Good afternoon, everyone, and welcome to First Solar's First Quarter 2021 Earnings Call. This call is being web live on the Investors section of First Solar's website at investor. Firstsolar.com. At this time, all participants are in a listen only mode. As a reminder, today's call is being recorded.
I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.
Thank you. Good afternoon, everyone, and thank you for joining us. Today, the company issued a press release announcing its Q1 2021 financial results. A With me today are Mark Widmar, Chief Executive Officer and Alex Bradley, Chief Financial Officer. Mark will begin by providing a business and technology update.
Alex will then discuss our financial results for the quarter and provide updated guidance for 2021. Following their remarks, we
open the call for questions. Please note this
call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations, including among other risks and uncertainties, the severity and duration of the effects of the COVID-nineteen pandemic. We encourage you to review the Safe Harbor statements contained in today's press release and presentation for a more complete description. It It is now my pleasure to introduce Mark Widmar, Chief Executive Officer. Mark?
Thank you, Mitch. Good afternoon and thank you for joining us today. I would like to start by thanking the First Solar team for delivering a solid Q1. Our operational and financial results were strong and market demand for our Series 6 technology continues to be robust. Operationally, our 2nd Series 6 factory in Malaysia exited its ramp period.
Nameplate manufacturing capacity has increased to 7.9 gigawatts and we are now consistently producing 455 watt modules. Commercially, we have secured 4.8 gigawatts of year to date net bookings, which include 2.9 gigawatts since the previous earnings call. Financially, we reported module segment gross margin in line with our Q1 guidance And earnings per share of $1.96 which includes the completion of our U. S. Project development and North American O and M business sales.
Overall, I am pleased with our strong start to the year, which has positioned us to deliver our annual earnings per share guidance. Turning to Slide 3, I will provide an update on our Series 6 capacity ramp and manufacturing performance. Despite unplanned downtime caused by winter storms in Ohio and a temporary logistic driven bill of materials shortage in Malaysia, Along with planned downtime for throughput in Tech Mine adversely impact cost per watt by approximately 0.5 $0.01 We delivered strong On a fleet wide basis in March and in April month to date, megawatts produced per day was to 20.2 in 'twenty two, which represents a 17% compared to December 2020. Capacity utilization was 92% 99% despite being impacted by the aforementioned planned and unplanned downtime. Manufacturing yield of 96.7% 97.4% continues to show strength in light of the ramp of our second Series 6 factory in Malaysia, Which achieved manufacturing yields of approximately 93% 97%.
As previously mentioned, We started commercial production of our 4 55 watt module and our fleet wide average watt per module improved to 442 and 4 45 watts. This manufacturing performance has been a key driver of our cost reduction and gives us further confidence as we execute on our cost reduction roadmap. It is also important to put our recent performance into context. Comparing to April of 2019 to April of 2021, Month to date, our average watt per module has increased by 26 watts, megawatts produced per day has increased by 144% And manufacturing yield has increased by
9 percentage points.
I am pleased with what the team has accomplished. However, as we drive towards our mid term goal of 500 watt module, increasing throughput by 12% compared to our rerated capacity to the utilization baseline and increasing manufacturing of 98.5%. We have an opportunity to significantly reduce costs to start up and ramp of our Series 6 factory, including gathering new learnings from each factory rollout and utilizing them in the next. This culture of continuous improvement enables us to increase implementation velocity and reduce our ramp period. While it took our 1st Series 6 factory in Ohio approximately 22 months to achieve throughput in line with its nameplate entitlement.
Our newest factory exited its ramp period in only 1 month's time. The consistent improvement of Our factory implementation process gives us operational confidence as we evaluate the potential for future capacity expansions. We believe the combination of a differentiated technology and a balanced business model of growth, liquidity and profitability is a competitive entiator and will continue to enable our success. 3 years ago in April 2018, we commenced commercial production At our first Series 6 factory. And today we have established a Series 6 factory footprint through which we have the potential to reach over 10 gigawatts of nameplate to capacity based on our existing efficiency and throughput plans.
Looking forward, strong demand for Series 6, a compelling technology roadmap, a strong balance sheet and a largely fixed operating expense cost structure Are each catalyst as we evaluate the potential for future capacity expansions. While we have made no such decision at this time, We are targeting to make a determination by our Q2 earnings call. From a shipping and logistics perspective, We've experienced bifoldstorm port congestion in the United States along with logistics Challenger events in Southern United States. As a result, certain module deliveries planned for the Q1 were delayed and given ongoing port congestions, We see potential for similar delays in the 2nd quarter, which could result in delays in module revenue recognition. While the cost per watt of PV modules declined significantly in the past decade.
Sales rate has largely remained fixed on an absolute dollar basis. As a result, sales rate has become more meaningful percentage of the cost per watt. For example, in Q4 last year and Q1 of this year, Sales freight and warranty reduced 7% 8% respectively. Note, this highlights for markets with large U. S, India and Europe for in region manufacturing, which can significantly reduce the cost of sales freight.
