Welcome to the SolarEdge Conference Call for the Q2 ended June 30, 2021. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the event calendar page. This call is the sole property and copyright of SolarEdge with all rights reserved and any recording, reproduction or transmission of this call without the expressed written consent SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the event calendar page of the SolarEdge Investor website. I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations for SolarEdge.
Please go ahead.
Good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the Q2 ended June 30, 2021, as well as the company's outlook for the Q3 of 2021. With me today are C. V. Landau, Chief Executive Officer and Ronen Faier, Chief Financial Officer.
Sibu will begin with a brief review of the results for the Q2 ended June 30, 2021. Ronen will review the financial results for the Q2, followed by the company's outlook for the Q3 of 2021. We will then open the call for questions. Please note that 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. We encourage you to review the Safe Harbor statements contained in our press release and the slides published today for a more complete description.
All material contained in the webcast is the sole property and copyright of SolarEdge Technologies with all rights reserved. Please note this presentation describes certain non GAAP measures, including non GAAP net income and non GAAP net diluted earnings per share, which are not measures prepared in accordance with U. S. GAAP. The non GAAP measures are presented in this presentation as we believe that they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance.
These non GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U. S. GAAP. Listeners who do not have a copy of the quarter ended June 30, 2021 press release or the supplemental material may obtain a copy by visiting the Investors section of the company's website. Now, I will turn the call over to Seedi.
Thank you, Erica. Good afternoon and thank you all for joining us on our conference call. In my remarks today, I'll discuss the trends and momentum in our different business segments, Update on new product releases, in particular, the introduction of our residential battery, and at the end, discuss how we are navigating the much Talked about global supply and logistics challenges. We are happy to report record revenues in both our solar and non solar segments For the Q2 of 2021, our total revenues this quarter were $480,000,000 consisting of a record 4 $31,000,000 from our solar business and a record $49,000,000 of revenue from our non solar business. Overall this quarter, we shipped 5,000,000 power optimizers and approximately 180,000 inverters.
The record solar revenues reflect strong demand for our solar products across all segments and geographies. In particular, We saw this quarter record revenues in Europe, led by record revenues in the Netherlands, Italy and Poland, as well as record revenues in what we call rest of the world, representing all regions outside of North America and Europe. In the U. S, this was the 3rd consecutive quarter of growth in delivery of residential products. In U.
S. Commercial, Revenue grew more than 80% quarter over quarter. In addition to the revenue growth, we are seeing consistent increase in sell through and relatively high inventory levels in commercial. Today, in most channels, inventory levels are below historical normal levels both in residential and commercial. On the product side, we continue to see very good acceptance of the EnergyHub backup ready inverter in the U.
S. Residential market. And in this quarter, We began shipping the EnergyHub to Australia. Later in the year, we expect to begin shipping the European version of the EnergyHub as well. I want to take a couple of minutes to elaborate on the capabilities of the EnergyHub, which make it so attractive to our customers.
As reflected in its name, the EnergyHub Inverter is designed to accommodate and control multiple energy elements of the home. For example, already today, in addition to the battery, we ship a SolarEdge EV charger as well as an electric water heater controller, all of which are controlled by the EnergyHub inverters. Homeowners manage all of these functionalities Through our recently released My SolarEdge app that has more than 2,000,000 users to date. Referring specifically to the storage capability, Our energy hub inverter is DC coupled with a battery in a way that maximizes utilization of the energy coming from the solar system. The importance of the additional energy from a DC coupled system is critical in particular during backup scenarios.
As we explained in the past, when the grid is down, a DC coupled system will harvest all of the energy generated by the modules and feed it into the battery even when the power generated by the solar system exceeds the nameplate capacity of the inverter. As frequencies and durations of outages are becoming more prevalent, the benefit of this architecture is accentuated And we see more and more homeowners benefiting from the use of this feature. In California alone in the past 3 months, more than 6,500 homes Benefited from 45,000 hours of backup energy provided by their SolarEdge system. On that note, as planned, we initiated shipments of our SolarEdge Energy Bank residential battery to the United States and Europe. The DC coupled 10 kilowatt hour battery uses Samsung SDI cells and has been designed based on our knowledge and experience For more than 30,000 SolarEdge installed systems with batteries.
