Good afternoon, everyone, welcome to the First Solar second quarter 2021 Earnings Call. This call is being webcast live on the investor 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 Mr. Mitchell Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.
Thank you. Good afternoon, everyone, and thanks for joining us. Today, the company issued a press release announcing its second quarter 2021 financial results. A copy of the press release and associated presentation are available on First Solar's website at investor.firstsolar.com. With me today are Mark Widmar, Chief Executive Officer, and Alexander Bradley, Chief Financial Officer.
Mark will begin by providing a business and technology update. Alex will then discuss our financial results for the quarter, provide updated guidance for 2021. Following the 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-19 pandemic.
We encourage you to review the safe harbor statement contained in today's press release and presentation for a more complete description. 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. Beginning on slide three, I would like to start by thanking the First Solar team for their passion, continuing excellence, and their many achievements in the second quarter. Operationally, we have started site preparation for the recently announced 3.3 GW factory in Ohio, which will further cement our position as the largest PV module manufacturer in the Western Hemisphere.
Additionally, I'm pleased to announce that contingent upon permitting and approval of government incentives that are satisfactory to First Solar, we are intending to invest approximately $680 million to add 3.3 GW of manufacturing capacity in India. These next-generation factories represent a significant leap forward in our technology roadmap and will produce our most competitively advantaged modules with an expected lower cost per watt and environmental footprint compared to our existing fleet.
Commercially, market demand for our CadTel technology is at a record level. Seven months into the year, we have already booked 9 GW, exceeding our prior annual record of 7.7 GW in 2017. From a technology standpoint, our production lines are manufacturing record modules. To illustrate this point, samples produced during our regular production process were submitted for external verification and confirmed by the National Renewable Energy Laboratory at a world record 19.2% glass area efficiency for a CadTel module.
For reference, in comparison to our previous aperture area record of 19% efficiency, our new record equates to a 19.7% aperture area efficiency. Additionally, our advanced research team has been creating new optionality in our R&D roadmap. For example, we recently deployed prototypes of early-stage bifacial modules at a test facility and are pleased with the initial results.
In summary, the momentum we have cultivated paired with an increased favorable policy environment represents a compelling growth opportunity in the near to midterm. However, before discussing these opportunities, I will first provide near-term COVID-19 supply chain costs and market updates. Please turn to slide four. As a global company with manufacturing operations in the United States, Malaysia, and Vietnam, the health and safety of our associates is our top priority, with a steadfast commitment to adhering to applicable COVID-19 protocols.
As part of this effort, we are working with local governments to facilitate on-site testing and vaccination for our associates. I would also like to express immense gratitude to our Vietnam manufacturing associates who have to date elected to remain on-site in order to maintain manufacturing continuity. While this clearly is a challenging time, we acknowledge your incredible resiliency, ingenuity, and leadership to deliver your operational plan commitment.
While we have been permitted and able to maintain manufacturing operations in Malaysia and Vietnam to date, the rise of COVID-19 cases and potential government and other restrictions present risks to our production, supply chain, and technology implementation plans. As it relates to our CuRe program, the factory updates and tool implementations at our Vietnam sites requires international travel from both third-party equipment installers as well as our US-based associates.
While we've continued to work with relevant agencies in Vietnam to support this essential travel in a safe manner, delays resulting from government and other COVID-related restrictions or an increase in case rates may impact the timing of our CuRe transition in Vietnam. Despite this uncertainty, we continue to execute and navigate the current environment as reflected by the manufacturing performance metrics on slide four.
As highlighted previously, the global shipping environment remains challenging due to port congestion, limited container availability, an increase in cancellation of shipments by logistic providers, schedule reliability issues, and other events. Since the April earnings call, shipping rates have continued to rise. Additionally, COVID-19 outbreaks and restrictions have caused disruptions in China and Southeast Asia. The impacts which have reverberated across the global logistics market.
These challenges, coupled with strong global demand, have led to a significant increase in the cost of transoceanic freight. We have partially mitigated the effects of higher shipping costs per watt through improvements in our module efficiency, implementation of Series 6 Plus, expansion of our distribution network strategy in the United States, and forward contracts. However, we have seen and expect to continue to see for the remainder of 2021 adverse impacts on our financial results.
For context, spot rates for routes between Asia and the United States have increased 200%-300% from Q2 2020 - Q2 2021. Over this period, sales freight reduced our module segment gross margin by 9 percentage points in Q2 2021, or 3 percentage points higher year-on-year. We continue to anticipate near-term challenges, including elevated fuel costs, average vessel delays of two weeks, and constrained container availability impacting our ability to use space secured on vessels.
Although these factors contribute to lower than anticipated shipments in Q2 and higher freight costs, we have a number of near-term and long-term strategies intended to improve our competitive position with regards to sales freight. Near term, we are working closely with our customers to limit our exposure to inflated sales freight costs. In certain situations, we have accommodated requests for delayed module shipments, which provide opportunities to mitigate higher freight costs.
Given current vessel schedule reliability, we are adding schedule buffers to better meet our customers' commitments and provide greater resiliency in our shipment plan. Average sales freight from Malaysia and Vietnam to our US customers increased $0.5 per watt quarter-on-quarter, ending Q2 with approximately triple that of shipments from Ohio. Long term, this reinforces the strategic thesis for locating additional manufacturing capacity near to demand.
