Discussion at our Sustainable Futures Conference. We're thrilled to be hosting MaxiHome Solar today. I'm Stephen Byrd. I cover Clean Energy and Utilities here at Morgan Stanley. On the Morgan Stanley side, I'm joined by Dave Arcaro, Dave's Executive Director, focusing focusing also on clean energy and utilities.
And again, we're thrilled to have Maxiad Solar team here with us. Let me just go through a couple of housekeeping items and then we'll get right into the content here. So first, if any of you would like to ask any questions, feel free to email myself or Dave. And also feel free to use the online portal where you're likely watching this should be a box where you can submit the questions that you may have. We'll be sure to watch that quite frequently and make sure we get to any questions you have.
Secondly, I have a brief disclosure, which I'll read and then we'll start talking with Jeff and Peter. So first, for important disclosures, please see the Morgan Stanley Research Disclosure website atmorganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So today, I'm thrilled to be joined by Dick Water, CEO Peter Aschenbrenner, our Chief Strategy Officer. Stephen, Peter, thank you so much for being with us today.
Thank you for having us, Stephen.
Well, excellent. Well, why don't I kind of go through the kick it off here a little bit. We have quite a broad set of investors at this conference here. So I do think it does make sense to step back a little bit and just maybe just give a bit of an overview of your business, your product lines, as well as a brief history of the spin off and where you're headed. So Jeff, would you mind kicking us off there?
Sure. I'd be happy to. So, yes, thanks for joining us. So, we Maxeon Solar spun off from SunPower back in August of 2020. And with that spin off, I mean, probably the easiest way to think about Maxeon is that we retained all of the R and D, all of the manufacturing and all of the global downstream business, so all the channel partnerships and go to market for everywhere except for the U.
S. And Canada. So, we are very much a full service solar panel supplier. And as you'll hear, we're going to be broadening out beyond solar panels here in the very near future. We are as a company, we really, I would say, have some a handful of critical core assets.
Certainly, our solar panel technology sits at the foundation of all that we do. It's over 30 years of gestation with Silicon Valley led technology that results in what we believe to be very objectively the world's best solar panels for distributed generation, best efficiency, best durability, best lowest degradation in the market. That really is kind of sits at the foundation of who we are as a company. That asset though has led to us having a very strong brand globally and also a very strong dealer channel partner network. And hopefully we'll get a chance to talk about that.
But that is something we think is very unique. It's something that maybe many of you are familiar with, with companies like SunPower and Sunnova and Sunrun, but we have effectively that same kind of asset outside of the U. S. And then last but not least, we are also a growing player in the large scale side of the market, so selling into utility scale. And there, 1 of the things that we bring that's unique from a lot of the other suppliers in that market is that we are AUS.
Publicly listed company. Again, we also have technology that's differentiated. We think that that combination makes us very appealing to a variety of developers globally. We just recently announced that we are launching AUS. Product.
So it will be produced out of our factories in Malaysia and Mexicali, Mexico, but will be ready for the U. S. Market for utility scale. And very, very excited about that with some strong early wins.
That's a great start. Jeff, thank you. Maybe let's talk a bit more about your solar panels and some of the key competitive differentiators with that with the product line that you all have. Would you mind just talk
a little bit more about that?
Yes. So we have 2 key product families. The 1 is what we call our Maxeon family and it uses our IBC or interdigitated back contact technology. And those solar cells lead to solar panels that have typically 2 to 3 points higher efficiency than the other panels that are out in the market. And the efficiency basically translates into more power per rooftop.
If you have a rooftop with a certain amount of space, usable space, you'll get the most power using our panels pretty unequivocally. The other there are other elements though that I think are very compelling for homeowners. The 1 is around degradation. So all solar panels lose efficiency over time. Ours lose them much more slowly than the competition.