The availability of our battery means that our installers and homeowners Can enjoy the benefit of high efficiency, easy installation and seamless integration with our EnergyHub inverter that optimizes self consumption while connected to the grid and maximizes power during outage events. We are gradually ramping production of the battery and plan to ship between 25 to 30 megawatt hour of batteries in the Q3. In order to meet the strong demand, we have signed an agreement with Samsung SDI for the supply of 1 gigawatt hour of cells to be provided in 2022. We are excited about this cooperation with a leading high quality cell manufacturer. From the second half of twenty twenty two, we expect to be shipping batteries based on sales manufactured in our Stella II factory In Korea, currently under construction.
Just as we have our own Cella-one manufacturing facility for inverters and optimizers, which gives us speed and flexibility for initial volume of new products, augmented by high volumes from contract manufacturers. We expect that CELETO will give us similar flexibility for cell and battery needs for our various businesses, while cooperating with Tier 1 partners and the high volumes needed to meet demand. Moving to trends in our C and I business. As anticipated, we are seeing steady growth in sales and installations of our commercial products. This coincides with the release of our new 120 kilowatt synergy inverter that is targeting both rooftops and ground mount installations.
We recently began shipping the 120 kilowatt synergy inverter to the U. S, which we believe will give a boost to our recent momentum of penetration to community solar ground mount installation segment, where in recent months we have installed more than 50 megawatts in more than 40 projects. In other regions as well, we are seeing progress in penetrating the market of small scale utility projects. For example, we have a 35 megawatt Projects currently being installed in Japan and a 77 Megawatt project in Taiwan expected to begin delivery in the Q3. Moving to our non solar business, where we reported record revenues of $49,000,000 this quarter, primarily driven by the ramp of production Powertrain units and batteries for the Fiat e Ducato in Europe.
We expect these volumes to continue and increase in the coming quarters. Also contributing to the growth in non solar revenue this quarter were initial deliveries by Kokam of batteries For the first of 2 utility scale energy storage projects, 1 in Australia. Moving to the operational side. Like other industries, our industry is also dealing with issues around component shortages, logistic costs and the impact of COVID. As we discussed on last quarter's call, from a component supply point of view, the multi store strategy we put in place several years ago enables us to meet the current and we believe future growth in demand.
At times, this comes at a higher cost due to expedited logistics. A temporary challenge is the COVID outbreak in Vietnam. As of a couple of weeks ago, production in our contract manufacturers factory in Vietnam is at a reduced level due to a government mandated lockdown. We are mitigating this short term challenge by increasing output in China, Hungary and Israel. This will require some expedited shipments and additional tariffs due to a higher portion of shipments coming from China to the United States.
All in all, based on current visibility, Thanks to the flexibility that we have built into our operational strategy, we are confident in our ability to continue and meet the growing demand we are experiencing for our products. And with this, I hand it over to Ronen, who will review our financial results.
Thank you, Sibi, and good afternoon, everyone. This financial review includes a GAAP and non GAAP discussion. Full reconciliation of the pro form a to GAAP results discussed on this call is available on our website and in the press release issued today. Total revenues for the Q2 were $480,100,000 An 18% increase compared to $405,500,000 last quarter and a 45% increase compared to $331,900,000 for the same quarter last year. Revenues from the Solar segment were $431,500,000 a 15% increase compared to $376,400,000 last quarter.
The quarter's revenue do not include residential battery shipments, which we initiated at the end of the quarter. U. S. Solar revenues this quarter were $175,100,000 and represented 40.6 percent of our solar revenues. Solar revenues from Europe were a record $200,700,000 or 46.5 percent of our revenues And the rest of the world solar revenues were a record $55,700,000 or 12.9 percent of our total solar revenues.
On a megawatt basis, we shipped 5 80 Megawatts to the United States, 7 45 Megawatts to Europe and 3 19 megawatts to the rest of the world. 43% of this amount were commercial product and the remaining 57% were residential. This quarter, our top 10 solar customers represented 61.4 percent of our solar revenues. 2 U. S.