Contractually, for certain new bookings, we have employed structures that mitigate sales freight costs in excess of prenegotiated levels. As we continue to secure bookings for deliveries two to three years in the future, this type of contractual arrangement will help de-risk the expected value of our contracted backlog. I would next like to discuss the key components of our bill of material spend, approximately two-thirds of which is made up of glass and frame costs.
From a glass perspective, we have largely hedged the cost through long-term fixed price agreements with domestic suppliers that have volumetric pricing benefits as we achieve higher levels of production. With regards to aluminum, in August of 2020, we entered into a commodity swap contract to hedge a portion of our US cash flows for purchases of aluminum frames, which ends in Q4.
While we anticipate some impacts as the hedge rolls off, we intend to partially mitigate the cost per watt impact through reduced aluminum for module uses. Firstly, by differentiating between interior and exterior modules, and secondly, by redesigning the frame. Finally, the cost of lumber, which is used for our shipping and packing process, was approximately 70% higher on an index basis in Q2 compared to the start of the year. This impacted our Q2 results by approximately $2 million.
Since then, lumber costs have significantly declined. As a result, we are currently not expected to impact our 2021 exit rate cost per watt target. In summary, while cost uncertainties remain on certain bill of material items, we are tracking to achieve a 9% cost per watt produced reduction between where we ended 2020 and expect to end 2021.
Note while our core production costs are largely on track, the 2 percentage points decrease in our year-over-year cost per watt reduction relative to the previous expectation is largely due to the effect of higher inbound freight costs for raw materials. On a cost per watt sold basis, due to the challenging near-term sales freight environment, our revised year-over-year reduction target is 3%. Note, as a reminder, sales freight is included in our cost of sales, whereas many of our module peers report sales freight as a separate operating expense.
For comparison purposes, we encourage you to consider this fact when benchmarking our module gross margin % relative to our peers. Turning to slide five, I would like to provide some context on the ASP trajectory for the year. As a reminder, two years ago, on the Q2 2019 earnings call, we indicated approximately 4 GW of our 2021 module supply was booked or contracted subject to conditions precedent.
In other words, a significant portion of the volume sold this year had an ASP agreed to two years prior to module delivery. Heading into 2020 and to 2021, we were largely sold out of our available supply for the forward year. We've had limited exposure to the spot market. We believe there is a strong strategic rationale for forward contracting deliveries in this manner, which provides value for both First Solar and our customers.
From our perspective, contracting for future deliveries provides us confidence in our ability to sell through our expected supply and visibility into an expected profit per watt in a PV market that is typically highly price competitive. From our customers' perspective, these arrangements provide value through clarity and certainty of pricing, product availability, and delivery timing, enabling them to underwrite PPAs from a position of strength with a lower risk to their expected project returns.
Being able to provide the certainty to both buyer and seller is a strategic differentiator for First Solar. From a US policy perspective, both near and long-term pricing for all solar modules is also impacted by uncertainty over legislation related to forced labor in China, tariffs, manufacturing tax credits, investment tax credits, and other restrictions and incentives.
Given the current lack of clarity over the form, structure, and duration of potential policy changes, the near-term and long-term impacts of these on both demand and pricing also remain uncertain. This lack of clarity needs to be balanced with the significant capacity expansions announced by our competitors. From First Solar's perspective, we aim to continue to work with capable, well-financed counterparties that have high certainty in the quality and execution of their projects.
We also look to establish and maintain deep relationships and partnerships with our customers, delivering solutions at a fair pricing level that meets their needs and also enables attractive returns for First Solar relative to our expected future cost per watt. At the time of the previous earnings call, we indicated that the ASP across the volume of potential deliveries in 2022 was 11% lower than the volume to be shipped in 2021.
Including our incremental bookings since the previous earnings call, the year-on-year decline is largely unchanged. Looking into 2023, we are very pleased with the demand in pricing we are seeing for our CdTe modules as we continue to drive to higher wattage and efficiency levels. Although there remains significant uncontracted volume to be booked, the ASP across the contracted volume for planned deliveries in 2023 is only 1% lower than that volume planned for 2022.
Note, while we have yet to commence the sales process for our next-generation PV modules to be produced by our recently announced factories, there are expected to be ASP advantages to their anticipated higher efficiency and superior balance of system cost per watt profile. In summary, as we have seen a significant increase in desire to work with First Solar due to our differentiated value proposition.
While pricing negotiations in the market remain competitive, we continue to secure volume with customers that value our points of differentiation with the potential for ASP catalysts in the future. Relative to this objective, we are very pleased with our record year-to-date net bookings of 9 GW, which includes 4.1 GW since the April's earnings call.
After accounting for shipments of approximately 1.8 GW during the second quarter, our future expected shipments, which extend into 2024, are 17.2 GW. Including our year-to-date bookings, we are largely sold out for 2021 and 2022, have 3.4 GW for planned deliveries in 2023, and 4.5 GW in 2024. This long-term demand further supports the investment thesis behind our third Ohio factory and our first factory in India. Additionally, and as reflected on slide six from our opportunities perspective, our pipeline of future opportunities also remains robust.
Note, our capacity expansion in India and the related increase in available supply to meet projected domestic demand expands our booking opportunities in the country.