Provided during our February earnings call with elevated shipping rates in 2021. To partially mitigate the impact via the implementation of the following initiatives. Firstly, as we improve module efficiency, we benefit from an increase in watt per shipping container and a corresponding Secondly, as we implement Series 6 Plus, we will reduce profile of our frame and junction box by approximately 10%, enabling an increase in the number of modules per shipping container. Thirdly, we intend to expand our distribution network footprint in the United States, which we anticipate will increase domestic inventory buffers, further reduce exposure to spot shipping rates and provide greater flexibility by reducing shipment timing risk for our customers. Implementation of these initiatives is important in order to help mitigate the effects of the challenging shipping market and achieve our 2021 cost per watt reduction From a supply chain perspective, our strategy emphasizes long term agreements that reduce exposure to Our approach to Flurium is similar.
We secure our supply needs through multiyear fixed price agreements, While striving to reduce CATL usage per module through optimization of our vapor deposition process, While fluorine is a key component of our semiconductor material, it is a minor component of our cost per watt given our cad teles thin film We are able to establish a circular economy by recovering more than 90% of the semiconductor material for use in new 1st solar modules. Although such recycling on a large scale is still anticipated to be many years out given the expected useful life of our modules, this has the to significantly reduce our ongoing florium and cadmium needs in the future once power plants using 1st solar modules reach the end of their useful life. Aluminum,
which is used in
the construction of our frame, has recently experienced a price increase to above pre pandemic levels. While the hedge structure we put in place has partially mitigated this impact, we anticipate some cost challenges related to aluminum during the year. However, as part of our Series 6 Plus implementation, we anticipate reducing our frames profile and aluminum usage by 10%, Which we expect will mitigate a portion of this cost increase. Finally, despite the previously mentioned delays of certain module deliveries in Q2 And a result of our continued manufacturing execution and aforementioned risk reduced supply chain approach, we achieved our module segment gross margin target in Q1. Additionally, while costs and certain are being for certain bill of materials, we are tracking to achieve our targeted 11% Cost per watt produced reduction between where we ended 2020 and expect to end 2021.
While we intend to mitigate Much of this impact related to the challenging shipping market, our revised target cost per watt sold Reduction is 6% to 7%. Turning to slide 4. In Q1, we completed the sale of our contracted Sunstreams 2 uncontracted Sunstream's 4 and 5 projects to Long Road Energy. In April, we completed our uncontracted Sunstream's 3 project to Long Road as well. Across these four projects, Long Road intends to utilize approximately a gigawatt of Series 6 modules, Of which 785 megawatts represent new bookings since the last earnings call.
As it relates to our systems business in Japan, Our existing team and competitive advantage core project development skill set of citing, permitting, interconnection and securing Long term feed in tariff contracts has positioned us well in the market. Today, we have an approximately 320 megawatt systems backlog in to expand, which includes 55 megawatts of new bookings since the February's earnings call. This backlog is a reflection of our recent success averaging approximately 100 megawatts per year of systems booking in Japan between 2018 2020. Looking forward in the near term, we have an opportunity to add to this backlog with approximately 40 megawatts of Japan systems opportunities with feed in tariff rights secured as they are pending satisfaction of certain permitting requirements. Across the total portfolio, we have the potential to capture For your overhead cost structure, we anticipate the sell down of systems projects in Japan will contribute meaningfully to our mid term operating income.
And are favorable to the continuing growth of solar. We continue to build a pipeline of post feed in tariff opportunities I would like to discuss several domestic and international policy updates. At the end of March, President Biden unveiled an infrastructure proposal that emphasized transit, revitalizing power grids And vastly expanding clean energy, while creating millions of jobs and positioning the United States to outcompete China. Additionally, The plan is intended to revitalize domestic manufacturing, secure the U. S.
Supply chain, invest in R and D And train Americans for the jobs of the future. This is the most far reaching federal proposal for programs that curb Greenhouse Gas Emissions and Address Climate Change. As the only alternatives to Crystalline silicon technology among the 10 largest solar module manufacturers globally. With a premier vertically integrated manufacturing process and a differentiated CAT cell technology, We are uniquely positioned to support domestic energy independence in the United States and play a leading role in this plan. We are the largest solar module manufacturer in the United States and directly employ over 1600 U.
S.-based associates. Also our domestic supply chain supports 1,000 of indirect jobs. For example, we procure our float glass From an NSG facility approximately 10 miles from our factory in Perrysburg, which is the first new float glass line in the United States in 40 years. As a result of this investment NSG has created long term and high quality manufacturing jobs and a domestic supply chain of their own. NSG soda ash, which is the primary material used in glass manufacturing is procured from a supplier in Wyoming, Which is the state that has historically been the largest producer of coal.