Customers accounted for more than 10% of our solar revenues. Blended ASP increased by approximately 20.5% compared to the last quarter since the ratio of optimizers to inverters was higher than usual due to temporary manufacturing and logistic optimization. In general, The pricing environment remained stable this quarter, while for the Q3, we notified our customers of a modest price increase to support increased Freight expenses. This quarter, revenues from our non solar segments were a record $48,500,000 These record revenues were led by the eMobility division, where sales of powertrain systems to Stellantis continue to grow and by increased sales of Kokam's lithium ion batteries and sales. We expect the non solar segment revenues to continue and grow as a proportion of the total revenues in the upcoming quarters.
GAAP gross margin for the quarter was 32.5% compared to 34.5% in the prior quarter and 31% in the same quarter last year. Non GAAP gross margin this quarter was 33.9% compared to 36.5 percent in the prior quarter and 32.4% in the same quarter last year. Gross margin for the solar segment was 37.4% compared to 39.7% in the prior quarter and above our long term solar gross margin target of 36% plusminus1%. In comparison to the last quarter, Solar segment gross margin was affected by approximately 150 basis points by higher logistic costs resulting from increased freight costs. This quarter, 88% of the products imported to the United States came from non tariff manufacturing sites.
Gross margin for our non solar segment was positive at 3.3% compared to minus 4.7% In the previous quarter, due to increased production level of powertrains from our eMobility business, combined with healthy margins from the storage business. On a non GAAP basis, operating expenses for the Q2 were $81,500,000 or 17 percent of revenues compared to $76,200,000 or 18.8 percent of revenues in the prior quarter and $61,100,000 or 18.4 percent of revenues for the same quarter last year. This increase is mainly a result of increased headcount in our R and D and sales departments as well as Salary increases that came into effect on April 1. Our non GAAP solar operating expenses as a percentage of solar revenues were 15.8% compared to 17% last quarter. Non GAAP operating income For the quarter was $81,300,000 compared to $71,900,000 in the previous quarter $46,600,000 for the same quarter last year.
This quarter, the Solar segment generated an operating profit of $92,900,000 compared to an operating profit of $85,500,000 last quarter. This number represents 21.5 percent of our solar revenues and is in the midpoint of our 20% to 23% long term operating profit model. The non solar segment generated an operating loss of $11,600,000 an improvement compared to an operating loss of $13,600,000 In the previous quarter, non GAAP financial income for the quarter was $1,700,000 compared to a non GAAP Financial expense of $6,300,000 in the previous quarter due to the relatively stable foreign currency exchange rates. Our non GAAP tax expense was $10,500,000 compared to $10,100,000 in the previous quarter and $8,100,000 for the same period last year. GAAP net income for the Q2 was $45,100,000 compared to a GAAP net income of $30,100,000 in the previous quarter $36,700,000 in the same quarter last year.
Our non GAAP net income was $72,500,000 compared to a non GAAP net income of $55,500,000 in the previous quarter. GAAP net diluted earnings per share was $0.82 for the 2nd quarter compared to $0.55 in the previous quarter and $0.70 for the same quarter last year. Non GAAP net diluted EPS was 1.28 dollars compared to $0.98 in the previous quarter and $0.97 in the same quarter last year. Turning now to the balance sheet. As of June 30, 2021, cash, cash equivalents, bank deposits, Restricted cash deposits and investments were $1,100,000,000 Net of debt, cash, cash equivalents, bank deposits, Restricted bank deposit and investments were $509,300,000 During the Q2 of 2021, We generated $38,700,000 in cash from operations and continue to invest in the construction of our Stella II cell factory in Korea, as well as increased manufacturing capacity with our contract manufacturers.