So over the course of the life of our panels, you can get upwards to 50% or more energy out of your installation using our panels versus the competition. They also have 3rd party durability rated at 40 years, which I think increasingly you're going to see more environmentally and sustainable minded consumers pivoting more to this, which is I'm going to put those panels up there, how soon am I going to have to recycle them or potentially have them go to landfill. Our panels last 4 years and we think that's also something that's very compelling. That product family really targets the DG segment. We have our other family, which is our Performance Series and that is done again using our technology.
We do produce the majority of it, actually all of it today through a joint venture in China. And those panels are a great fit for the utility scale market, but we also use them because they're at a better price at a lower price point. We use them also to sell into the BG market and you can think about consumers maybe that are more front end cost conscious, maybe are going to be in their home for a long period of time, perhaps are leasing. So we have a lower end panel price wise that also has differentiation relative to the commodity panels. And that gives us on a DG set a 1, 2 punch.
We've got kind of a better best traditional product strategy and that our dealer channels are very excited about that ability. It allows them to service their whole market. But then we also have the performance series, which allows us to go after utility scale. So it's an exciting world out there for us.
That's helpful to understand sort of how you're differentiating your products. And we are very bullish fundamentally about solar industry growth, but as Jeff and Peter, we do get asked regularly about sort of what is the real outlook for solar industry growth. And given your footprint and your business, I think some ways a unique perspective on what you're seeing in terms of growth driven by both economics as well as by policy. And sometimes we will get bearish remarks that well cost inflation means that renewables are less economic. We tend to disagree.
But I just love your perspective of what you're seeing in terms of growth prospects. I know that's very broad, but I'd love your thoughts on that.
Sure. I'll do a quick tee up and then I'll maybe I'll get Peter a chance to answer the question in more detail. So we do service globally. We have fewer channel partners, over 1100 of them spread out across multiple continents. We certainly sell in over 100 countries.
Globally, we are very evenly distributed in terms of our sales, about a third for North America, about a third for Europe and about a third for Asia. So we very much do have a global footprint. Peter, maybe you can talk more specifically on some of the growth dynamics we're seeing.
Sure. Well, I think there's really 2 primary axes of growth. The overall picture is that as the price of solar panels and solar systems has come down, solar systems are at grid parity or economic parity in more and more places around the world. And that's true both on the large scale power plant side and increasingly also on the DG side. So, the 2 real primary vectors are the balance of power plant and DG and how that evolves over time.
We believe that DG systems comprise about 1 third of all the solar panels sold in terms of gigawatts and power plants about 2 thirds. We believe that DG will be growing slightly faster than power plants over the next 5 years or so globally. And the second vector is incremental markets, growth into new markets. As the solar has become more cost effective in more places, the number of sizable markets has increased accordingly. And so if you look back 5 or 10 years, there are only a few key markets where we're driving significant volume and now that number is expanding rapidly.
So our focus really is on that balance between DG markets and power plant markets and how quickly we drive entry into new markets versus expansion in our existing markets, because our existing DG markets in particular in the U. S. And Europe and Australia are also growing extremely rapidly. So in aggregate, I think we and many in the industry expect double digit growth for a significant period of time measured in decades. And what we've seen recently, I would say, is faster growth than that.
Certainly, in 2020, the growth that defied lots defied expectations in the face of COVID. We think there's a reasonable chance that, that happens again this year. And so it's really for us more about the balance of which markets we focus on as opposed to overall market growth.
That's helpful. And I'm going to circle back to this in a moment, but I guess it strikes me solar has become so economic that even if we do see some pressures in the near term from a cost perspective, It's so in the money, let's I mean, from so many countries, I can think of United States, India, I mean, areas like that, that where solar is now permanently the cheapest form of generation in many parts of these countries. So that sounds is it fair to say that's the fundamental driver policy helps, but economics is certainly a big part of the equation as well. Is that fair to say?