Accordingly, our potential bookings in India exceeds 7 GW. We'd also like to take the opportunity to address the reported use of forced labor in the crystalline silicon PV manufacturing industry, which has been highlighted by the recent Withhold Release Order issued by the US Customs and Border Protection, the Xinjiang Supply Chain Business Advisory from the US government, and the Uyghur Forced Labor Prevention Act, which was passed the US Senate with unanimous consent, an investigation by the United Kingdom and other countries in the EU. Climate change is among the most pressing issues facing society today.
Fortunately, the challenges of decarbonization of the global electric mix can largely be addressed with commercially available technologies, including solar, wind, energy storage, and green hydrogen. Unfortunately, the crystalline silicon supply chain is tainted by the purported use of forced labor and human rights abuses in China, which necessitates urgent action.
However, it must be understood that our global collective response to forced labor does not need to conflict with the long-term global climate objectives. While there are commercial solutions to ensure supply chain continuity, we acknowledge the near-term supply challenges presented by the Withhold and Release issue by the US Customs and Border Protection. These challenges are exacerbated by the overly complex and opaque nature of the crystalline silicon manufacturing process.
While the issue of forced labor represents an urgent ethical imperative that must be addressed, it also presents a strategic opportunity to drive change and an opportunity for the United States and like-minded nations to achieve energy security and technological independence through the promotion of a PV domestic manufacturing industry. Relative to this, we strongly support the proposed Solar Energy Manufacturing for America Act. Which was introduced by Senator Jon Ossoff and co-sponsored by Senators Warnock, Bennet, and Stabenow.
We believe that if enacted, it will help accelerate the transition to clean energy using domestically produced technology, support American energy independence, and create high-quality manufacturing jobs. By creating tax incentives for vertically integrated manufacturers and for each step of the crystalline supply chain, we can establish a level playing field where all PV technologies compete on their own merits and establish a domestic capacity to support America's climate objective.
We believe the Biden/Harris administration has a unique opportunity to adopt a long-term industry policy for solar, which could include a mix of manufacturing tax credits, an extension of the investment tax credit with a domestic content requirement, among other strategies. Through a long-term strategic approach to policy, the administration has an opportunity to create an environment that fosters innovation for the next generation of PV.
While the legislative outcome for the US infrastructure and solar remains uncertain, we are broadly encouraged by the legislative sentiment and the willingness to support US PV manufacturing to enable energy independence, security, and climate goal imperatives. Turning to slide seven.
Looking forward, we believe strong demand for Series 6, a compelling technology roadmap, a strong balance sheet, and largely fixed operating expense cost structure, and an increasingly favorable policy environment for domestic PV manufacturing in the United States and India are catalysts as we evaluate capacity expansion. With respect to the United States, as announced in June, we are more than doubling our manufacturing capacity in the United States, adding 3.3 GW at an implied CapEx per watt of approximately $0.20.
This greenfield expansion, financed by cash on hand, represents an opportunity unbound by the legacy Series 4 constraints to optimize each parameter of the factory and product design. Accordingly, this enables us to develop a new product at the intersection of efficiency, energy yield, optimized form factor, cost competitiveness, and advantaged environmental attributes.
Starting in 2023, this factory of the future is expected to commence production of our next-generation module, which is expected to lead the fleet in terms of efficiency, module wattage, cost per watt, and environmental footprint. Our next-generation module, building upon our CuRe program, is expected to push the boundaries of our CdTe cell platform in several ways.
Firstly, in the midterm, we anticipate this module can achieve efficiency in excess of 20%, and with an optimized form factor, enable module wattage in excess of our current midterm target. Secondly, we optimize the form factor anticipation to benefit balance of system cost per watt and consequentially module ASP. Thirdly, through an optimization of the module's mounting interface and an increase in automation, this factory is expected to achieve a lower cost per watt produced than our existing fleet, despite being located in a higher cost labor market.
Finally, by locating this factory domestically, we reduce our reliance on trans-ocean freight costs and anticipate reducing sales freight per watt for US deliveries. Our third factory in Ohio is expected to commence commercial production in the first half of 2023, scale to over 3 GW of nameplate capacity by the end of the year, and 3.3 GW in 2025. Internationally, we have been evaluating the expansion of our manufacturing presence in India.
Our technology is uniquely advantaged in the market due to our temperature coefficient and spectral response advantages, which can result in higher energy per watt installed as compared to crystalline silicon due to the effects of heat and humidity. As we've stated previously, we believe CuRe significantly increases our competitiveness against bifacial modules.
The India PV market is predominantly monofacial due to generally low albedos, and additionally, the cost of bifacial systems exceeding the benefit of backside energy due to high capital costs and the additional real estate needed for bifacial plants. However, given the expected lifetime energy benefit of our CuRe modules, we can achieve with no increase in balance of system costs or other project costs.
We are well-positioned to capture the value of CuRe in the India market. We also applaud the steps India has taken to foster a healthy domestic PV manufacturing industry, which includes a combination of federal and state incentives and national barriers. This includes, among others, a $600 million Production Linked Incentive scheme with preference given for vertically integrated PV manufacturers who produce modules with an advantaged temperature coefficient.
In addition to domestic incentives, India announced a solar tariff policy starting in April 2022, which includes 25% and 40% duties on imported and modules respectively. Through its strategic approach, India has combined its clean energy targets with effective trade and industrial policy designed to enable self-sufficient domestic manufacturing and true energy security. As previously indicated, the factors in evaluating the future capacity expansion include geographic proximity to solar demand, where First Solar has an energy or competitive advantage and which could mitigate freight-related costs.
