Thanks, Sean. I appreciate that. Thank you everyone for being on. We very much appreciate it. I hope this is going to be a rewarding call for you. I'm Ardes Johnson, I'm the CEO of NeoVolta. I'm joined by Jing Nealis, our CFO. We're looking forward to telling you all the great things that's going on with NeoVolta and our manufacturing capacity.
Okay, great. Ardes, real quick, to set the scene for the call. For someone new to the name, where is NeoVolta today versus where it was two years ago? How did you transition from a residential LFP company to deciding to pursue this utility scale battery opportunity?
Yeah, Sean, we get that question a lot. You think about it in a vacuum, it's a pretty big leap. Let me tell you, NeoVolta's been around for many years. We've got our roots in Southern California, as a residential energy storage provider, an innovative technology. I like to say to people, it's like, you may not know who we are, but we've been around for a while. We were one of the first companies that was on the California Energy Commission's list for residential energy storage. That's kind of a bellwether for who's out there and operating today, the CEC list. I'd like to say that we've been doing that. We unfortunately stayed a very local company through the first years of the company's startup and growth.
I came on board two years ago. Quickly said that we need to not only be in the residential business, but we really need to start looking at the other verticals. Particularly at the beginning it was C&I. That journey to go to the next generation, not only on product and residential, but also to grow in those other verticals, led us to where we are today. We can talk about that, but that's gotten us into not only what's going to be a C&I, but also the utility scale manufacturing in the U.S.
Great. I'd like to walk through the genesis of NeoVolta Power, the JV in Georgia, and just the strategic trigger to stand that up, then the partnership with PotisEdge, which is now LONGi. How that relationship started, who brought that in-house, and how you identified them as a potential partner there?
In that story I was telling about how we were looking to grow into the other verticals, we started going around the U.S. and we were talking to potential partners. We were looking at some M&A potential, as well as just some organic growth into manufacturing. During that journey, we came across a few partners that had mutual relationships with PotisEdge, and we took that opportunity to introduce ourselves to them and start having that conversation. It ultimately turned into what was going to become the joint venture. We knew that the laws were changing in terms of the compliance requirements for U.S. and non-Chinese ownership models. We started talking to them. It allowed us to accelerate the plant because they were already considering coming to the U.S. as PotisEdge. We started that joint venture conversation and were moving into definitive agreement there.
At that time, LONGi came in and acquired a majority ownership of PotisEdge. We ultimately did that joint venture with LONGi, as well as with PotisEdge as part of their company. It was really, quite frankly, driven by the change in law, right? As far as the joint venture, the structure of the joint venture and the speed of the joint venture was all driven by the change in law for Foreign Entity of Concern FEOC compliance. It allowed us to put ourselves in a position to be the majority owner in this situation and really push this and take technology that's proven and existing today and accelerate and bring that to the U.S. We looked at several different areas. There was already a consensus that north of Atlanta, where the factory is going, would be a good place to be.
Once we formed that joint venture, we were able to move very quickly. That's why from a joint venture completion to operation is going to be less than a year.
Great. Yeah. Just to spend a little bit more time on PotisEdge, since that's who you formed the initial JV with, and I know it was acquired by LONGi subsequently, but PotisEdge, maybe a little bit about their track record initially. Have they delivered commercial BESS at scale or utility scale BESS at scale? Where were lines running previously? Where were deliveries previously done, and at how much volume?
Yeah. PotisEdge, in terms of definition, is a BloombergNEF Tier 1 integrator of energy storage systems. They've been around for many years. They do several billion in revenue. They've got well over 10 GWh of deployed assets globally. They have assets here in the U.S. as well. We were talking about some assets that they're actually deploying at this moment. The technology's tried and true. They're very well known in terms of their integration capabilities, their battery management capabilities. I think it also is striking that when we were working with them, that was the company that LONGi decided to go after, right? LONGi is the world's largest solar cell and panel manufacturer, doing close to $10 billion in revenue on an annual basis. Like many other people in their industry, they were looking to vertically integrate into energy storage.
When they did that, they looked at PotisEdge as the partner that they wanted to do that with. We feel very confident in not only their capability in producing, but having it at the quality that's needed to meet the requirements of not only the developers, but the banks that are backing them. We know that that's a product that's tried and true, and we feel very confident that we're going to continue that process here in the U.S.
You mentioned they've got 10 GWh globally installed, curious in terms of the manufacturing footprint that you're pursuing in Georgia, does it map to what they've done historically globally? How much risk is there in terms of standing up this line, in your view, versus what they've done historically?