Absolutely. And 1 of the benefits in addition to kind of a sustainable growth driver, 1 of the benefits of that is that has brought to the industry is that the industry is much less dependent on incentives, which have tended to be choppy. It's been hard to get those incentives right, balanced for long term push. And so what we've seen over the years is incentives come and go and discontinuous market growth with the economic driver. Obviously, we have something that we think is more stable and more predictable.
That's helpful. Why don't we digest a little bit more into the supply chain? And just if you could just talk about kind of the state of the supply chain broadly, cost increases that you've seen and sort of any signs of relief that you see coming in the future? Just how do we think about that? This is a question that comes up all the time with investors.
Yes. Certainly, as you know, industry wide, it's a bit of a global train wreck right now with what's going on in the supply chain side. I'd say we break it down into the major components. I would say first when you look at transportation and logistics that really was kind of a COVID induced challenge. We are seeing things starting to get better.
I wouldn't say they're back to normal, but certainly as port congestion is getting better as social distancing requirements of the ports is easing, as passenger flight travel is also picking up, we are starting to see things get somewhat alleviated. That said, we're still seeing pockets of challenges going from China to Europe right now is particularly expensive and it's still settling out. But we're starting to see a little bit of stability there, which is helpful. When you look at glass, glass also was a big cost increase going back 6, 9 months ago. That probably has stabilized the most.
I think as more capacity has come on, demand, especially in China, has settled in a little bit. So we're now seeing glass pricing get more back to normal. When you look at the 2 that are still up in the air, the 1 is aluminum, and we're not sure exactly when we're going to see aluminum get back to normal. I would say the other though is obviously polysilicon. And there I've heard we were on calls night where we were hearing that potentially within the next 2 quarters, you could see poly start to stabilize.
I've seen others projected to be more like 4 quarters from now. So, polysilicon continues to be a stressor. Now, for us specifically in our business, on the IBC family, so the Maxeon product family, we're not really impacted by polysilicon as we purchase that here in the U. S. Now there's some challenges to that.
It's a fixed price contract that we have that's a legacy contract that's going away at the end of the year, but at least it is buffering us from any of the gains that we're seeing. Really polysilicon is impacting most the performance series side of what we do. And we are seeing that as a significant impact. It is part of what has led to us stepping back from the large scale market, rest of world, here in the short term, because right now, pricing and costs are not in equilibrium and we're not seeing a great business as it stands. But we're expecting if things lighten up, it will get better.
We're hopeful that by the end of this year and going into next year, we'll see our large scale business resume. But for, I would say for the rest, we continue to do things to try and drive down our overall cost and even with logistics. For example, we are we've been producing to date as a part of SunPower, we produced panels in Mexico that we then shipped to Asia and to Europe. We're now shifting that production to Asia, so we can better service. It's better from a carbon footprint perspective, but also from logistics.
So we're still tactically and proactively trying to reduce some of the supply chain challenges that are inherent in the current business model.
That's really helpful color. I'm going to hand Rich and Dave to cover a couple of additional topics.
Great. Thanks so much. I thought I'd start maybe on the U. S. Market initiative that you mentioned.
I think at the outset, you're starting to introduce P Series into the U. S. Market. Could you elaborate on how you see that strategy evolving over time? You also had a recent big win in the market too.
Is that something you what are your aspirations? How do you see that growing over time?
Yes, it's a very, very exciting development for us. And actually, Peter, why don't you provide some more color on this?
Sure. So, I'd say, first of all, there were a few things that came together serendipitously around this time to catalyze this project. It was always a long term part of our strategy and something that was envisioned in our spin out and the structure of the market rights etcetera with SunPower. But what we saw, it was it matched sort of a mature level of manufacturing technology with our latest P Series Shingling technology being done in China on the larger scale G12 wafers. So real leading edge product position that we can now replicate kind of in a copy exact fashion.