Accounts receivable net increased this quarter to $343,700,000 compared to $271,700,000 last quarter. Debt sales outstanding this quarter in the solar business was 76 days, an increase from 73 days last quarter, a result of higher revenue generated at the later part of the quarter and an increase in sales to large customers that enjoy more favorable credit terms in the overall mix. As of June 30, our inventory levels net of reserves was at $321,900,000 compared to $340,000,000 in the prior quarter. Most of this reduction is related to finished good levels In the solar segment, while raw material decreased to a lower extent in the solar segment and slightly increased in the non solar segment where we continue to ramp up production. Moving now to our guidance for the Q3 of 2021.
We expect revenues for the Q3 of 2021 to be within the range of $520,000,000 to $540,000,000 Revenues of the solar segment are expected to be within the range of $460,000,000 and $480,000,000 In the Q3, we expect to ship 25 to 30 megawatt hour of residential storage systems to the United States and Europe as we continue to ramp the manufacturing of these products. We expect non GAAP gross margin to be within the range of 32% to 34%. Gross margin of the Solar segment is expected to be within the range of 35% to 37%. I will now turn the call to the operator to open it up for questions. Operator,
please. Thank We'll take our first question from Mark Strouse with JPMorgan. Please go ahead.
Yes. Thank you very much for taking our questions. Just a high level question, I wanted to ask you about the competitive environment. It sounds like from your commentary that the pricing is relatively stable. But what are you seeing as far as market share?
And can you kind of broadly speak, not just within smart inverters, but against your traditional string inverter based competitors as well, Just focusing on the solar side if you can. Thank you.
Mark, It's the tracking on a quarterly basis, the market share in this industry is tough. When there were indications That we are losing market share. We were cautious with those type of indications. And similarly, when it seems as if we are gaining I don't think we can say with confidence that we have a hard evidence to support that. The market is growing In most geographies under the current circumstances and when we look at the markets, we believe that we're growing at the faster pace In many of the markets, our focus in this regard is really About our customers, the installers that install our equipment, we believe that if they have equipment to install, especially in this environment, Chances are that they're gaining share in their respective regions or locations.
And if they're gaining share, It translates to us gaining share. So that's really the dynamic we're focusing on is to make sure that our loyal Installers have the products that they need to serve the growing demand and we believe that it is contributing positive momentum.
Okay, great. And then just a quick follow-up. As far as the 3Q Gross margin outlook goes, can you just tell us kind of what your assumptions are as far as transportation, logistics cost? Do you assume status quo? Do you think things get worse, It's better.
Just kind of what's baked in there?
So what's actually based is a combination of 2 elements. The first one is the Freight expenses, which stabilized at a higher level and right now at least we do not see a lot of ease in this area, although we do not see by the way But when it comes to the cost themselves, it's also a question of whether we will need to expedite some of the shipments Due to the fact that again customers will need more goods in order to install and we will decide to use air shipments instead of ocean freight in order to be there on time. So I think that it's not coming from the price, but actually from our decision about how much to expedite. The second area which will affect and I think Most of the if you take the midpoint now and you compare it to the gross margin level of the second quarter, which is, of course, now you see that Q3 is lower, A lot of it is also related from the fact that, as Sibi mentioned, when the Vietnam manufacturing facility Is working at reduced capacity due to the government enforced the lockdowns there. We are expanding our manufacturing in China.
We're lucky to have Areas both in Vietnam, China, Hungary and Israel, and therefore we can maneuver between them. But when you are manufacturing more in China, that means that you're paying more tariffs when you enter into the United States. And a lot of the decrease that you see in the of gross margin for the next quarter is actually coming from there. It's not necessarily just from the shipment.
Thank you. We'll take our next question from Stephen Byrd with Morgan Stanley.
Hey, good afternoon. Thanks so much for taking my questions. You had mentioned talking with customers about price increases. And I'm just curious in terms of just your views on the impacts there in terms of Customer willingness to pay that sort of contractually how that is dealt with, how do you sort of see that in terms of the impacts to your bottom line?
The impact It's not dramatic as the increase is in low single digit levels and it varies depending on the geography So in that regard, it makes the conversation very constructive and transparent. We shared with the customers the actual Increases and we are not shifting all of the additional expense to them, but we are somehow splitting it Splitting between us and the customers understand that as things return to normal, so will this Additional expense. So we have a history of dealing with our customers in a transparent way and I think it gives us credibility when we Come to them with this topic and the dynamic has been quite smooth so far.