Yeah. It's a great question because what we don't want to do, and we didn't want to do at the beginning, was do something that was completely unknown and brand new. So we are essentially taking the technology and mimicking and replicating some of the lines that they have globally, whether it's in China or in other places that they're working. In fact, Steve Bond and I, Steve Bond's a co-founder, former CFO, and now the president of the JV, he and I went over to China. We saw the line that we have, that we're getting, was put together, all the automation, all the testing, all the welding, everything was there. We did a factory acceptance test while we were there. We saw it producing packs and ultimately the best modules, and we did that acceptance test.
When we left, they took that thing apart, put it in crates, put it on containers, and that's what's been coming over here to the U.S. But it's key to understand is that it's not a new technology. We're not doing something that's brand new. Not to say that we're not looking from an R&D perspective at innovation over time, but right now we're really making sure that what we put in the ground in Atlanta is something that's known, it's something that they can see operating not only Atlanta, but they can see the same technology in other places of the world, and they can see the finished product in the field. So that's what's really key to what we did, and that was really a cornerstone of our partnership, was to make sure that we have a technology that is tried and the risk is very low.
In terms of the stuff that's been deployed in the U.S. from PotisEdge, have they won on technology, price point? I'm just trying to understand their right to win in the U.S. and how that will translate to you over time.
Yeah. To understand that is to really understand also the marketplace, right? We're in a market that's growing very rapidly, and the demand is very high, between all the data centers, the AI, the utilities needs for energy storage to harden the grid, and the integration of solar and other renewable energy technologies out there. They make a very competitive product. In our industry, in any industry that you're in, you've got to be price competitive. So we feel very confident in our price competitiveness, but we're also very confident not only in that, but also in our ability to manage the energy storage. You can put a box together and you can put batteries in that box, but you need to be able to have a great battery management system.
You need to have a safe, clean way to operate that allows developers and their engineering teams to size systems appropriately, and PotisEdge has that capability, and has historically had that capability. What we're doing is, we're utilizing all that in the tech transfer and everything from an IP perspective. We're able to take that and continue that forward here in the U.S. We feel very confident that it is going to be a highly quality, highly competitive product. In a market that is growing very rapidly. The demand, particularly obviously for U.S. manufacturing, the compliance rules for the 48E tax credits, we feel very confident there's going to be plenty of opportunity for. That tide is going to lift all ships.
We really feel that we're going to be not only in a competitive position, but our speed to market is allowing us to be in a position to really go after multiple gigawatt hours of opportunity.
Okay, great. Before we move into the status of Pendergrass and the JV facility itself, can you map the governance and the economics that are going to flow through NeoVolta Power, the split, and then what other agreements you've maybe signed with LONGi? In my opinion, you did this very cleanly, and I think maybe LONGi's executed on this previously on the module side, which has helped. Just again, map the governance of the JV, how you qualify for credits, and the historical record that LONGi has on the module side with that same structure.
Yeah. As you were saying, LONGi has done this before. They've done the same sort of operational joint venture on the solar panel side, and they've got a plant in Columbus, Ohio, that they're operating today under the FEOC compliance rules. What's great about what we're doing is we're not taking two existing entities that are operating and trying to put it together. We started this very clean from the very beginning. NeoVolta Power was formed under the current compliance regulations and rules, and standards that are required to be compliant in the industry. We've been essentially set up to be compliant from day one. We weren't taking entities and trying to change them and change structures and putting two things together. The plant started from ground zero as a compliant plant. We'll have 80% ownership of the joint venture. We have full control of the board.
All of these are rules and regulations that are required. There's no demonstrable effect or control that LONGi has over the joint venture. They essentially get 20% of the profits of the joint venture. In exchange for that, we've got a technology service agreement where we get the technology transfer, we get the equipment here. It's fully funded. We fully funded it under the compliance rules, everything was done in a way that it's all of essentially NeoVolta's ownership into that from a joint venture perspective into NeoVolta Power, we have complete control over that. We have full board control, full decision control, and essentially, as they like to say, playing by the rules that are put in front of us. What's a cornerstone of the agreement is that we will be FEOC compliant.
If the rules change, we will change with those rules in order to maintain our compliance. As you know, and many people know, dealing with Washington, D.C., particularly with Treasury, right? It tends to be somewhat of a nebulous world. People want exact answers. They want exact definition. I've been doing this for about 15 years, whether it's in storage or in solar, and I've always said, if you really want to ask the IRS to give you a definitive answer, they're not always going to give you the answer you want. You work under the interpretations that you have with the rules that they have, and if those things change or things become more final, we will adjust in order to make sure that we stay compliant. In terms of how that works, we're going to have that.
LONGi has some ownership at the NeoVolta level. They bought about 1 million shares, or we have about 1 million shares of ownership in our company, 2% or something like that. It really enables us to make sure that we're really together. We have a shared success, and we definitely have a shared outlook and outcome in order to fill the factory.