Pace of innovation is core to our success, Which starts at our R and D lab facilities in Silicon Valley in Ohio. As a reflection of this commitment since our IPO, we have at over $1,400,000,000 in research and development. As the only thin film module manufacturer of scale With a manufacturing process that is handled entirely in each of our 6 factories, we own the end to end Property and trade secrets for our CATL technology. We believe the remaining 9 largest PV module manufacturers all utilize the same semiconductor material. Additionally, none of these manufacturers are fully integrated relying on various degrees on 3rd party sourcing and the intellectual property of upstream polysilicon ingot wafer and cell manufacturers.
While it's difficult to measure the value of the vast subsidies that the Chinese solar industry receives, these subsidies Serve to artificially deflate our competitors' cost per watt, resulting in a marketplace that undervalues innovation and Where technologies do not compete solely on their own merits. Despite this apparent and outrageous lack of fair trade, The advantages of our vertically integrated manufacturing process and differentiated CATL technology leading to what we believe to be the lowest With the Section 201 tariffs currently scheduled to expire In February of 2022, the Biden administration has a natural window to pursue policies that address the root cause of the problem, China's with unfair trade practices. Accordingly, we continue to advocate for an industrial policy that identifies CleanTech Manufacturing as a national security strategic priority to advance U. S. Energy independence, We believe that this type of policy would be promoted through incentives by for domestic manufacturing, continued investment in advanced Technologies closing by American Loops and Tariff Reform.
Turning to Slide 5, I'll next discuss our most recent bookings in greater detail. Leading corporate buyers have expressed concerns that due to The decentralized nature of the Crystin Silicon Supply Chain. They are unable to ensure that the solar modules and their systems from which they buy Power were not manufacturing used alleged forced labor. While our Series 6 energy, quality and environmental advantages are all key differentiators, customers increasingly are ascribing value to our vertically integrated manufacturing process, Supply chain transparency and 0 tolerance for the use of forced labor in our module manufacturing process and supply chain. While the pricing environment remains competitive, these catalysts have created bookings momentum for deliveries in 2022, 2023 beyond with customers seeking to de risk their projects.
Accordingly, we are pleased with our strong year to date net bookings of 4.8 gigawatts, which includes 2.9 gigawatts since the February earnings call. After accounting for shipments of approximately 1.8 gigawatts during the Q1, our future expected shipments, which to extended to 2024, our 14.8 gigawatts. Included in our 1.8 gigawatts of Q1 shipments are approximately 2 gigawatts of Series 4 that was previously shipped to Safe Harbor the investment tax credit, But were transferred to a 3rd party during the quarter in conjunction with the sale of our U. S. Project development business.
Accordingly, Our comparable Q1 shipment number is approximately 1.6 gigawatts, including 4.8 gigawatts of year to date bookings And 0.4 gigawatts of upside volume related to previously announced purchase order from Intersect Power. We are largely sold out for 2021, Have 6.4 gigawatts for potential deliveries in 2022 and 3 gigawatts across 2023 2024. Overall, the market remains competitive. We are pleased with the pricing levels that we are securing in 20222023 for our Series 6 Plus in Cure products. Although there remains uncontracted volume yet to be booked, the ASP across our aforementioned 6.4 Gigawatts of volume for potential deliveries in 2022 is only 11% lower than the volume to be shipped in 2021.
Slide 6 provides an updated view of our global potential bookings opportunities, which now total 16.5 gigawatts across early to late stage opportunities through 2024. In terms of geographical breakdown, North America remains the region with the largest number of opportunities at 12.9 Gigawatts. Europe represents 1.2 Gigawatts. India represents 1.2 Gigawatts, South America represents 0.7 Gigawatts with the remainder in other geographies. As a subset of this opportunity is our mid to late stage bookings opportunity of 7.8 gigawatts, which reflects those opportunities we feel could book within the next 12 months.
This subset includes approximately 5.4 gigawatts in North America, 1.2 Gigawatts in India, 0.6 Gigawatts in South America, 0.3 gigawatts in Europe and the remainder in other geographies. Note this represents a decrease from our prior earnings call, which is largely due to our recent to bookings momentum. Finally note, included in the 7.8 gigawatts is a 1 gigawatt order for a U. S. Customer that just hours ago we booked.
Including this booking in our contracted future shipments, it is just shy of 16 gigawatts. I will now provide an update on our technology roadmap. As previously disclosed, we launched our Series 6 Plus program, Leveraging our existing Series 6 toolset, which increased our modular form factor by approximately 2% and our top production bin by approximately 10 watts. We first implemented this program at our newest Series 6 factory in Malaysia, which is now consistently producing 4.50 watt modules and we remain on track for fleet wide implementation of Series 6 Plus for the Q4 of this year. As previously announced, Our Series 6 QR modules offer an industry leading 30 year 0.2 percent annual warranty variation rate, Which is up to 60% lower than conventional Christmas silicon product.
Additionally, we anticipate improving module efficiency enabling the top production bin of 460 to 4 65 watt by the end of 2021. We anticipate this lower degradation rate combined with improved temperature coefficient and superior spectral will build upon our existing energy advantages, especially in hot and humid climates. As previously indicated, CURE significantly increases Series 6 competitiveness against bifacial modules. As a result of the aforementioned advantages As compared to a leading Crystalline silicon bifacial module, we estimate that our CURE module can produce up to 10% more lifecycle CURE and our lead line by the Q4 of this year and fleet wide by the end of the Q1 of next year. As part of our R and D efforts, Our CURE program successfully removes copper from our cad tel vapor deposition process.