So very low risk implementation. Secondly, a very strong demand appetite in the U. S, both with respect to the administration's views on trying to increase deployment of solar power, but also in terms of the match that we see, I guess corporate culture is 1 way of putting it, but we see very strong demand from many developers and EPC companies in the U. S. For a company like ours with leading edge technology, a factory close to the job sites with the inherent logistics advantages there.
And also I would say kind of a Western culture in terms of contracts, scientific contracts and confidence that we're going to deliver at the price we commit when we commit. We have a lot of know how in the solar power and the power plant business based on years of practicing that at SunPower. And then finally, in both Malaysia and Mexicali, we had fab space, building space that was being emptied as we refreshed our previous Maxeon 2 technology. So we had trained workforces and buildings available to put this new equipment in. So the combination of those things.
And then, I would say, driven by the very, very strong customer demand we were seeing as we started some limited outreach led us to pull the trigger on that. And as you mentioned, we have a big win recently as kind of a cornerstone job to ramp this fab into. We're now looking at building expanding our footprint in the U. S. With a second modco.
We believe that market growth in the U. S. Is it can be very strong and that we might need more capacity than the 1.8 gigawatts that we'll be bringing online in Mexicali. And so we have a project underway currently to prospect for sites in the U. S.
And down select and are looking at various incentives available both at the state and federal government.
Got it. That's really helpful color. And anticipated a question that just came in too from an investor. They were curious if you were evaluating just with First Solar's recent announcement that they were going to start to expand manufacturing capacity within the U. S.
It sounds like that's something you're evaluating. Would that be on the module assembly side of things like the Modco or are you also considering cell production or any upstream from there?
We are definitely looking at module assembly. We are also looking at cell manufacturing. It's a little bit I'd say it's a little bit more of a heavy lift just due to the capital intensity and of that compared to the module assembly. But we're looking at that as well, because we understand that there's a desire on the part of the administration to try to attract solar manufacturing a little bit upstream of the module. We're not currently looking deeply at least in anything upstream of that.
Understood. That makes sense. Yes, encouraging to see some of these data points, a lot of things coming together from the policy side, economics, strong demand pull for these products too, starting to bring in demand into the U. S. Increasingly.
Wanted to shift a little bit, you've got a fairly active kind of new product roadmap coming on the horizon. And I was wondering if you could maybe and I'm thinking of the next generation of Maxeon panels, you've got the Maxeon Air. Why don't we maybe start there with the next the vision for you the next step in your module technology coming ahead?
Yes, Dave. So traditionally, module excuse me, solar development is really around how do you drive up efficiency and we continue to do that. Our Maxeon 7 solar cell, which is currently in development and we'll start actually early shipping it as soon as next year. That will come in with a cell efficiency in the range of 26%, which will kind of continue our decade long advantage gap that we've had relative to the competition. And we think it will still sustain us for the foreseeable future as the highest efficiency panels out there in the market.
But efficiency is 1 part of solar advancement and I think we're increasingly looking at additional ways to advance solar to make it more applicable to more usage, really help with its growth. And we've announced recently was our Maxeon Air. Actually, I've got a sample of it here. You can see just how thin it is in terms of the form factor. But by taking first our Maxeon III and then seeing our Maxeon VII cells, cells are architected, especially with Maxion 7 in a way that they produce a 0 hotspots.
And hotspots is a phenomenon that occurs when a cell goes into a reverse bias mode, if there's some shading or some debris that happens on the panel, that creates a localized spike of temperature and heat and that's how you get burned back sheets. It's also why you need to have a lot of cooling in between panels and rooftops and other expensive and costly surroundings. With Maxeon 7 in particular, we're going to be able to make a Maxeon Air product that you can slap right on top of a rooftop. And we think it's going to bring potential innovation into a broad array of markets where we're first introducing it though is for a market that really, really must have it to use solar and it's low load commercial rooftops. So, there are upwards of 4 gigawatts worth of roof space within Europe alone for roofs that cannot withstand the weight of solar panel.