Okay. Yeah, that's great. In terms of the remaining capital to fund the JV, I think there's like an $8 million phase II payment, a $10 million equipment payment at the end. Just like what's left and where do you stand on that in terms of funding that?
Yeah. With the raise that we just completed, Jing can go into a little bit of detail on that. With the raise that we just completed, we are fully funded through commissioning. We feel very confident that we're going to be able to get it to the operational place that we need to start putting out product.
Yeah. We funded the initial $7 million earlier this year. From the May raise, $27 million of net proceeds. We funded the $8 million phase II. The next tranche, $10 million, will be funded through after commissioning of the plant. At this point, I think the plant is fully funded, given the raise that we have done.
Okay. What's the status of the installation going on? How much of the equipment is on-site versus still needs to be delivered? Where are you, Ardes, in terms of the install and startup of the facility?
Yeah. We've been doing a lot of what they call tenant improvements over the past few months, preparing the facility to receive the product as well as raw materials that are going to be coming into the facility, particularly the storage cells. Now we're right around 85% of the way there in terms of the equipment and tooling that are coming. I think the final tools may be showing up in the next few weeks. We have two different processes in the plant. We've got the pack assembly. That's there. We're getting that installed and started up right now. The final BESS, some of the tooling, the integration of the battery energy storage solution. Some of those tools are still yet to arrive, but on the way. We're very confident about that.
If you go into our facility today, there's teams of our people, there's teams of vendors there, engineers everywhere. We're hiring our staff as we speak. We have the PotisEdge of the LONGi energy storage team there supporting us. They're helping with the startup. They're also helping with training of our employees and preparing them. They're going to be there through, obviously startup, commissioning startup, and the ramp-up phase. We've got temporary housing right now set up, so we have housing for our vendors and our partners that are coming over from China, as well as everything that's going on there. We put out like a Monday report on LinkedIn and Instagram. I'd like to, for all of our investors, I understand, the stock moves on a day-to-day basis. In this world, from an operational perspective, it's weeks and months, right?
Everything's on pace and moving as scheduled. From a tenant improvement piece and from a tooling piece and from an employment piece, everything's falling into place for what we're calling the August acceptance and ramp up at the end of August. Start the beginning of the ramp up.
Okay. Just like what does the line look like in terms of equipment automation versus labor?
Just like how does that flow through the line and just kind of on that automation piece, has that been implemented previously at the other factories or the other lines that PotisEdge has run?
Yeah. When you think about a line, you typically think about, here's the manufacturing components of it, and then automation is put over the top of that. We're going to be a fully automated line, right? In terms of, particularly on the pack design and development. Even from moving raw materials from one place to another, we're going to have automation, automated vehicles that are going to be moving things from A to B. We actually saw that automation tooling in China operating. It's already been engineered, it's already been designed, it's already been set up, and they essentially picked it up and brought it over. It's not starting from scratch from an automation perspective here in the plant. Highly automated. There's going to be employees, of course, everywhere. But most of the integration and the manufacturing of it is going to be an automated portion of it.
Okay, great. Just want to move on to talking about the bankability of the product and how that flows. If we could start with the tax credit side. Last week you put out that you had a third-party opinion on the FEOC status. Maybe just like an overview of that and the precedents for those opinions in other factories. I'm assuming you used a well-known auditor or legal firm there to get that. Like how that stamp of approval helps you.
Yeah. Well, just the stamp itself is kind of like the litmus test for whether or not you're going to have a product. Many of our potential customers and people that are working with us are looking for that first stamp, and we've completed that. We are designated as a non-prohibited foreign entity, right? That's really on the ownership level of it. We worked with Holland & Knight on that, a very well-known tax council to support us on that. They've done that before as well. We leveraged that relationship that LONGi had on the solar panel side of the business in terms of that and when that joint venture was formed, we were able to take advantage of that. We feel very confident about our position there. Now we're working through the BOM piece of it and others.
We're working with KPMG and a few others on that too, to ensure that at the BOM level, everything fits the compliance. At the end of the day, we feel very confident from a bankability perspective that we're in a really well-positioned spot to be able to supply product that meets the compliance, gives the confidence to the developers so they can start designing our product into their projects. Now we're moving from that perspective to now moving into trying to get some final agreements and purchase orders for first supplies. Yeah.
Okay. Are there any certifications that are needed to service the utility scale customers? What do they need to see from a certification standpoint? Also just physically, what do they need to see out of the plant? What's the qualifications program look like for them?