This enhances the long term stability of our CURE modules and based on initial performance in the field and an accelerated life test demonstrates a near 0 annual degradation rate. Given PV power plants have useful life approaching 40 years, the reduction in the annual degradation rate can contribute to meaningfully higher lifetime energy. CURE along with First Solar's other industry first and only product warranty That specifically covers power loss from cell cracking, our recent examples of innovations that enhance our competitive position in the market. Finally, we are continuing to evaluate the potential to leverage the high band gap advantages of CATL in a tandem or multi junction device. Attendant Device has the potential to be a disruptive high efficiency low cost and advantage energy generation profile, leveraging many of the innovations in our sales technology roadmap.
Additionally, we believe a thin film semiconductor will be the key differentiator to achieve the highest performing tandem PV module. And I'll turn the call over to Alex, who will discuss our Q1 financial results and 2021 guidance.
Thanks, Mark. Starting on Slide 7, I'll cover the income statement highlights for the Q1. Net sales in Q1 were $803,000,000 an increase of $194,000,000 compared to the prior quarter. And the increase in net sales was primarily due an increase in systems revenue driven by the sale of Sunstream's 2, 4 and 5 projects. On a segment basis, our module segment revenue in Q1 was 5 $35,000,000 compared to $548,000,000 in the prior quarter.
And note, given the Sunstream's 2 project was in construction at the time Sales of the majority of the modules are recognized
as revenue in the systems segment.
Gross margin was 23% in Q1 compared to 26% in Q4 of 20. Systems segment gross margin was 31% in Q1 compared to 18% in Q4 of 20 And this increase was primarily driven by the aforementioned project sales in Q1. Despite the aforementioned delay in certain module deliveries as Well as higher than expected logistics costs. Our Q1 module segment gross margin was 19%, which was in line with the guidance we provided on the prior earnings call. Our module segment gross margin in Q1 includes $1,000,000 of charges associated with the initial ramp from our new factory in Malaysia And $4,000,000 of underutilization expense stemming from planned downtime for throughput and technology upgrades.
Rampant underutilization expense in total reduced module segment gross margin by 8 percentage points in Q1 compared to 7 and 6 percentage points in Q4 and Q3 of the year. By utilizing contracted routes, minimizing changes and using a distribution center, we incurred higher rates during Q1 due to constrained container availability in the global shipping market.
SG and A and R and
D expenses totaled $72,000,000 in the 1st quarter, a decrease of approximately $13,000,000 compared to the prior quarter. The decrease was primarily driven by a $6,000,000 decrease in development project impairment charges between Q1 and Q4 of 2020 and lower share based compensation expense production startup, which is included in operating expenses, totaled $11,000,000 in the first quarter, a decrease of $5,000,000 compared to the prior quarter. This decrease was driven by the start of production at our second Series 6 factory in Malaysia in February. Whilst acknowledged the widespread use of non GAAP financial measures across financial markets, we recognize the certainty in comparability consistently providing historical financials and guidance on a GAAP basis can bring to analysts and investors. However, we also appreciate the need to understand non cash and certain one time cost in calculating valuation metrics and will therefore, as appropriate, continue to highlight many of these items.
And in this context, Q1 operating income of $252,000,000 which included depreciation and amortization of $63,000,000 share based compensation of 3,000,000 ramp underutilization and production start up expense totaling $16,000,000 and a gain on the sales of our U. S. Project development and North American O and M businesses to $151,000,000 In Q1, we realized a $12,000,000 gain on the sales of certain marketable securities associated with our end of life module collection and recycling program within the other income line on the P and L. We recorded tax expense of $46,000,000 in the first compared to a tax benefit of $66,000,000 in the prior quarter. And the increase in tax expense for Q1 is attributable to an increase in pretax income And a discrete tax benefit in Q4 of 2020 of $61,000,000 associated with the closing of the statute of limitations on uncertain tax positions.
Combination of the aforementioned items led to a Q1 earnings per share of $1.96 compared to $1.08 in Q4 of 2020. Next, turning to Slide 8, we'll discuss select balance sheet items and summary cash flow information. Our cash, cash equivalents, marketable And restricted cash balance ended the quarter at $1,800,000,000 which was largely unchanged compared to the prior quarter. Several factors impacted our quarter end cash balance. Firstly, while we completed the sale of our U.
S. Project development business and certain equipment on March 31 for an aggregate transaction price of $284,000,000 the Proceeds from the transaction were received in early April. Secondly, as previously mentioned, we sold certain restricted marketable securities associated with our end of life collection recycling program to total proceeds of $259,000,000 And whilst we intend to subsequently reinvest these proceeds, as of quarter end, they were included on the balance sheet as restricted cash. Thirdly, whilst we completed the sale of our Sunstream's 2, 45 projects during the quarter, due to the contemplated Proceeds received from the sale of our North American O and M business were offset by operating expenses and capital expenses in Q1. Total debt at the end of the Q1 was $257,000,000 a decrease of $22,000,000 from the end of Q4.
