawatt hours to internal and external projects under construction. Revenue and profit recognition for volumes delivered to these in-progress projects may be subject to timing lags. Our storage guidance range is slightly more conservative and wider due to delays related to ongoing shipping congestion. We project total 2Q revenue to be in the range of $1 billion-$1.2 billion, with gross margin expected to be between 13% and 15%. The broader solar market remains complex as incremental price increases have not yet fully absorbed upstream cost pressures.

Speaker 1

In the storage business, we expect record volumes in the second half of the year, though margins are projected to normalize, and we remain partially exposed to fluctuations in the lithium carbonate pricing. In the face of these challenges, we remain committed to a balanced strategy focused on rigorous execution and continuous innovation. For the full year of 2026, we reiterate our U.S. volume guidance, 6.5-7 gigawatts of module shipments and 4.5-5.5 gigawatt hours of energy storage shipments. With that, I would like to open the floor for questions. Operator?

Speaker 5

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 keys. Our first question comes from the line of Colin Rusch with Oppenheimer & Co. Please proceed with your question.

Speaker 2

Thanks so much. Shawn, this is actually a question for you on the technology side, you know, congratulations on getting the battery costs down to where you've gotten them. You know, I'm just curious about the evolution of the battery chemistry, you know, notably around incremental silicon doping for the anode side, as well as the form factor and chemistry optimization for data center duty cycles. Can you just talk about how quickly things are changing and how we can see that start to translate into some advantage pricing over time?

Speaker 7

Yeah. Thanks, Colin. That's a good question. Now, we are working on several front of the battery storage system. You mentioned the pre-lithiation, I think, which is a way to, you know, dope additional lithium into the anode so that we can achieve like almost no degradation in the first 5 years and also slow degradation in the future. These are good technology and process-wise, we are all ready. However, that indeed, that will increase the cost of the battery because you have to build more lithium into it.

Speaker 7

It become a cost balance issue. We propose this technology to our customers, and some customers see benefit, some customer get concerned about the cost because as you know, the lithium carbonate price has been, you know, has doubled in the past 5 minus 6. The technology is ready. We can implement it on any project where this technology can provide more volume. Another approach in the chemistry of the battery is the sodium-ion battery. We also have research in this area. You know, sodium is not subject to the fluctuation of raw material. You know, sodium is everywhere, not like lithium. When the lithium carbonate price go to today's level, sodium become price competitive.

Speaker 7

Also the sodium will have better low temperature performance and almost doesn't require any thermal management. You can also save the 2% annual, you know, thermal management electricity cost. That's another chemistry we are doing research. There are a few other technologies. I'm, you know, more than willing to go through that with you know, later on in any, you know, dedicated conversations, Colin.

Speaker 2

Perfect. That's super helpful, Shawn. Thank you. Then on the Recurrent side, you know, given, you know, kind of where utility scale prices are in the U.S., I'm just curious about your ability to renegotiate PPAs or start cutting PPAs at substantially higher prices to support margins. Just curious about that dynamic and potential timing around that.

Speaker 7

I would just make a quick comment here. Now for the mature product, project already in operation, the PPA is fixed. The advantage is that, it's PPA and cash flow is secure, and you can do financing, the bank financing, and non-recourse financing easily. However, it will be difficult to renegotiate a PPA already signed in place. Usually, you will have to pay, you know, pay back, your, you know, LCs through which, you know, guarantees or support PPA, if you want to do a higher PPA. I think we did one project in the past which we paid the LC and cancel PPA and renegotiate. Normally we don't.

Speaker 7

On the other hand, Colin, we have a large pipeline of middle stage and early-stage project. This project, we have not signed PPA yet, so we'll be able to, like, repurpose it for example, the AI-DC specific applications and therefore drive higher values. In short, the mature pipeline, operating pipeline with PPA give us certainty. Meanwhile, the large pipeline of mid stage and early stage project will help us to create more values in the future. Colin.

Speaker 2

Great. Thanks so much, guys. Appreciate it.

Speaker 7

Thank you.

Speaker 5

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

Speaker 6

Hi, everyone. Thanks for taking my questions. Wanted to check in with you guys more on the US cell manufacturing ramp, cell capacity ramp. You guys have had first cell out. Congratulations on that. When would you expect the commercial shipment of those cells to go into your modules? When do you think your first US module with US cell is available commercially for your customers? Thanks.

Speaker 7

Hi, Philip. It's an interesting question. We have answered, we mentioned that in several places in the press release and also in the prepared speech. We expect somewhere in July or 2 months later to have commercial operations. Then we'll be able to make our own modules with the HJT solar cell and deliver to customer. That process should be fast. If we can have a commercial delivery in July, then probably in August, September, we'll have the first module delivered to our customer. I would like to caution you, all these expectation right now, they are still 2, 3 months to go. This is the first time the industry ever start to produce HJT, heterojunction cells in U.S.