Yeah. Many developers and banks, ultimately, everyone has their own potential set of qualification requirements. Most of them are very similar. We're going through all the UL requirements that are needed. This is not a brand-new product. It's a product that's been UL'd other places, so we're able to UL the product, we're able to UL the factory, everything that needs to be done. We're working through the opportunity to look at third parties coming in from an audit perspective, QA, QC. We're inviting potential developers and partners in early so they can see the products. As we start to make the product, they can see the finish, they can see the operational rigor going through that. They're going to want to go through all the installation practices. They're going to, excuse me, the manufacturing practices. They're going to want to ensure that we've got the right QA, QC.
They're going to see the documentation. A lot of that ends up being done by third-party engineering firms. We're going to be working with those as we start to move forward, even in the early stages, right? Because we want to get to a place where we feel qualified enough to, by the beginning of next year, we're able to ship product that customers feel confident meet the requirements to be on their approved vendor list, so to speak. Like I said, everyone has a little bit different requirement, but we're going to be able to do that. All the burn tests, all the requirements for UL 9540, UL 9540A, all those things are going to be done.
Some vendor or some off-takers are going to want us to send product to them so they can test it in their innovation centers and whatnot, so we're starting to have those conversations today, and we're going to start working through that. If we've got to do an extra burn test here, or we've got to do this extra test there, we look at it as kind of part of doing business and any supply agreement that we're going to get. We're ready to go on that one, and we feel very confident about it.
Okay. On the BOM, you mentioned working on that. I think the biggest piece of that or the biggest swing is just the cell supply, cell sourcing.
Right
Can you walk us through this year, how that transitions to next year, that becomes a bigger issue to have a FEOC compliance cell supply
Sure
outside of China. What's your visibility there, and how are you maybe leveraging some of the LONGi supply chain or their scale to help out?
Yeah. Obviously, the BOM can swing very drastically depending on where you get the cells. We get the cells in and you could change the BOM completely on the other side of that equation based on what the cell supply is. We have several different BOMs that we're working through, whether they're China cells or they're non-Chinese cells or they're domestic cells. Our strategy is flowing with the compliance strategy or the changes that are coming. We obviously are using Chinese cells for the remainder of this year. We're also working with non-Chinese, Southeast Asian opportunities, as well as domestic opportunities. We're looking at it as sort of a blend. Obviously, with the rules that the IRS has come down with, you have that capability to do a blending strategy.
We're looking at it from both FEOC compliance, which can be somewhat more binary, also domestic content strategy. We're working with that, and we're looking at potential supply from U.S. manufacturers. We're looking at potential supply from non-Chinese, Southeast Asian, and we're really working to make sure that we ensure compliance as we get into 2027. There can be somewhat of a safe harbor approach there a little bit, for us, we're heads down saying we need to have the right number and the right amount of suppliers who can get us compliance and then potentially domestic content.
Okay. Then moving on to the customer or the developers, I think you've announced an LOI with Infinite Grid on a few discrete projects. I guess if we focus there, in discussions with Infinite Grid, what do they need to see to kind of move that LOI to firm purchase orders?
Yeah. For them, I think they're very confident. They've installed the PotisEdge equipment, they're very knowledgeable and confident about the equipment that we're going to get, or at least the finished product that they're going to get. I think we've moved already. Obviously, Infinite Grid Capital is a partner of ours. They've invested in our company, and we're working very tightly with them. And they were one of the drivers for our beginning relationships, actually. They were the driver for the beginning relationship with PotisEdge, to be honest. They're very familiar with PotisEdge and their equipment that they have. They have a few projects that they're working on now. For us, getting to contract finality with them is more about them getting the financing set up and done on their projects that they're working. I think they're working through some now.
We expect to get to some definitive orders in the very near term with them, at least at the beginning, with some potential deployment of product even towards the end of this year. We feel very confident they're going to be able to move. Really what I want to say is Infinite Grid Capital is very important, one of our partners. The PotisEdge team that was pre-existing, that was selling into the U.S., is a very robust team, not only from sales, but from technical support and product management, and after sales support. They have a large pipeline of projects that they're working on that is going to essentially flow through us. Then of course, the LONGi side coming in over the top of that is even bigger, right? LONGi has got an opportunity. They are looking at it from two different factors.
There's the stationary, there's the storage-only guys, then there's the solar team that's out developing, and they're installing, or they're manufacturing 3 GW-5 GW, somewhere in that range of solar. What they're telling us is, "Look, every one of these solar fields that are going out there are going to need storage." You could think about it from 2-hour to 4-hour storage on 3 GWh-5 GWh . There's plenty of pipeline and opportunity for us to fill our factory, particularly at the 2 GW level, and very quickly.