This decrease was driven by payment of a loan balance that matured during Q1 and was partially offset by loan drawdown for projects in And as a reminder, all of our outstanding debt continues to be project related and will come off our balance sheet when the corresponding project is sold. Our net cash position, which includes cash, cash equivalents, restricted cash and marketable securities, less debt, increased by approximately $25,000,000 to $1,500,000,000 as a result of the aforementioned factors. Net working capital in Q1, which includes non current project assets And excludes cash from marketable securities increased by $423,000,000 compared to the prior quarter. This increase primarily driven by a $472,000,000 increase in accounts receivable related to our U. S.
Project development business and our Sunstreams II sales, which was partially offset by Net cash used by operating activities was $279,000,000 in the 1st quarter, Which includes the aforementioned increase in accounts receivable related to the payment timing of our U. S. Products of alum Business and Sunstream's 2 sales. And finally, capital expenditures were $90,000,000 in the 4th quarter compared to $89,000,000 in the prior quarter. Continuing on to Slide 9, I'll next discuss 2021 guidance.
Our Q1 earnings provide a positive start to the year, but we are leaving our EPS unchanged for the time being largely due to the following. Firstly, whilst at the time of our prior earnings call, we anticipated a gain on the sale of our U. S. Project development and North America and M businesses of $135,000,000 to $150,000,000 $151,000,000 Secondly, due to the swift ramp of our second Series 6 factory in Malaysia, the factory quickly exited its ramp period. As As a result, we anticipate a reduction in our full year ramp expense, which we anticipate will be partially offset by an increase in production start up expense.
So, I think, whilst we have strategies in place to mitigate the potential negative effects of higher costs, including sales rate and aluminum, our mitigating strategies are affected in webcast. At the time of the February earnings call, we anticipated sales rate would reduce our full year 2021 module segment gross margin by 7 to 8 percentage Whilst we continue to mitigate the effects of higher shipping rates through improved efficiency, expansion of our distribution network and implementation of Series 6 We currently anticipate sales rate will reduce our 2021 module segment gross margin by 7.5 to 8.5 percentage points, 50 basis point increase from the prior earnings call. Also, whilst the hedge we put in place mitigated some of the effects of high commodity costs, Certainty relating to future cost is considered in the low end of our guidance range. Whilst we're facing near term cost challenges predominantly related to sales rate, our confidence relates to our previously disclosed midterm Cost per watt reduction roadmap remains unchanged. These factors in mind, we are updating our 2021 guidance as follows.
The guidance of 2 point Margin guidance is $565,000,000 to $615,000,000 which represents a $15,000,000 $10,000,000 reduction to the low and high end of our previous guidance range. This revision reflects our current expectations as it relates to commodity and sales rate costs, Which is partially offset by a reduction in ramp related expense. Note, as a result of these costs, we anticipate our Q4 module segment gross margin to be approximately 25%. This anticipated Module 7 gross margin includes $10,000,000 underutilization expense related to factory upgrades, which is expected to reduce Module 7 gross margin by approximately 2%. We also anticipate approximately 60% of our module segment gross revenue for the year will be recognized in the second half of the year.
Our updated systems segment gross margin guidance is $130,000,000 to $160,000,000 which reflects a $10,000,000 increase high end of the range due to the potential recovery of its product systems costs, a portion of which we have already received. I anticipate the majority of our remaining $695,000,000 to $775,000,000 which reflects a $15,000,000 decrease to the low end of the range.
SG and A and R
and D expenses have been $265,000,000 to $275,000,000 Production startup expenses have increased by $5,000,000 And as a result, our operating expense guidance range of $285,000,000 to $300,000,000 is unchanged. Operating income guidance of $545,000,000 to $640,000,000 is unchanged and includes anticipated depreciation and amortization of $263,000,000 share based compensation $21,000,000 ramp underutilization and production start up expense totaling $61,000,000 to $66,000,000 And a gain on the sale of our U. S. Project Development and North American O and M Businesses of $151,000,000 The expense of $100,000,000 to 100 and $1,000,000 is unchanged and includes approximately $34,000,000 of expense related to the sales of our U. S.
Project development and North American O and M businesses. Earnings per share guidance of $4.05 to $4.75 remains unchanged and our net cash, capital expenditure and shipments guidance also remains unchanged. Turning to Slide 10, I'll summarize the key messages from our call today. From a financial perspective, We delivered strong Q1 EPS of $1.96 module segment gross margin in line with our Q1 guidance and reiterated our 2021 Yes guidance range of $4.05 Operation of our 2nd Series 6 factory exited its ramp period and our nameplate manufacturing for produced reduction between the end of the 4th quarters of 2020 2021. And finally, Series 6 demand has been robust with 4.8 gigawatts of year to date net bookings, which includes 2.9 gigawatts since the previous earnings call.