Speaker 7

It will be a milestone and, it's not an easy task. I just want to caution you about that. However, our expectation is in Q3.

Speaker 6

Great. Thank you for the additional color, Shawn Qu. As it relates to your sourcing of third-party cells, can you remind us what countries or places you're sourcing those cells from? Do you have any exposure to Ethiopia? You know, there was that new petition that was filed a couple days ago or yesterday on a potential new anti-circumvention tariff on cells coming from Ethiopia. Finally, do you buy any blue wafers at all? Is that or in your supply chain, do you have exposure to blue wafers? Thanks.

Speaker 7

Thanks, Philip. That's a very tricky question. However, I will give you a straightforward answer. Now, we do source outside cells and also import cells from other countries to U.S. We are transitioning to more and more domestic cell. As I have mentioned in several previous calls, 2026 is a transition year for us. Now, we don't provide the geographic distribution or sources of our cells in this transition period. However, as far as I know, we are not subject to the exposure of the recent petition, as you mentioned.

Speaker 6

Okay. Thank you, Shawn. Anything on blue wafers? Do you have any thoughts on that, and is that in your supply chain?

Speaker 7

No, there's no blue so-called blue wafer. Whatever cell made in a certain country, those cells should go through the necessary solar cell steps. We, you know, for our factory, we only, you know, use so-called green wafer. The cell production process are completed in the whatever is that country.

Speaker 6

Great. Okay, thank you. One last one here. On the IEEPA tariff in the quarter, you guys booked it. Can you talk about the accounting for that? Specifically, did you guys secure cash with that refund, or is that expected sometime in the future? If it doesn't come, then what happens to the accounting? Thanks.

Speaker 7

Yeah, I will, you know, I will let Xinbo to supplement. Now the refund, IEEPA tariff refund, consists of, basically, I guess I would say three components. One is the refund on the tariff for imported, let's say imported solar cell or other manufacturing components. These, those refund, I believe will be approved in the COGS, which is the standard accounting. There are also some refunds of the machines we shipped to U.S. Those will not go into COGS. I think those will be used to reduce the cost base of our CapEx investment in U.S. Therefore, later on benefit on the depreciation of the machineries, machines.

Speaker 7

Those refund, some of those will go into the CSI Solar subsidiaries because CSI Solar have done importing last year. Some of this, I believe will go to the CSIQ company because CSIQ also imported materials early this year. In terms of cash flow, I'm glad to report that we have already started to receive the IEEPA tax refund, receive the cash as of today. We have already received that cash. You will see the, you know, cash component in the Q2 accounting. In Q1, those IEEPA will be recorded. But there will be a account receivable or something like that.

Speaker 7

Q2, you will see real cash, a credit to those, you know, account receivable. I hope I answered the question right. You know, Xinbo can supplement.

Speaker 9

Not much to add. We received the cash tariff together with interest. Thank you.

Speaker 7

Yeah. So far, we have started to receive tariff refund together with the interest. As you probably know, those refunds are batch by batch. It depend on the every entrance or every entries of the import. What CBP do's and don'ts is to verify and refund entries by entries. Therefore, there will be like, you know, cash flow refund come to us depending on the entry. It was a lots of entries. It will be a process. However, we have already started to receive cash. Some cash already arrived in our account, bank accounts.

Speaker 6

Great. Thank you for all the color, Shawn Qu and Xinbo Zhu. I'll pass it on.

Speaker 7

Thank you.

Speaker 5

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

Operator

Thanks for taking my question. The margin in 1st quarter is very solid actually, even taking out the refund of tariff. Would like to know how much of the module shipment is coming from the U.S. plant. As you have mentioned, the margins from your U.S. manufacturing plant was decent. We'd like to know at approximately at what levels is it?

Speaker 7

Yeah. I think, around 30%, 40% of the module shipment come from U.S. factory. It's more or less the same ratio as before. Wina, do you have some color to provide?

Speaker 8

Yes. In line with our profit first strategy, we have been emphasizing our key strategic markets. You'll see quarter over quarter, we've maintained a very healthy mix of North American volumes. This quarter, out of our 2.5 GW, 45% came from North America. A very healthy mix that supported our module margins.

Operator

Understood. Basically, almost all of the shipment to the U.S. is manufactured by the U.S. plant.

Speaker 7

All of, not almost all.

Operator

Thank you. Thank you. How about the margins there? Like, what's the approximate margin of the U.S. manufacturing plant?

Speaker 7

Yeah. I will let Colin to provide colors there.