Okay. Yeah, we walked through the Infinite Grid one, I think is 1.1 GWh .
Yeah
kind of talked about the PotisEdge pre-existing opportunity pipeline. Can you quantify that at all, like in terms of size, what that was?
Yeah. I think from a pipeline, you talk to salespeople, it can be a very large pipeline.
Yeah.
What I would say is it's several gigawatt hours of real opportunity, right? Of real opportunity. Any pipeline can say 15 GWh-20 GWh , but I think in the terms of what we're looking at in the near term and from the opportunity, it tends to be we're looking at a few gigawatt hours at least of opportunity. That's with PotisEdge. Then obviously LONGi's going to bear their relationship and their bankability with some of their large customers on the solar side who are also looking for storage, and we're going to be leveraging that relationship. We have a written commercial marketing relationship with them to start driving some of that business. Having those customers who are a little bit more forward-thinking to say, "Okay, we're willing to take a chance on a portion of this.
You've got to meet the QA, you've got to meet the standards. Here's our third-party audit engineer. Here's the burn test we want to do. Here's the innovation center. Send me a product." All those things have to happen over the next six-seven months, we really feel confident that we're going to work with that and really leverage that relationship with them.
In terms of a LONGi relationship, will you be this preferred choice or sole choice for U.S. deployments for them? If someone wanted a non I guess you would have to be, in terms of FEOC compliance, or could they supply via some other avenue for FEOC compliance, too?
I think the way that LONGi's looking at it is, particularly on the solar assets, right? It's like, "Listen, we're going to get you to this relationship. We're going to get you in position to do this, but you've got to stand on your own. We're going to work with you on the bankability side of it, but you've got to show that you've got the pricing, the capability, the functionality. Everything needs to be done." I would think if you talk to Eric Luo, who's the President of LONGi North America, he would say, "Look, my guys sell solar," right? Now the energy storage team with Dennis and the team leading that from the LONGi side of the business now, they're going to be, from a technical perspective, supporting that, but we need to be in there as well.
It's a triangle of development and support that we're going to be working on and make sure that we supply that. I wouldn't even want to put that at their feet to force them to have to do that. We've got to meet the requirements. Like I said, if they sell 3 GW- 5 GW, that could be 10 GWh- 15 GWh of storage getting applied to that. We're not looking to get all of that, right? We just want to make sure that we get in there with a few of the partners and get locked in for some of the supply of our 2 GWh .
Yeah, that's great. Is there any thought to contract structures and how that would look in terms of maybe prepayments or milestone payments?
Yeah.
Obviously, you're ramping up. Prepayments would be helpful, I'm sure.
Sure. Right. There's an industry standard that's out there. There's down payments that come. Whether we're looking at an individual project or we're looking at it more like a contracted supply agreement, obviously as a manufacturer, we want to make product every day, all day, right? If a customer says, "I need 1 GWh ," well, I don't want to build that gigawatt hour and deliver it. We want to deliver on a monthly basis. That's how we'll do it. We'll set those contracts up to have timely shipments based on their installation progress. We would receive progress payments, and we would have certain net terms. It wouldn't be net to a contract, it would be net to deliveries, right?
We work on everything on deliveries and ensure that we get that payment so that we can get cash flow in the appropriate way that we're doing it. It's a difficult business to try to go ask somebody for a 50% down payment. At the same time, I think on some of the smaller projects, we can probably get larger down payments. On some of the bigger projects, we're going to have to contract those out in a way that we get a certain down payment on the overall contract that we have, and then we get incremental milestone payments as we start to build and deliver product, and we'll finance it around that way.
That's really helpful. In terms of just kind of working through the economics of the utilities of the JV, from a gross margin standpoint, what are you sort of expecting in terms of utility scale versus what you may produce for commercial opportunities? Just general splits. I'm assuming the majority of this will be utility scale.
I can't take the credit.
Totally gross margin. I think ultimately the gross margin goal is about 20%-25% when we're fully ramped up. There will be a process as a starting point to ramp, right? As any factory goes, it will ramp from 10% utilization to 50%, 80%, 95%. We need to hire people and stuff. There will be sort of a gross margin increase over time once we start ramping. The expectation is once we are fully ramped up to 2 GWh, one shift, that's the physical 2027 goal. We should be at 20%-25% margin. Ardes can talk a little bit on the C&I. I think the split depends, but mostly utility. The C&I would provide higher margin, higher ASP. Although it's a smaller volume, but it is a very attractive growing market as well.
We have a C&I product that's coming out in September. On the C&I side, I believe the margin will be higher, just given there is a short supply and very high ASP.