And with that, we'll conclude our prepared remarks and open the call for questions. Operator?
The first question is from Philip Shen from Roth Capital.
The first one is on pricing. I know Mark you gave some detail on The decrease of 11% year over year in 2022 with the bookings you have. But crystalline silicon pricing is up meaningfully. Our checks Sure. For pricing at the $0.35 to $0.38 level at the spot market.
And so How do you expect how is that impacting your discussions? How much of that can you benefit from? And then In terms of my second question here, as it relates to capacity, I was wondering if you could provide a little bit more color. India was on the Roadmap for a bit. But with the COVID problems there, I can imagine India is off the table.
So what variables are you using and Thinking about as you consider locking in capacity expansion in a decision, do you need more clarity from the Biden administration, for example? And I know it's going to come in Q2, but some additional color there would be fantastic. Thanks.
Yes. Phil, first off On the pricing environment, clearly, we've seen pricing firm up. The As you look across the horizon, whether it's we don't have a lot of volume for the current year, but to the extent you had some available supply in the current year, wept. You can see firmer pricing, but even if you look across the horizon into 2022, 2023 and 2024. The one limiting factor that Relative to the number that you referenced is that there's in the U.
S. In particular, the projects that people have bid are under significant pressure really from all dimensions. And ultimately it still will come down to an affordability. Look, there's going to be a number of these projects that are just not going to happen. Because when you look at the general cost pressures that they're seeing, just commodity cost pressures, right?
I mean steel going up, aluminum going up, Copper going up. You're seeing pretty much the entire balance system labor costs wept. Under pressure as well. It's putting strain on all these projects. And so one of the things we've got to be mindful of as we price across the horizon is it Still has to fundamentally work within a customer's pro form a.
Their financials have to try to go out and capture at the highest potential price point. I'm not sure it's going to serve us the best when it comes to ensuring the viability of the project. And so we've been trying to Work with very capable, well financed counterparties and having high certainty and quality of the execution of the projects, wept. Which inform our views around circuit of execution, which then we need to make sure that the economics around pricing work. The other thing that I'd say that falls into the equation is the our confidence around our cost reduction So as you look to our cost reduction roadmap, we're very happy with where we are and the Opportunities that are still in front of us to drive costs down meaningfully lower than where it is right now.
The one piece of the cost structure that is not as robust, in ability to control that we're highlighting right now is sales rate. But as we're looking forward to these new contracts, we're putting variable structures in there around sales freight Such that we're not carrying that risk profile that the customer is going to share in that and to the extent that the sales rate environment stays So much where it is right now, then there's a pass through of that cost. So it's the one we have had historically. So those variables all factor in and how we price it. And There is an opportunistic moment right now.
We look to ourselves as establishing deep partnerships and relationships with our end customers, customers that we know have capabilities and to execute and try to create a solution that works for both parties, right, In that regard. As it relates to the capacity expansion, look, India It's going through a horrible time right now. I mean, you see cases close to 400,000 a day, I mean, which is horrific. But I wouldn't I don't want you to think that because of that, I mean, we're confident that with the help that India will continue to receive from international partners and lines like the United this will be a difficult challenge. They'll have to get through, but they will get through it.
And we're still evaluating India very significantly As a growth market for us. We look at the technology and the competitiveness of the technology in India, It's ideally suited. Our CAT tail technology, especially with CURE and improved long term degradation rate, Hot humid climate, mainly fixed tilt structures, mainly monofacial. Therefore, the true value uplift we get from a cure Monofacial realizes itself and its higher ASPs. The fact that the duties that have been imposed right now for imports, it makes it even more critical for us to say how do we address that market, even the advanced or the approved list Module Manufacturers is another constraint to access in the Indian market.
So India is a very important market for us. U. S. As well. U.
S. We're very well positioned to we've got already when we expanded in Ohio, we have an option on or actually purchased additional land that would accommodate a larger facility. And the current statements and commitments that we're seeing from The administration is positive, but unfortunately slow to act in some regards. So that is a little frustrating. But Generally, I think there's a pretty good undertone and support for enabling our more capacity here in our most important market.
And As we highlighted in the call, as Dan said, sales rate being close to market, you can take a penny or so of cost out from sales rate, right, to drive your cost down to be more So that's all important. The other thing I would say to make sure it's clear, Phil, is that the other thing that we're doing is that the next Factory or factories, right, will be larger than anything we have today. And they'll be Our most advanced and competitively positioned product. And in some cases, we're also going to further enhance automation. So it's going to be the lowest cost, to a step function improvement from where we are right now.
And so that's taking a little bit more time to validate solidifying all that work to get comfortable with that. We've been spending a lot of time. I wanted to make it clear in the call that we will be making a final decision by the July earnings call because I know it's something we continue to get asked questions around. We're pretty to the extent we make the decision to move forward and we can hit all the criteria that we highlighted And then we'll make sure we make that announcement in July. If we choose not to do it, then we'll provide the direction that we're going to move forward in lieu of that.