Secondly, the ability to export cost competitively into other markets. Thirdly, cost-competitive labor, low energy costs, and low real estate costs. Fourthly, a competitive supply chain to support the sourcing of raw materials and components. Finally, domestic and international policies to ensure such expansion is well-positioned. In summary, we believe India meets these criteria.
With the strong demand for our CdTe technology, we are eager to grow our manufacturing capacity to meet this market demand. With our expansion in the United States and India, and optimization of our existing fleet, we anticipate our nameplate manufacturing capacity will double to 16 GW in 2024, with the new factories combining 2-3 GW of production in 2023. Moving on to technology, there were several noteworthy accomplishments since the previous earnings call.
Firstly, following the implementation of Series 6+ at our two factories in Ohio, we are now consistently producing 450-watt modules in Ohio and Malaysia, increasing our fleet-wide average watts per module to 449 for July month to date. Secondly, our commercial production lines are manufacturing record modules, as previously discussed. Finally, our CuRe product has been certified as meeting UL and IEC standards, representing an achievement of their robust quality, reliability, and safety requirements.
As we look to extend our advantages in the utility scale market, we recently deployed prototypes of early-stage bifacial CdTe modules at a test facility and are pleased with the initial results, demonstrating real-world bifaciality. While this is only early-stage research, we believe there is a path to increase bifacial performance, which has the potential to improve upon our existing temperature coefficient, spectral response, partial shading, and long-term degradation energy advantages.
As we've previously stated, we believe CuRe significantly increases our competitiveness against bifacial modules. By potentially unlocking CdTe bifacial capabilities, we have the opportunity to further improve our existing energy advantage in ground mount applications. In the residential and C&I markets, we recognize the value of high efficiency, aesthetically pleasing, and domestically manufactured product.
As stated previously, we continue to evaluate the prospects of leveraging the high bandgap advantages of CdTe in a disruptive, high efficiency, low cost tandem, or multi-junction device. We strongly believe that a thin-film semiconductor is essential to achieving the highest performing tandem PV modules, and that CdTe, which benefits from the many innovations of our technology roadmap and has a proven commercially scaled track record, is ideally placed to enable this leap forward in high performance modules.
In the midterm, we believe there is a path to achieve a 25% efficient multi-junction PV module. As we seek to grow our presence and competitive position in the residential and C&I markets, we believe this type of module has the potential to be disruptive and provide us with a competitive edge. I'll now turn the call over to Alex, who will discuss our second quarter financial results and 2021 guidance.
Thanks, Mark. Before discussing our Q2 results and 2021 financial guidance, I'd like to reiterate our core operating principle of endeavoring to create shareholder value through a disciplined decision-making framework balancing growth, liquidity, and profitability. As it relates to growth, we anticipate doubling our nameplate manufacturing capacity from approximately 8 GW today to 16 GW in 2024 through adding additional factories in Ohio and India, as well as optimizing our existing fleet.
Beyond that, we continue to evaluate the potential for further expansion in the United States as the policy environment develops. Our liquidity position has been a strategic differentiator in an industry that has historically prioritized growth without regard to long-term capital structure. Importantly, we anticipate we'll be able to continue to self-fund capacity expansion and strategic investments in our technology whilst maintaining a strong differentiated balance sheet, which we believe is a meaningful competitive differentiator.
Whilst the strength of our balance sheet provides this flexibility, as we expand internationally, we may elect to utilize debt to mitigate currency risk and optimize returns on our international expansion. As it relates to profitability, our technology and capacity roadmaps are expected to enhance our long-term earnings potential. Despite a long-term PV industry trend of declining ASPs, we anticipate revenue growth through capacity expansions.
From a pricing perspective, although there remains significant uncontracted volume yet to book, we're pleased with the pricing levels we've secured to date for 2023 deliveries, which in aggregate are only 1% lower than out of volume planned for deliveries in 2022. From a margin perspective, continued progress towards our midterm cost to watt objective is expected to enhance our profit for watt potential.
Furthermore, we've yet to book 2023 volumes for our next generation PV modules, which are expected to be produced by our recently announced factories. These modules are expected to be both ASP advantaged due to their higher efficiency and optimized form factor, which creates value for customers, as well as cost to watt advantages.
Combined with the benefits of locating supply near to demand and reducing the cost of sales freight, these factories are expected to increase gross margin per watt by approximately $0.01 to $0.03 per watt relative to our existing fleet. Overall, we believe a combination of capacity growth, technology enhancements, and reducing our cost per watt, coupled with an operating cost structure that is 80%-90% fixed, will drive meaningful contribution margin as we scale.
Before reviewing our overall financial results for the quarter, I'll first discuss the legacy systems item that benefited revenue and margin during the period. In 2014, we sold a project that was eligible for a 30% cash grant payment under Section 1603 of the American Recovery and Reinvestment Act. Pursuant to an indemnification arrangement in September of 2017, we indemnified the project purchaser following the underpayment of anticipated cash grant proceeds by the US government.
In 2018, the project entity commenced legal action seeking full payment of the previously expected cash grant. In Q2 of this year, a settlement was reached, pursuant to which the US government made a payment in Q3 to the project entity, a portion of which we're entitled to. Accordingly, we recognized systems segment revenue of approximately $65 million during the quarter, which directly benefited gross margin.