Yeah. For us, C&I is what we continue to talk about as this missing middle of opportunity and product that's out there. We really believe that that's going to be a really growth model for us in terms of how we do it. As it reflects into the plan itself, at 2 GWh , we're putting in goals to get into that 20%-25% range of percentage of C&I. As we start to scale up, go to further shifts, potentially add another line, because the facility can go all the way up to over 8 GWh . We would probably see that ramp and that growth be on the utility scale side of the business. We really believe strongly that there's going to be a great market for U.S.-made C&I product. We're already seeing it today, the demand is there.
As Jing said, it can be up to or considerably higher ASPs depending on the size of the system that you put into the facility. We feel very confident that that's going to be a driver for us. We think that that'll uplift the overall ASP, excuse me, the gross margin at the end of the day.
Jing, are those gross margin forecasts pre-credits or do they include the 45X credits or don't include the 45X credits?
No, it doesn't. We haven't factored in the 45X credits, that would be an upside.
Okay.
We'll start that process once the factory is up and running. 45X is there, we could monetize it too once we start shipping to third-party customers. It's not considered in ou r model.
Okay, great. Then in terms of the expected scale-up here, I think you're saying end of August for grand opening initial, then you'd be scaling some qualification volumes I assume in the back half of the year. How should we think about just how the factory scales up? Then to build on that question is adding a shift. That seems like a relatively easy decision at some point, how do you think about the timing of adding potential shifts and what you would need to see out of the line to do that?
Yeah. Well, we have a ramp-up schedule that we're putting together, for us, we're on a fiscal year starting in July, right? Towards the end of the calendar year this year, we expect to be getting into that ramp-up of 10%-15%. Then by the time we get to the second half of next calendar year, the end of our fiscal year, we expect to be fully ramped to full utilization, 90%, 95%. We see that if you can do that math, that gets you into the 400 MW- 600 MW, 700 MW range in the first half. Then towards the end of the fiscal year is when we're going to start considering based on demand, do we need to start scaling to that second shift?
I like to tell, it is a relatively light lift in terms of it's just people, but that still takes a couple of months, right? We want to make sure that we get the appropriate people hired, get them trained in the right way. We got to maintain all the QA, QC that's required in order to manufacture. We're looking at that into the second half of next calendar year, as we ramp potentially up to the near 4 GWh .
Okay.
Just to add to that, may be useful for investors to know what it takes to add the shift. This factory is fully automated with upgraded machinery. To add the shift, we're talking about 35 labor increase. They need to be trained, as Ardes said, and it will take some time to train them and hire them and stuff. It's not like we need to hire hundreds of workers to add a shift, just given how automated this line is.
In fact, Sean, for investors understand is we also are building in a model that has certain amount of overtime as we start to get into that. There's ability for us to be flexing as we start to bring on the new hires and putting people with opportunities to get uptick on a day-by-day basis. Maybe not over a course of months, but we can flex in terms of how we're looking at it from a single shift to a single shift with certain amount of overtime to a single shift potentially working on certain weekends and things of that nature. There's a lot of opportunity and flexibility in that number of what we call 2 GWh in terms of the operations.
Okay. Then the equipment, maybe getting a little bit ahead, but a second line, the equipment, costs needed to do that. You're already putting a lot into the building, so just curious about the true incremental costs for a second line.
Yeah. The second line from a CapEx perspective, we're looking at most likely between $13 million-$15 million, to put in the second line. Maybe a little bit on the facility, but not too much. I would say top $15 million additional CapEx investment at the second line, which will take us to 8 GWh, two shifts.
Okay. We talked about funding the JV and the finishing payments there. Just on the working capital standpoint, Jing, how should we think about working capital needs as you ramp up and then your ability to fund that, be it debt or non-dilutive opportunities there?
Yeah. We are funded through commissioning of the plans and initial production of the units. I think from a working capital perspective, depending on the gap between AP and AR, as we work through our supply chain and customer acquisition process, we will secure working capital most likely from revolvers or asset-based lines of credit and equipment financing type of debt to fund the growth from the working capital perspective.
Okay. Is that similar to how the, not to go back to it, but the LONGi module facility, did they use similar structures in their ramp-up, do you know?
Yeah, I think so. They have line of credits and working capital support from their bank. I'm not sure which one that they used, but, yeah, there is another one.
Okay. Then on the 45X side, that potential monetization, I'm assuming you would transfer the credits, but have you had any discussions with potential partners on transferring at some point as you build some credit backlog?
Yeah, we potentially could monetize that. I know on the LONGi U.S. factory, they have done that. They sell the credits like $0.96 on a dollar or something. There are plenty of people who are out there buying these credits. That is also a potential way to monetize and get cash flow out of it, for sure.