And this product itself that you're going to take it, we're going to be able to just peel an adhesive or have an adhesive right on the back, stick it right down on the top of a rooftop and you're going to be ready to go. Now the benefits of that for a low load commercial roof are obvious, but if you think about it beyond that, it also brings with it a pretty significant reduction in labor costs. You have a big heavy panel and you're bringing it on top of a rooftop, especially with some of the size of the panels that other manufacturers are coming out with, you need 3 people to bring them up to the rooftop. With this, this is very, very light. It's less than half the weight of a traditional solar panel.
And we think it's going to have great benefits for not just the number of people that you need, but also how quickly you can roll it out. So we think it's the kind of disruptive direction we want to take the company. We are a technology leader. We're going to do that to make traditional panels. But we think with what we do, we can help broaden the adoption of solar beyond even the conventional means and where it is today.
Got it. That's a helpful overview. Have you had early indications of interest in your channel? What's the level of kind of interest and excitement from them in terms of having customers that might be interested and seeing it as a differentiation in the market?
Yes, absolutely. So a lot of interest in the channel. I would say also a lot of very early interest in the with the roofing providers that are spread out across the world. So many of them are looking at ways they can integrate solar into what they do, thinking about kind of roofing membranes providers. So that is where we're going to start.
I think it's going to be helpful market entry and that we can get it out there. People can see that it's not just some university or science project. This is a real durable panel that can produce great energy. And that is where I think then we have many of our channel partners coming and say, well, can I use this for can I use it for other applications, can I use it for residential, can I use it for commercial rooftops where maybe we don't even have a low load requirement? And certainly just having using the low profile flat up against the rooftop brings with it a lot of benefits.
And that's the kind of feedback we're hearing from our customers.
Got it. Yes, that's really interesting. There are a couple of other areas that you're evolving into coming in sometime soon, battery storage and then expanding your kind of suite of services that you'll offer. Could you just touch on where you see that going?
So the concept here is similar to what many of you have seen play out in the U. S. So, we are a company that has a very strong brand. We have a very strong dealer channel that knows our product, knows our brand, knows how to sell who we are as a company. And our hypothesis has been, well, given that we can sell more than just panels.
And I'm on the phone with a lot of customers around the world and there's very strong demand for a storage solution and services from us. I'd say right now, we do have a team that's been hired in. We hired in an executive from Samsung who was leading their smart homes group. And really the push there is looking at the global markets that we serve, which markets do we enter 1st and then you look at make or buy or partnering opportunities that we would have to get quickly into the market. We think a good proof point for us has been with microinverters.
So we announced an engagement with Enphase. We buy microinverters from them in bulk. We attach them to our panels, sell them as AC panels. And that bundled solution is of great value to channel partners and to customers. And to the point that we see good margins on those microinverters akin to the same types of margin percentages we see in our panels.
And that I think speaks to the power and the potential of what we have with that dealer channel. Over 700 dealer channel partners in Europe alone, over 200 and growing within Asia. And then of course, we have the relationship with SunPower. But I think globally, when we look at that channel, it just it's a great growth opportunity for us. And a year from now, I think you'll see us with products that are getting introduced into that space.
It will be a great excitement and source of growth.
Yes, excellent. A bunch of new products coming out over the next year. So definitely a lot of things to watch. And I guess as a little bit related to that, and you touched on this a little bit before too, in terms of it's a question we get from investors a lot. What's the cost reduction outlook that you would foresee in the panel staying ahead, quite a bit ahead of the staying ahead quite a bit ahead of the competition there in terms of the efficiency level of your panels.