Starting on slide 8, I'll cover the income statement highlights for the second quarter. Net sales in Q2 were $629 million, a decrease of $174 million compared to the prior quarter. Decrease in net sales was primarily due to the sale of the Sun Streams 2, 4, and 5 projects in the prior quarter, partially offset by the aforementioned settlement agreement. On a segment basis, our module segment revenue in Q2 was $543 million, compared to $535 million in the prior quarter.
Total gross margin was 28% in Q2, compared to 23% in Q1. Systems segment gross margin of $65 million was largely driven by the previously mentioned settlement agreement. Despite the aforementioned delays in certain module deliveries, as well as higher than expected logistics costs, our Q2 module segment gross margin increased to 20% from 19% in the prior quarter.
Whilst we continue to navigate and partially mitigate the effects of the dislocated shipping market, higher freight costs impacted our financial results for the quarter. In Q2, sales freight totaled approximately $50 million or 9 percentage points of module gross margin. Along with module warranty expense, approximately $2 million, sales freight and warranty reduced our module segment gross margin by approximately 10 percentage points.
As mentioned, we're in the process of implementing Series 6 Plus and CuRe in 2021, which requires downtime resulting in lower production and underutilization. In Q2, our module segment gross margin was impacted by $7 million of underutilization. In total, sales freight, module warranty, and underutilization impacted our Q2 module gross margin by approximately 11 percentage points. SG&A and R&D expenses totaled $60 million in the second quarter, a decrease of approximately $12 million compared to the prior quarter.
In Q2, we had a $3 million reduction in expected credit losses, which benefited SG&A expense. Production startup, which is included in operating expenses, totaled $2 million in Q2, a decrease of $10 million compared to the prior quarter. This decrease was driven by the start of commercial production of our second Series 6 factory in Malaysia in Q1.
Q2 operating income was $110 million, which included depreciation and amortization of $66 million, $65 million related to the aforementioned settlement agreement, $9 million related to underutilization and production startup expense, and share-based compensation of $5 million. We recorded tax expense of $20 million in the second quarter compared to $46 million in Q1. The decrease in tax expense for Q2 is largely attributable to lower pre-tax income.
The combination of the aforementioned items led to second quarter earnings per share of $0.77 and $2.73 for the first two quarters of 2021 on a diluted basis. Next, turning to slide 9, I'll discuss balance sheet items and summary cash flow information. Our cash equivalents, marketable securities, and restricted cash balance ended the quarter at $2.1 billion, an increase of $255 million compared to the prior quarter.
There are several factors impacting our quarter end cash balance. Firstly, in Q1, we sold certain restricted marketable securities associated with our module collection and recycling program for total proceeds of $259 million. We intend to reinvest these proceeds, at which point they will be considered restricted marketable securities, which are not included in our measure of total cash. Secondly, in early April, we received proceeds from the sale of our US project development business.
Finally, our operating cash flows during the quarter were partially offset by capital expenditures. Total debt at the end of the second quarter was $279 million, an increase of $22 million from the end of Q1. This increase is due to a loan drawdown on a credit facility for a Japanese systems project.
As a reminder, all of our outstanding debt continues to be project related and will come off the balance sheet when the corresponding project is sold. Our net cash position, which includes cash equivalents, restricted cash, and marketable securities, less debt, increased by $233 million to $1.8 billion as a result of the aforementioned factors.
Net working capital in Q2, which includes non-current project assets and excludes cash and marketable securities, decreased by $176 million compared to the prior quarter. This decrease was primarily driven by the collection of proceeds from the sale of our US project development business and an increase in current liabilities due to an increase in down payments from module customers.
Net cash generated by operating activities was $177 million in the second quarter. Finally, capital expenditures were $91 million in the second quarter, compared to $90 million in the prior quarter. Continuing on slide 10, I'd like to discuss 2021 guidance. Starting with our systems business, we recognized a $65 million benefit in Q2 related to the previously mentioned settlement agreement and have incorporated this in our systems revenue and gross margin guidance.
Secondly, we are evaluating whether to continue holding our Luz del Norte asset in Chile or pursue a sale of this project. The pursuit of such a sale would require coordination with the project lenders and could result in an impairment charge in the future if we are unable to recover our net carrying value in the project. No impact from any possible sale of this project is included in our guidance for the year.
As it relates to our module business, there are several key updates. As highlighted on the previous two earnings calls, we continue to anticipate elevated shipping costs for the remainder of 2021. Despite near and long-term strategies to mitigate the impact, the cost of shipping has continued to rise since the April earnings call.
As a result of elevated rates, port congestion, limited container availability, and schedule reliability issues, sales freight is expected to adversely impact our 2021 results by an incremental $60 million relative to our previous expectations. For the full year 2021, we anticipate sales freight and warranty will reduce our module segment gross margin by 10-11 percentage points, a 250-basis point increase from the previous earnings call.
While we continue to manage our core manufacturing costs, we also anticipate a shipping-related variable cost headwind of approximately $20 million, primarily due to elevated inbound freight costs for raw materials. Additionally, Q2 shipments were lower than expected due to vessel delays, constrained customer container availability, and accommodating certain customer requests. We're currently tracking to achieve full year 2021 shipments of 7.6-8 GW, which represents a 0.2 gigawatt decrease to the low end of the guidance range.