Okay. Yeah, that's great. I think we covered a ton in the last 40 minutes or so. There are no questions in the Q&A, but with that, Ardes, just maybe as we think about the next three to six months, what are the key milestones that you think investors should be looking at in terms of announcements to come?
Yeah. I would continue to think about the completion of the factory, right? That's the biggest goal. Like I said, we're on pace. Everything is looking good. I know that it seems to investors that it's moving at a snail's pace, but for us, it's moving very quickly in terms of a manufacturing facility coming online. Like I said, we're going to have a grand opening towards the end of August. We wanted to make sure that it was there and things were operating, equipment was moving, automation was happening. I think those are things interesting to people and investors to come to see. The reality is, getting that plant completed is goal one. Getting the team hired, getting everybody put in place to make sure that we're doing that. Steve is leading that charge for us and doing an excellent job.
Ultimately getting both the LOI and other opportunities in the pipeline to closure to the first orders, purchase orders, which we of course would make sure that we get out there to the investment community so they understand what's going on. Then start deploying that product into the field. Ultimately, the couple of 100 MWh that we think we can get to sort of in this timeframe between now and the end of calendar year, getting to that ramp-up. You start to hear us ramp up and deploying on a monthly basis product into projects that we're working through. Those are going to be the key things. Obviously, from a company perspective, we are looking at the C&I side of it as well.
We expect to have news on that front, not only with our partnership with Luminia, but other C&I opportunities that we're looking at. We continue to operate our residential business. We've got some news coming out on that. We've got the new product deploying as soon as August. We're looking at some third-party ownership models that we're looking at from a finance perspective. You expect to see those things sprinkled in as well. Obviously what people are here listening to and interested in today is what's going on with that factory. Getting that thing done, getting purchase orders, getting product built, getting product shipped, those are the milestones that we're looking at. Then building up that pipeline into backlog, right? That's really what we're going to be working on over the next four to six months.
Yeah. We had a question come in, which we'll ask, but it's Sungrow and HiTHIUM appear to have already built some U.S. project presence through existing or potentially safe harbor pipelines. Just from your perspective, how do you compete against these players in the near term, especially if they can still leverage low-cost Chinese supply chains?
Yeah.
Where do you see differentiation? It goes back to the PotisEdge product and where it differentiates.
Right. PotisEdge is a competitor. Sungrow, HiTHIUM, those guys coming in. The safe harbor is going to run itself through, right? Ultimately, that safe harbor is going to run itself out. The great news is, there's plenty of projects to deploy this across, right? We have got several opportunities. We're not necessarily running into the competition of safe harbor just yet. We see that happening, but typically, the safe harbor that's there has to already be deployed to a project, right? It's already got to be assigned to a project. What we're typically working on is new opportunities, all the new opportunities, and there's plenty of them out there. None of that can really be looking at pre-existing safe harbor product.
Not to say that we can't have a 2026 calendar year safe harbor strategy going into the beginning of 2027 with some projects that we're working on. The truth of the matter is, when you think about safe harbor, that's looking at pre-existing projects it's already been accounted for and set aside to do. Again, there are a lot of players coming into this market. There's a lot of people talking about coming into the U.S. You can come to Atlanta, Georgia today, and you can go north about an hour, and you can see our factory and putting equipment in there. We feel very confident that we're doing the walk with the talk, right? We feel that there's going to be a lot of opportunity for us to deploy projects going forward. Again, we expect competition, right?
We're in this industry because we believe it's a big industry, and it's a growing industry. When you have a big growing industry like the energy storage market, other players are going to want to get engaged. We're going to be speed to market, we're going to be nimble and innovative, and we're going to continue to develop projects and products that support our customers and their needs. We think that, like I said earlier, there's a tide lifting all ships right now, and we really want to make sure that we become an industry leader, a thought leader in this space. We're hiring the right people, the right technical people, the right commercial people, and the right manufacturing people to make sure that we've got a quality product that's ready to go.
Yeah. Just to push on that and a little bit more with, again, the service agreement you have with LONGi now. I know some of the best players, it's a big density push today, right? More that you can pack per acre, the better. Fluence has made some announcements about that. It seems like a pretty workable solution to do that, right? Just curious if that's in the pipeline for you all or what types of things LONGi sees as important for this business moving forward from a tech standpoint.
Yeah. When we sit down with the team, what I'd say the traditional PotisEdge team, which is now LONGi, right? Like I say, I only say that in the sense the traditional PotisEdge because they have many years experience. Minjie Shi, who's our co-founder and CTO of the former PotisEdge and helped leading this up for us. We're already looking at next generation, not only from an amp hour and cell capacity, going from a 5 MWh to a 6.2 MWh container solution. We're also looking at how do we take DC blocks, integrate more compact AC solutions and things of that nature. At the end of the day, like you said, we're trying to make the boxes that go on the ground easier to install, more capacity per square foot. All those things we're looking at too.