Speaker 1

Hi, Alan. Thanks for your question. you know, we're in a transitional period in the U.S. as we transition our scale our Mesquite module operations, but bring online our cell manufacturing in Jeffersonville. There will be a transitional period. I think what we can say is with the combination of the 45X manufacturing credits, also with the economies of scale that we're building in the U.S. and the fact that we're going to be using the most advanced HJT cell technology in our products, that during this transitional transition, as we mentioned, we start to scale in Q3, Q4, and heavily into 2027, that those will all be combined and complementary to a pretty robust margin.

Speaker 1

We strongly believe that all these factors are gonna lead to a, you know, a strong and robust, U.S., profitable business model.

Operator

Understood. Then, actually the company is already ramped up its HJT cells. Wonder if you are seeing a premium of HJT products versus other products like PERC or TOPCon products in the U.S. markets.

Speaker 7

Yeah, Alan, we haven't commercially delivered the HJT cell yet. As I said, in answer to a previous question, we expect in Q3 we start to deliver that. However, based on the contract booking, we do price a premium of HJT cell compared to the TOPCon cell. Yes, we do price, you know, for the contract we already signed, the customers willingly accepted a premium for the HJT cells.

Operator

That's impressive. How much is the premium like, in terms of U.S. cents?

Speaker 7

Well, it's still a ongoing process. We just start to book those contract. As far as I remember, you're talking about over 10% or maybe 10%-15% of the price premium of the HJT cell HJT modules versus TOPCon modules. We'll give you better numbers, I guess, after Q4, when we have actual comparison of the module shipment.

Operator

Understood. If it's 10%-15%, that's equivalent to more than $0.03 maybe, which is pretty impressive. Switching gear to ESS segments. Would like to know if the margins is at around 20% level?

Speaker 7

Can you repeat which area?

Operator

ESS, energy storage. What's the margins for ESS storage?

Speaker 7

Understood.

Operator

-in the first quarter? Yeah.

Speaker 7

Okay. I will let Colin to address this question.

Speaker 1

Yeah. I think, Alan, one of the things that I'd like to point out is that our backlog continues to be very healthy. Energy storage around $3.5 billion in order backlog. We have you know, a reasonably long view on our energy storage pipeline and the margins. With that, I think everybody recognizes that there's continued price pressures. I think by diversifying our supply chain and giving ourselves a lot of flexibility in our supply chain, that we're confident in our pipeline and in the margins associated with that.

Speaker 1

We do know that there is fluctuations in the commodity pricing and in lithium pricing, so we may see some improvements on that, but perhaps more of a cautious approach in how we present our forecasted numbers with that in mind.

Operator

Understood. Wonder if the going forward, the local production of the battery pack would help the margins?

Speaker 1

I think everything we're doing to control our own supply chain is giving us very good strategic advantage, but also control of all aspects logistics, manufacturing costs and seamless project integration. It continues to be our strategy to grow our capabilities all the way from our lithium cell manufacturing through our complete battery systems, but also in our total ESS solutions. Total integrated ESS solutions, including software, technology, the PCS, the battery themselves and supporting that with a very strong engineering and execution team as part of our strategy to also deliver lots of value for our customers.

Speaker 1

Also the as we mentioned in the prepared remarks, our long-term service contracts to support this is also very valuable to our customers and to us as it continues to be ongoing, recurring business for our energy storage business.

Operator

Understood. Understood. Last question from Endis. Is there any difficulty or any challenges in expanding the cell capacities, given there were some rumors saying that the export of solar cell capacities might be prohibited, et cetera. I wonder if when you're expanding your capacities to 6.3 gigawatt, wonder if you get any challenges in getting your equipment in place?

Speaker 7

So far, we don't see that challenge. I know what you are talking about, and I hope that this, the President Trump's visit to Beijing, I believe he just shake hand with President Xi of China, several hours ago. I hope that visit will help to smooth out and the trade relationship. However, so far, we don't see any challenges for our, especially for our phase 2 equipment deliveries. We haven't started to take delivery of the phase 2 solar cell equipment. As we mentioned, phase 1, we plan to ramp up in 2023, and phase 2 will start to move in equipment in 2024, probably in October, November timeframe, and we'll start ramp up in of the phase 2 of Jeffersonville early next year.

Speaker 7

We haven't taken deliveries of those machines yet, but so far, we don't have, we haven't see any restriction, at least not to our contract. By the way, we signed the related, equipment contract for the phase 2 machineries very early. That was before any noise around this issue. I believe that the fact we have already signed those equipment contract, we have also paid some down payment, also give us of advantage, if there's any restriction. I think restriction may be to the future equipment, not for our machines. I think our machine is more or less, you know, grandfathered, whatever, if there's any restrictions, you know, come out.

Speaker 7

However, I do hope that President Trump's visit will help to further clear any of the uncertainties in this area.

Operator

Thanks, Sean. It's very clear and hope things goes smooth in expansion as well. Thanks a lot. I'll pass on. Thank you.