We also acknowledge that the current logistics environment presents risks to our 2021 shipment plan. As it relates to capacity expansion, our recently announced factories in Ohio and India are anticipated to commence production in 2023 and increase 2021 capital expenditures by approximately $400 million. Related to this expansion, we anticipate incurring an additional $700 million of capital expenditures in 2022, with the remainder in 2023.
With these factors in mind, we're updating our 2021 guidance as follows. Our module segment revenue guidance of $2.4 billion-$2.55 billion represents a $50 million decrease to the low end of our guidance range to account for our current expectations on shipment timing. Our updated net sales guidance is $2.875 billion-$3.1 billion, which reflects an increase in systems revenue on both the high and low end of the guidance range due to the aforementioned settlement agreement.
Additionally, we've increased the low end of our systems guidance range to account for clarity on project sale economics. Our module segment gross margin guidance is $485 million-$535 million. While to our previous guidance, this represents an $80 million reduction to the high end of the guidance range due to a $60 million increase in expected sales freight and $20 million increase in expected inbound freight.
The revised low end also represents an $80 million decrease relative to our previous guidance due to the 0.2 GW reduction in the low end of our shipments guidance and an increase in expected sales freight and inbound freight costs, which are partially offset by risk accounted for in our previous guidance range. As a result of these factors, we anticipate our module segment gross margin will be approximately 20%-21% for the full year.
For the full year 2021, we anticipate sales freight and warranty will reduce our module segment gross margin by 10-11 percentage points. In addition, we expect the impact of ramp underutilization and reduced throughput to total $41 million. Our updated system segment gross margin guidance is $210 million-$225 million, which reflects a $65 million increase due to the aforementioned settlement agreement and a $15 million increase to the low end of the guidance range due to the clarity on project sale economics.
We anticipate the majority of our remaining full-year system segment revenue and gross margin will be recognized in the fourth quarter of the year. Our revised total gross margin guidance is $695 million-$760 million, which reflects a $15 million decrease in the high end of the range.
SG&A and R&D expenses of $265 million-$275 million, production startup expense of $20 million-$25 million, and operating expenses of $285 million-$300 million combined are unchanged. Our revised operating income guidance range is $545 million-$625 million and includes anticipated depreciation and amortization of $262 million, share-based compensation of $20 million, $61 million-$66 million related to ramp underutilization, reduced throughput, and production startup expense, and a gain on the sales of our US project development and North American O&M business is $149 million.
Turning to non-operating items, we expect interest income, interest expense, and other income to net to -$15 million, an increase of $5 million compared to our previous guidance due to higher net interest expense foreign exchange losses. Our tax guidance of $100 million-$120 million is unchanged. Our revised earnings per share guidance is $4.00-$4.60 per share.
As a reminder, there are a number of items impacting our EPS guidance for 2021. Firstly, ramp underutilization, reduced throughput, and production startup expense driven by factory upgrades are expected to contribute to a $0.50 EPS headwind in 2021. Secondly, these upgrades will require approximately three weeks of planned downtime across the fleet, which is expected to contribute to lower production.
Finally, sales freight and inbound freight both remain significantly elevated in comparison to historic levels. Our capital expenditure guidance has increased by $400 million, driven by our recently announced expansion plan to a revised range of $825 million-$875 million. As a result of additional CapEx in 2021 and higher logistics costs, we decreased our year-end 2021 net cash guidance to a revised range of $1.35 billion-$1.45 billion.
Lastly, our shipment guidance is 7.6 to 8 GW, which represents a 0.2-gigawatt reduction to the low end of the guidance range. On a slide level, I will summarize a key message from the call today. From a financial perspective, net cash position of $1.8 billion remains strong, delivered year-to-date EPS of $2.73, and we revised our 2021 EPS guidance range to account for the current freight market.
Operationally, we started site preparation for our recently announced factory in Ohio and announced our manufacturing expansion into India. As a result of this expansion and optimization of our existing fleet, we anticipate our nameplate manufacturing capacity will reach 16 GW in 2024. Finally, Series 6 demand is at a record high level with 9 GW of year-to-date net bookings, which includes 4.1 GW since the previous earnings. With that, we'll conclude our prepared remarks and open the call for questions. Operator?
Thank you, sir. Our first question comes from the line of Philip Shen from ROTH Capital Partners. Your line is open.
Hi, everyone. Thank you for taking my questions. The first one is on Vietnam and Malaysia, with the COVID situation there. I think, Mark, you mentioned that people are working hard and maybe even building up a facility to maintain utilization. Can you talk about how you expect utilization to trend ahead? Is there a risk for a shutdown of production at any point in time in the future?
How is this impacting your ability to roll out new updates and so forth? Secondarily, in terms of bookings, you guys have had some nice bookings here. There's still a bunch available for 2023. I think you mentioned maybe 3 GW. When do you expect that to possibly get booked? Could we see that booked later this year, or do you think that might carry into 2022? Thanks.
Phil, obviously, we've got to comply with all the requirements of what's going on in both those countries. In some cases, there has been over periods of time in Malaysia around movement control orders. Fortunately, we've been, in Malaysia, deemed to be essential, so that continues to allow us to operate, and we continue to try to make sure we comply with all the local requirements.
We've also, in both our facilities, started the process to get our associates vaccinated. Most of our associates in both the facilities have at least received the first shot, and we'd expect here in the near term, we'd be able to provide the second shot. That's helping as well. Vietnam is the one I would say that's trending more significantly, right?