We've got a product roadmap out there that's pretty interesting, not only on the utility side but also on the C&I side as well, that looks at things such as higher capacity, closer integration of the AC solution, things of that nature, and continued development of not only the battery management, but also the energy management solutions on that. We think all those things are very critically important, and we're not sleeping on the existing box that we have. I want people to understand, just because we're putting in these lines doesn't lock us in to only doing 5 MWh DC blocks for the next 5 or 10 years. It's not that way. We're already looking at what's the next generation that we can get out of the existing line, and we're working towards that, and that will likely come into play next year, for sure.
Okay. Another question came through, We'll ask it, looking at 2028, do you expect a split in terms of segments, like lower cost, legacy, safe harbor projects, and then premium compliant domestic product projects? Or how do you think about that? It seems like you might be able to supply both a little bit.
Yeah.
In the bond.
Yeah. We're definitely going to be flexible in how we supply, for sure. The way that the new rules have been laid out from the IRS and the guidelines that they have, there's a way to mix products, in terms of source of the supply. That's really going to be focused a little bit on the domestic content piece, but if we get a domestic content compliant cell or a FEOC compliant cell, that flips the script on the BOM, right? Then we can look at the rest of the BOM components coming from lower cost areas. We definitely are looking at it from a BOM perspective and being flexible because there is talk in the industry about going just the lowest cost you can. I think people also understand that the ITC is not built around the lowest cost just on the equipment.
It's not the 30% on the equipment, it's the 30% on the project that you're looking for, right? It has a bigger impact. Not to say that there won't be people trying to work those solutions, we feel that on the 60+ GWh of demand that are coming in, there's going to be plenty of space for domestic content or domestic manufactured product, for sure.
And-
Sean, if I could add, one point on the cost structure. The Chinese-made imported products from Sungrow of the world, there is a huge tariff coming in. I think from a cost competitive perspective, we should be competitive given that our customers will be able to take the ITC benefit. If you take all the economics of the deal into consideration, and then the tariff still in place. It's not like the Chinese made is much cheaper. Also, there's a whole layer of EMS, cybersecurity, control of the system, which we have through our JV, which is, I think, very important for these utility scale projects to have U.S.-controlled battery management system.
Okay. This kind of builds on the BOM question, but in terms of the conversations you're having with customers, how important is U.S. assembly versus U.S. cell sourcing in these conversations? Are they satisfied with local assembly, or are they increasingly wanting domestic cell sourcing or origin also?
Yeah. There's a fine line between domestic cells and overall cost, right? We feel that there's a lot of opportunity for domestic cell suppliers to be cost competitive and effective. There is a definite ramp-up period over the next 18 months that's going to be required in that. I think it's our job as BESS manufacturers to try to support that ramp up, right? That means it's a percentage of what we're going to be doing, and we're going to be cost averaging that and us trying to support some of these partners that we're working with to help them to ramp up and get their costs down. From a customer's perspective, when we talk about domestic adds that 10% bonus potential to it, right? It's a little bit less impact, and that really does come into a true cost-effective conversation, right?
What we're looking at it is we're looking at BOMs that are domestic, BOMs that are FEOC compliant, then comparing them to non-FEOC compliant BOMs and how that looks. A fully imported, fully covered, as Jing was saying, not just made in China, but actually delivered to the U.S. because there's still going to be tariffs and other things applied to that. What we're looking at is FEOC compliant and domestic content compliant. If we get a domestic content cell, that adds a high percentage well above the domestic content requirements. How do we potentially blend those two together? We're not necessarily getting a demand that says we must have domestic cells. It's really more of, "You got to be compliant, guys.
We've got to be compliant, and we got to be cost competitive." We've got to do the math that says we can have domestic content or not. That's really what we've been seeing lately.
Okay. That's super helpful. All right, great. We're coming up on the top of the hour, so yeah. Ardes, Jing, thank you so much for the time today. Ardes, if you want to leave us with any closing thoughts, that's great. I think we already did that and then moved into Q&A.
Yeah. We did the closing thoughts.
You want to reiterate it, that's fine.
No, I just want to appreciate the partnership that we have with Needham, and thank you for doing this for us. Again, like I said, we're excited about where we're going. We know it's going to be not easy, and we're going to continue to push for that, and we feel very confident that we're going to be able to accomplish our goals and looking forward to the next 12 months.
Great. Thank you guys so much. Thank you, Jing. Thank you, Ardes.
Thank you.
All right. Thank you. Take care.
You have a great day. Bye.