So Yes, we're a lot of good work being done right now. But we want to make sure whatever we do is that we really create again competitively advantaged disruptive product from where we are right now. So for the deals we're booking Right
now, these are deals that we've likely been in discussion with customers on for many months. And I think the phenomenon you're seeing around crystalline silicon pricing has come relatively recently. Whilst I'm sure many of our competitors were taking the opportunity to use a renege on pricing that was perhaps put out of the firm over a period of time, as Mark said, we look for long term
Your next question is from Michael Weinstein of Credit Suisse Securities.
Producer residential product, giving continuous efficiency improvements. I was thinking perhaps the tandem junction product that you mentioned.
Yes. Look, that product will be ideally suited for that type of application, Right. So it's going to be highest efficiency, best energy profile and that would be a we would target segments of the market that will pay a premium for the efficiency and residential would be a Primary market for that. And so as we get further along in commercializing that and scaling up That technology, yes, that expands in a market segment that today we historically have not sold into. But there will be other high efficiency markets that we'll look to in terms of land constraint and other challenges that You have to deal with where a high efficiency product would be advantageous, but yes, residential would be 1.
That's great. And just a follow-up on
the last call, the last couple of questions you
asked, you answered about optionality and pricing. How about tariffs? How do you deal with the possibility that there might be additional tariffs or tariffs might be going away in your pricing going
Look, I've kind of alluded to this for a while. I mean, we haven't really The issue is tariffs on competition or tariffs on our own product and let's assume it's just the tariffs that were imposed on krisosilicon We've been unfortunately after the 1st 16 months of the 201 being implemented, Tariff went away because of the bifacial exemption. And yes, and it's been reinstated, I guess, late last year. But most of what we got our resold really through from whatever it was June of 2019 until now in tariffs, the 201 tariffs because of the bifacial exemption and product Southeast Asia into the U. S.
Market without having to pay tariffs. And the fact that it was then reimposed late last year really didn't change much for us either because most of our 2021 volume was already sold through We try to continue to manage and develop relationships and partnerships And even when the 201s were first imposed, it wasn't like we took that as an opportunity to gouge our customers, if it doesn't serve us any good. We're still in the early innings of this industry and the relationships that we establish and the trust that we create with our partners will determine Each of our success over the next decades to come. So yes, they could be influential. We do believe that they're important.
We also do believe that there's a need to have additional U. S. Manufacturing capability, but it's not something we feel that we would try to take advantage of. As it relates to if our product were to be our product that we import from Southeast Asia Manufacturers somehow would be subject to tariffs and we have provisions within our contracts to try to address those types of Events and circumstances if they were to occur. My assumption is your question, which is really more related to tariffs relative to our crystalline silicon competitors.
It informs the thought around pricing, but it doesn't we would never want to take it as an opportunity to gouge our customers.
The next question is from J. B. Lowe with Citi.
Hey, afternoon guys. I just wanted to circle back on the project economics comment that you made, Mark, because we're seeing kind of the same commentary that they would like to push pricing higher given all their cost issues on the polysilicon side, but they're getting Pushback from customers who the economics are pretty thin on their front. So they're They're not having success pushing through pricing increases. So there's that, but I'm also wondering, is there anything in your backlog that you think is more at risk than anything else, just given that Maybe some of the projects in your backlog have some of those thin margins? Just wondering what you're thinking about that?
Look, again, when we price those modules, they all aligned up to a pro form a financials that would work For the end customer, right. Now to the extent that they have other price pressures that they're going to be seeing across their supply chain, Yes, commodity cost increases and things like that, yes, potentially is that drive thinner margins on their part? It could happen. But as we said before, our pricing for our contracts Our firm obligations with security behind them. We have not seen that event happening relative to issues that our customers are incurring where there's any discussion in that regard.
And look, there's in that regard. And look, there's a what we try to do is we try to find customers that The value of the certainty of working with First Solar and also working with counterparties that we can trust as well in honoring against Their commitments and we've been pretty successful in doing that. Vince, things could evolve differently, but what I would say right now is When you try to think through a balanced relationship and trying to ensure certainty, that certainty has to go both ways, not to deliver against our commitments Our customers to accept their commitments that they've made as well when they contracted for the modules.
Your next question is from Moses Sutton of Barclays.
Thanks for taking my questions. Of the 2.9 booked, 2.9 gigawatts since last call, which include the recently signed Sunstreams projects, How much of that 29 originated from pure 3rd party module pipeline versus something that was originally in systems?
So look, the Sunstream's module volume, When you say systems, it was not part of the systems sales. I want to make sure that that's clear, right? So that was a module sales Name part of the systems pipeline originally. Well, really, Sunstreams 3, 4 and 5 was never part of the systems pipeline. Well, 3 was, but then it got terminated, right?
But most of that volume is not part of the systems pipeline. But in terms of and Alex, you may know this one, in terms of the module volume that when we sold Sqaro, how much of that
About 3 quarters of the gigs and 744. 744. Yes. About 3 quarters of the for.