On a relative basis, you can look at Vietnam's historical number of cases and fatalities as being relatively low by most standards. We've seen a pretty significant increase here over the last six weeks or so. The government has imposed other requirements, including to the extent that you are going to continue to run your factory, there's a requirement to quarantine on-site.
We have made for accommodations for our associates there to quarantine, and we've got a schedule, which will be in place where we'd be able to rotate associates through over periods of times where the current staff would be quarantined for a period of time, then the new number of associates would come in over time. We've been able to manage, and the team's done a phenomenal job, and I alluded that in my prepared remarks. They've continued to hit their operational metrics.
As I sit here today, as we look across our supply chain, that's both in Malaysia and Vietnam, in our own facilities, we're able to manage the current situation. However, if things continue to trend worse, we'll have to assess and evaluate our ability to continue to run and operate. It's clearly a challenging environment in which the team has been able to do an outstanding job to continue to operate and to hit our performance metrics.
As it relates to technology rollouts, it's a little bit different situation because, and we highlighted it in terms of Vietnam as it relates to our rollout of CuRe, our sequencing around CuRe would've been Ohio first, then Malaysia, and then Vietnam. We've already done some of the upgrades that would enable CuRe product to be released in Malaysia.
When we started KMT- 2, we had some of the upgrades already positioned to enable CuRe when we start the rollout. We've just recently completed the rollout in both Perrysburg 1 and Perrysburg 2 to enable CuRe. We have yet, though, to roll out the upgrades that are needed in Vietnam, and there are restrictions and quarantine requirements and reduced travel and the like.
As we alluded to, we're working through to try to find a path to keep it on schedule, but there is a significant risk that the rollout of CuRe in Vietnam, given the current situation, would be delayed. That's the most significant one that we're still working through at this point in time. As it relates to bookings, yeah, we've got about 3.4 GW of 13 booked.
We now, with the two new factories, will be adding close to 3 GW of incremental volume in 2013. Excuse me, get the right year. 2023. Sorry about that. There's a lot of volume still to be booked. We probably got in the range of 10 GW or something like that. The engagement with our customers, so we've got a number of very large deals right now here in the US as well as in the pipeline for India.
As we highlighted, we've got about 7 GW right now of a pipeline in India that we're working to execute now that we've made the announcement around the factory. Subject to final permitting and the incentive programs from the government finalizing that, we'll start contracting that volume as well. There's no lack of opportunity. The engagement's good.
Over the next few quarters, I don't see a significant slowdown in bookings momentum. I think we're going to have a very strong second half of this year to help start booking out 2023 and 2024.
Our next question comes from the line of Julien Dumoulin-Smith from BofA. Your line is open.
Hi. Thanks for taking the question. Congrats on the bookings. For the bookings specifically, could you comment on the average ASPs as you book into 2023? Is that still high $0.20 per watt range? Can you talk about where you're booking into that 2023 plus timeframe? Thank you.
Yeah. What we said on the call was that if you look at our current bookings that we have for 2023, they're essentially flat. I think we said they're down about 1%. They're essentially flat as we go from 2022 into 2023. Pricing, if you actually look at the profile of what we have booked and what we're currently in negotiations with right now, is pricing has trended up for both 2022, if you look at deliveries in 2022, and then even what we're seeing in 2023.
There's a lot of momentum. I think what's happening is we continue to book out again. We are still somewhat capacity constrained, even with the two new factories. That volume doesn't start to come out into 2023, but even if you look at that volume relative to the global market, we are capacity constrained from that standpoint.
As our book builds up and firms up, and it starts to constrain our available capacity to support new customers, it starts to firm up pricing in the marketplace. Happy to see that. As we said, though, in our prepared remarks, we do look at this as a very balanced perspective to get an ASP that is attractive to both parties, right?
The project's economics have to work, and our return requirements have to be met as well. You have to balance those two into consideration. The other thing I'll just say around the bookings is that we are, and we alluded to this in the last earnings call, and if you look at effectively everything that we've booked this quarter, we have started to implement the modifier around shipping costs.
We have benefited in terms of the contract structured in a way that if there's incremental sales freight costs, that there would be a mechanism which that would be variable pricing to the customer to accommodate for that. That's also an item that we're trying to make sure it gets properly reflected in our bookings as we go forward.
Our next question comes from the line of Ben Kallo from Baird. You may ask your question now.
Hi, thank you for taking the question. Thank you, guys. Could you talk about a little bit about what went into your guidance, the assumptions to bring down the low end just a little bit like that seems very small. I just want to understand what went into there as far as assumptions around shipping costs, especially, and then the timing of any other plant shutdowns or costs like that.
Then my second question is just on the ASPs. What I heard you just say was that ASPs are up from where you last talked to us about in your negotiations. Can you talk about if that has anything to do, what that has to do with if it's polysilicon supply chain? Then you also mentioned a kicker on ASPs with the new technology. Could you maybe add more into that? Thanks.
Ben Kallo, starting with the guidance. On a combined basis, you're not seeing the low end of the guidance range change, but what you are seeing is the impact of the settlement agreement that we had on the previous project come through. The $65 million that was in the revenue line and flows straight through to gross margin.