We're seeing technologies like Topcon get some more airtime recently. Just wondering if you could elaborate maybe on a little bit of a medium to longer term beyond just the near term supply cost inflation? What is the cost reduction roadmap and longer term efficiency roadmap look like for your panels? Well, what
I would say, and I think it's worth noting is when you look at what it costs to install solar on a rooftop, labor is a larger and larger percentage of that. So it's 1 of the reasons why with Max Air and other innovations we're doing, we're looking at how can we attack that total cost. Because if you can cut labor costs in half, that dwarfs any kind of cost savings that you can get on the panel itself. But I'd say more traditionally what we do on the panel side is by creating cells that run cooler and don't have hotspot that allows you to also save money on back sheets and other materials that they can take advantage of that. With the cells themselves, every new generation, we push up efficiency, but obviously the way the market goes, you always have to drive down cost.
And for us that's in 2 dimensions. The 1 is the build materials cost, which Maxeon 7 will be a significant reduction off of even our Maxeon 6 product. But it's also around CapEx per watt. We're constantly marching to drive down the amount of CapEx dollars per cents per watt that it takes to produce our panels. So we continue to push in that range, but I would say we're also thinking about it more holistically.
And we think that's where, especially if the way solar panel pricing has come down and the way labor pricing continues to go up, you're going to see the solar panel becoming increasingly a less even noticeable cost when it goes to deploying solar. We want to get ahead of that and really help enable more adoption of solar by attacking other parts of the bomb.
Yes, that makes a lot of sense. Panels have reduced in cost so quickly that there are many more kind of profitable and fruitful areas to where there's still a lot of cost to cut there. But still that continual push to improve technology, improve efficiency and stay ahead of the game there. You've talked about quite a few initiatives now that seem pretty near term coming out over the next year or so with new product services and the industry backdrop, it looks like you pointed to maybe 2 quarters, maybe 4 quarters for poly to loosen up. You've got that above market poly contract coming to an end later next year.
Wondering if you could just talk about 2023 looking a bit ahead. What is the because we're in a bit of a transition point right now for the company, what does the margin profile look? What does the overall business look like fast forwarding just 18 months from now?
Yes. There are a lot of activities that are converging as soon as next year, but then consistently in 2023. And our target model for 2023 is to have gross margins that are at a minimum 15% but greater, EBITDA margins that are 12% and greater, and then also annual revenue growth at 20% or more. And really so what's feeding into that? It's first, it's the product overhaul.
There are a lot of things. There was kind of pent up activity that was waiting for the spin off to close. And once that's closed, we've gotten hard at upgrading the technology. So our Maxeon 6 product and Maxeon 7 products will be in full production in 2023. And that will be replacing our oldest product, our Maxeon 2.
It's a 12 year old product we still sell into the market. So big margin bump there. You'll see AC modules will be a significant percentage of what we sell into the DG market at that point. Our P Series, Performance Series product in the U. S.
Market will be running at 1.8 gigawatt and we'll probably be either close to or in the process of expanding on that. And then you'll also see us get much more efficient when it comes to factory utilization. We are rationalizing to shut down a factory in France. We're doing other things to help make our factories more efficient in terms of footprint. So, all of that comes together and really has us looking like a very different company even a year from now.
But you go out 2 years, you have the additional benefit of that out of market Poly contract going away. And just to put that in perspective, if you look at our financials today, that is a $80, 000, 000 to $90, 000, 000 downdraft on our gross margins and on our EBITDA and it's about $50, 000, 000 a year cash hit. That will go away in at the end of 2022. There's no innovation or luck or magic. It is just time to distance.
So, that goes away. And so, again, I'd ask you to take a look at where we are today, take a look at kind of how we're valued in the market and think about the kind of company we're going to be at the end of 2022. I mean, it's very, very transformative.
Excellent. That's super helpful. Stephen, why don't I hand it back over your way, we're coming toward the top of the webcast here. Why don't I hand it over to Jeroen for any final thoughts and questions.
Yes, I'd just say the evolution that management team from Axione has laid out in terms of technology, business model, markets, etcetera, it's really worth spending time. I'd really encourage investors to engage here. There's really a lot going on underneath the hood as it were and you all gave us really great color on the evolution of the silver industry. So thank you very much.
Great. Thank you, Steve and Dave.