So the 29,744 in Moses, I know it's not part of the actual number, but I also want to make sure that you ask The other gigawatt that we just booked today, I've been doing that 2.9 was not At all tied to the systems businesses. So if you look at it, we've got 3.9 gigawatts that were booked since the last earnings call and
about 707 megawatts
would have been tied to the Lots would have been tied to the Sysmas business.
Got it. Got it.
And then do you think your panel weight and hence the freight costs per watt by the same first Current Series 6 before the new initiatives, then for an average or common mono PERC poly competitor, we've noticed divergent claims made by some buyers.
So, Mohit, repeat the question
one more time. I understand the wait. I got that. Make sure I understand your question. So really freight cost per watt your panel versus an average model per,
I know they're all different. Would you say they compare or are
they higher freight cost typically. What we're seeing right now because of the larger form factors and We're seeing modules now that are like 3 square meters and the like and they're even shipping them vertically. Those costs of sales rate for those products are going to be much higher than where we are right now. So if you looked at where We would have been against the let's say the factor which was the standard before now there's variance all over the place. We would have been slightly higher and mainly because of we weighed out on a container.
So they would actually be able to get more modules on to a container Then we would and they had a slightly higher efficiency. But now if you go to bifacial glass, glass, larger form factor,
Your next question is from Brian Lee with Goldman Sachs.
Hey, guys. Good afternoon. Thanks for taking the questions. I had 2, 1 on systems and just one to kind of the cost reduction path. First on the systems, Mark, you said there's or Alex, you said there's 130,000,000 to $160,000,000 of gross profit this year in the guide.
Just wondering after all the divestitures here recently, how much, if any, there's left to be monetized in 2020 to and then if there's any Japan in the near to medium term, you kind of paraphrase it as like a 3 to 5 year opportunity. Wondering if there's anything in the next 1 to 2 years there. And then on the cost reduction side, you mentioned 11% reduction in ASPs for the 20 22 bookings at the moment. Cost reductions have been at that level or below it seems like. So just wondering, is there a scenario in which you You're sort of starting already 11% side heading into next year?
Thanks guys.
Yes. So on the systems side, We guided to the $130,000,000 to $160,000,000 number for the year. It's about $80,000,000 recognized in So you have about 60% to the midpoint for the rest of the year. Most of that comes from Japan. You're going to see that happen in
the second half of the year.
And then if you look Beyond that, you can think about there being a little bit of Japan nearer term, potentially more further out, but you're going to see Japan come in over the 3 to 5 years, so you'll see an impact every year out of that. On the cost side, on cost per watt, I wept. We talked about an 11% cost per watt reduction on a produced basis for the year. So we see a production number that's matching What we see in terms of decline on ASP and obviously that's on a percentage basis starting from lower numbers, you're going to have a little bit of gross margin squeeze if you have the same Percent reduction from an ASP in the cost per watt side. The other thing to bear in mind, and I'll mark my way to talk a little more on the cost, but I'll just say on the OpEx side, We talk a lot about gross margin.
I think it's important that we match that gross margin or continue to beat it. But one of the benefits of scale and one of the things we're talking about in terms of expansion Looking at manufacturing capacity is the ability to leverage against the fixed cost base as well. So we're catching number in terms of cost reduction relative to where the revenue decreases are, we can actually see a benefit coming through on the operating cost side. And we've done a Pretty good job there. I think if you look back over the last decade or so bringing that $0.01 per watt number down from in the 20 years or so, 10 years ago, maybe over $0.10
a watt 5 years ago. This year, if you look at it, we're going to
be somewhere around $0.035 a watt. And as we go forward, given that that operating cost structure is largely fixed, 90% fixed. You can see as we grow capacity, that's going to come down. And so you can get either maintaining operating margins or expansion at the operating Margin level. So there's a lot of work still to do at the gross margin level, but I just want to make sure that comment is not missed.
We look at it also further down to the operating margin
Yes. I think the other thing I'll say Brian is that there's a lot of things that are in the mix now that will help continue to drive down The cost per watt. I mean, part of this year, as you got to remember, we're taking a little bit of a headwind around a number of upgrades, Right, the procure in particular. So that's costing us about a $0.005 or water so of that for the year. Now going into next year, we don't have at significant upgrades as we currently envision relative to the technology road We need to roll out that would have as significant of a headwind given the downtime we had to take for this year.
So that helps normalize itself. We also have The efficiency continues to improve from this point through the end and we have an exit of around 4 65 watt and then we'll exit 20 22, I think it's 480 watt or something like that is what we previously indicated. So that helps drive, but then we've got a number of other bill of material initiatives that will drive Improvement in one of them is just even around our glass cost because there's different tiered pricing as we drive more volume across our contract For glass, we hit different tiers, which actually drive down price. Before when you look at the throughput lever where there's more throughput to go, there's more efficiency benefit. And then we have the lots that you know improvement that we'll make and we don't have much planned downtime at least as we current So those will all help us manage across that horizon for 2022.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.