That's a benefit to gross margin. If you look at the module side of gross margin, we're basically down about, call it $15 million or so on volume as we lowered the lower end of the range on shipment volume, and then about $65 million on freight. The impact in the quarter, about $18 million on freight, $60 outbound sales freight, $20 inbound. We had about $15 million or so in the range as a risk. We're having a net impact down of about $65.
Again, don't forget that you had the impact coming off of this settlement agreement of $65 million. That's why on a consolidated base on the range, you're not seeing it come down significantly.
On the ASPs, yes, we are starting to see the ASPs for, and I'll separate, we'll talk next gen product secondly, First is in terms of our Series 6 and Series 6 Plus CuRe product that we are currently negotiating with customers at this point in time. Yeah, we're seeing ASPs starting to firm up. What First Solar is able to do, not only with the differentiation we have around capabilities in our technology, but there's an element of certainty.
Given there's so much uncertainty right now that's going on with the crystalline silicon supply chain, whether it's here in the US or even you're starting to see some emerging issues start to come up in the EU and UK and in places like that, it's creating anxiety to a customer, and the customer wants to make sure they can have certainty and there's no disruption to their commitment around their module supply chain.
First Solar is decoupled from the Chinese crystalline silicon supply chain, right? It enables a different opportunity and engagement with customers, and clearly that is playing into some of the opportunities. Again, though, you still have to deliver great technology, and the evolution of CuRe in particular, and its improvement around its long-term degradation rate, I think is further enhancing our relative competitive position in the marketplace.
It's the product, it's kind of the overall market, it's the certainty of contracting with First Solar is a key driver in the bookings momentum and the firmness of the ASPs. What we alluded to on our new product, which will come out of both of our Perrysburg 3 factory and our India factory. Both of them will be higher efficiency than our current fleet.
They also will be optimized. One will be optimized here in the US for a tracker install, and the India one, India's largely a fixed tilt market, will be optimized to a fixed tilt structure. Both of them will inherently create incremental value relative to the Series 6 and 6+ product that we have today. I think what Alex alluded to, and also couple that with both of them will be the lowest cost products in our fleet.
I think there's an entitlement of $0.01-$0.03, at least what our initial indications are, of incremental gross margin realization with the next-gen product relative to where we sit today on a comparable basis with Series 6+ CuRe.
Our next question comes from the line of Brian Lee from Goldman Sachs & Co. You may ask your question.
Hey, guys. Thanks for taking the questions. I had two more modeling specific ones. I guess first off on the cash flow trajectory here for the next few years, can you give us a sense of what net cash balance you're comfortable with and sort of when you get back to positive free cash flow? Is that in 2024? There's about $1 billion for CapEx between Ohio and India here.
Just wondering kind of what the right free cash flow trajectory to be assuming is. Second question, just I know, Alex, you mentioned a lot of your OpEx is fixed. We've seen that over the years, we typically also have seen startup and production ramp costs on new fabs. How should we be thinking about those costs in 2022 and 2023 for Ohio and India respectively? Thanks, guys.
Yeah. On the cash side, we're guiding previously to a $1.8 billion-$1.9 billion year-end number. That's now down to $1.35 billion-$1.45 billion. $1.4 billion midpoint. The delta there is the $400 million of CapEx that's going to happen this year associated with that spend. That still leaves another about $900 million to $1 billion or so that's going to happen in the next couple of years. We haven't given a minimum number that we're comfortable with. I think the business is going to be significantly cash generative over the next couple of years with the six factories that are already in place.
I can't give you a guided number, but I'd say that we're going to generate enough cash organically that I would be comfortable we could finance the construction of the two new factories on balance sheet should we wish, and not drop to levels that I wouldn't be comfortable with maintaining in terms of base net cash balance.
That said, for a few reasons, we may look to leverage the factory in India especially. I think there's some optimization of capital structure here we might do. There's less equity going into a country where it can be more challenging to bring money in and out. I think there's some benefit to matching some of the revenue and expense stream with the capital structure.
I think there's also some beneficial rates we could get using ECA financing, especially for some of the equipment that's going to come out of Europe, and potentially the US as well. I'm comfortable we could, with organic cash for the next 2 years, finance the factories on balance sheet without debt and leave ourselves at levels that we'd be comfortable with.
I think there may be optimization around the balance sheet that we ought to do as well. On the OpEx side, we're still working through numbers, but these factories are going to be significantly larger than the previous factories. You think about historically to put in place a factory that was 1.2 now up to about 1.5, 1.6 of nameplate was somewhere in the region of $30 million-$40 million, depending on the location, depending whether it's the first or second factory.
It came down a little bit more. For instance, our second Vietnam factory was significantly cheaper than our first. It's always going to be a little higher in the US than it is internationally given labor costs. In indicative terms, you could take that and double it for scale.
You could look at startup in the range of probably $60 million-$70 million per factory. In terms of timing, you're going to see a significant portion of the US factory startup hit in 2022, call it three quarters, something like that. The remainder in 2023. The India factory is going to be a little behind that, so you may see more like 25%-50% hit in 2022, and the other 50%-75% hit in 2023.
The other thing I'd say about OpEx is we did mention that we have about an 80% to 90% fixed operating cost structure. As we do scale these factories, there will be potentially some slight incremental SG&A . On a whole, as you add that 6.6 GW of capacity and keep the OpEx down, you do get pretty significant contribution margin and operating margin expansion that we can benefit from.
This concludes today's conference call. Thank you again for participating. You may now disconnect.