Speaker 7

Thank you, Alan.

Speaker 1

You're welcome.

Speaker 5

Thank you. Our next question comes from the line of Maheep Mandloi with Mizuho Securities. Please proceed with your question.

Speaker 4

Hey, hello, everyone. Thanks for taking the questions here. Can we just question on the guidance, if you could talk about, like, the mix of manufacturing versus Recurrent in Q2, is it similar to what we saw in Q1? Also for the U.S. or North America exposure, how to think about the mix in Q2 versus Q1? Thanks.

Speaker 7

Yeah. I will ask Colin to address this question.

Speaker 1

Well, I think, first of all, thank you for your question. With respect to the guidance, we are reiterating our U.S. guidance from last quarter. We feel confident in our current execution. We don't expect any significant downside on our reiterated guidance as we put out in our prepared remarks.

Speaker 4

Gotcha. Just to get you on the mix in Q2 versus Q1, for the manufacturing versus recurrent and North America versus rest of the regions.

Speaker 1

I think, if I understand the question correctly, most of our shipments are to third parties, very little to our recurrent operations in terms of our product shipment. I'm not sure if that is at the root of your question.

Speaker 4

That's all. I'll follow up offline on detail on that. Separately, a question on the e-STORAGE business. How much of the backlog is North America for you guys, and for Canadian, for CS PowerTech? Also, are you seeing any interest or any orders in the pipeline from data center customers or hyperscalers looking to deploy batteries on-site? Thanks.

Speaker 1

Sure. Yeah. Two good questions that I appreciate you raising. About 40% of our business is in the U.S. right now. Obviously, we're seeing that demand increase, both the build-out of infrastructure, front of the meter, and now we're starting to see a lot of progression into behind the meter opportunities. Today we, you know, we're pretty happy about our global pipeline and that we're diversified. We have, just to talk before I come back to the U.S. and the data center question, you know, we have about 60% of the U.S., or sorry, the Canadian battery market. We have over, I think, 4.5 gigawatt-hours contracted there.

Speaker 1

We're, I think, in the leading position in the U.K. market. We're starting to see a lot of progress in Europe now as those key markets in Europe are starting to become very active. Similarly in Japan as the BESS market's maturing in Japan. We're seeing a lot of opportunity for that market. As well, we continue to be steady with 2 gigawatts, gigawatt-hours a year in Australia. Having that diversification, I think is good for our e-STORAGE business. With respect to the question about AI-DC, well, we have been working on this for quite a while.

Speaker 1

Last quarter, we announced a front-of-the-meter infrastructure project, 2.5 gigawatt-hours, to support data center growth. We have developed a very focused business development and technology teams focusing on making sure that our solutions have the right technical requirements, the stringent requirements for fast response for data centers and the other requirements. That's getting a lot of traction, as well as the fact that we're able to offer fully compliant solutions for data centers.

Speaker 1

While we cannot actually disclose who we're working with, I can tell you that we're very engaged right now on data center opportunities, and that, it's a big part of our program and our focus, and we expect it to yield some pretty exciting results for us in the next quarters that, hopefully we'll be able to be a little more forthcoming about as we get further along in the contracting processes.

Speaker 4

No, that's fair. I appreciate the detailed color on the different markets as well. Maybe just one last one on the guidance for the rest of the year. I know you obviously haven't guided for Q3, Q4 or the full year, but directionally, like, how should we think about the business here with the U.S. factories ramping up? Should we be looking something similar to last year's cadence or something different here? Any color would be helpful. Thank you.

Speaker 1

Well, I guess if we look at the solar side first, there's been a lot of volatility in that market. There continues to be a lot of volatility. Our approach, as you know, has been to focus on profitable business over volume. On that basis, we've been reserving guidance, but keeping an opportunistic position to strike with more volume as the market support it.

Speaker 1

We see, I think on the solar side, hopefully some improvements that we can take advantage in terms of volume on the second half, but reserving a little bit our position on guidance and focusing on the U.S. where we have, you know, a strong line of sight on our volumes and our guidance. With storage, our pipeline remains strong as we've mentioned, and we have also, in our prepared remarks, expressed that we will hit record deliveries in our storage side for the second half of this year.

Speaker 1

These are projects that go through a very sophisticated level of planning and logistics, and it's based on that that we're very confident in the second half of the year on our storage side. We don't see barring any unexpected circumstances, a very strong second half for our energy storage business, probably in record deliveries.

Speaker 4

Thank you. Appreciate the color, Colin, and congratulations on the appointment. Thank you.

Speaker 1

Thank you very much.

Speaker 4

Thank you.

Speaker 5

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to management for any final comments.

Speaker 1

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 and have a great day. Thank you, everybody.

Speaker 5

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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