That's really helpful. And then just shifting to storage, exciting developments in terms of your growth in storage. You mentioned that supply agreement. Is it possible to give us a sense for the volume of capacity total that you would have In 'twenty two, I mean, we're quite bullish about the growth globally of energy storage. So we see Lots of demand around the world.
I'm just curious sort of given everything you're seeing on the positive side in terms of Supply agreements, but also on the negative in terms of just all the supply chain constraints. Can you speak at a high level to sort of how you think about your overall capacity in 20Q To deliver product to customers?
So in this case actually the capacity is going to be more dependent on the We developed it from sales and we, of course, developed all of the mechanical and the packing and BMS and all of the other systems around it. But that means that Most of the work that we are doing is actually the assembly based on the sales. As we mentioned on the call, first of all, we will have the Agreement with Samsung that will provide us with approximately 250 megawatt per quarter, give or take, Because of course, there are always a little bit of the shipment changes or something like this, but in general, it should be evening across the year. And as much as we can get sales at the time that we can get sales, we can basically turn them into batteries and ship them to the field.
Thank you. We'll take our next question Philip Shen with ROTH Capital Partners.
Hi, everyone. Thank you for taking my questions. Just a follow-up there, Renan, On the storage topic, I think in the prior call you were targeting $100,000,000 to 150,000,000 of revenue in 2021 for storage and $300,000,000 in 2022. Are you able to reaffirm those targets? I know you gave, I think a 25 to 30 megawatt hour target for Q3, but was wondering if you could help translate that to the prior targets?
Sure. So as the answer the question follows the previous one, the answer actually follows the previous question as well answer as well, because Our ability to supply is basically dependent on the supply of sales from Samsung in this case and our ability to turn them into sales. What we see this year is that due to some of the logistic challenges, we are getting sales a little bit late into the year. And therefore, it's basically dependent on their arrival time and our processing time in order not only to manufacture them, but also to ship them Using ocean freight into the U. S.
And in Europe, it's a little bit more easier. So here, I'm not sure if you will be able to meet all of this capacity this year. However, Whatever capacity we are not going to utilize this year, we're going to basically turn into the next year. So if we're missing something, let's say, in Q4, it will We spill over into Q1 and since the demand at least right now seems to be higher than we can manufacture, I believe that it's just a matter of splitting it One thing to mention though, of course, is also the fact that when we talk about the next year is that to this supply agreement, We will have our own CELA-two sales that are supposed to join at the second half of the year. And again, if the demand is there, we will know How to turn those into revenues, which of course can get us to a higher number.
Thank you. We'll take our next question from Colin Rusch from Oppenheimer.
Thanks so much guys.
Given the
ratio of inverters to optimizers that you're reporting, Can you talk a little bit about the growth in the commercial sector and the size of the systems that you guys are expecting to drive a lot of the growth here in the second half?
Yes, Collyn. So indeed, the change in the ratio is also Because of growth in commercial and growth in large projects in commercial and the availability of a higher power Inverter, all of which are translating to more optimizers per inverter, Which is part of the scalability of a DC architecture like the one that we have. And actually, In some cases, specifically to this quarter, because people wanted the 120 kilowatt, the new inverter and we weren't yet at high volume, They still took the optimizers early so that they begin installing them in the field because that takes a fair amount And it's a task that is usually done first and then the inverters can follow later. So that also contributed to the A skewed ratio this quarter compared to 2 previous ones. But overall, as I discussed In the prepared remarks, we are the number of large projects that we are involved in It's growing nicely and in all geographies, not only In the U.
S. And the Europe where we were traditionally strong in commercial and Australia of course, but also in Asia Pacific and places like Taiwan, Thailand, beginning in Korea as well. So the momentum is positive and definitely we are finding Ourselves in larger and larger ground mounted installations around the world.
Thank you. We'll take our next question from Brian Lee with Goldman Sachs.
Hey guys, thanks for taking the questions. I had a couple here. First, Ronen, on the 1 gigawatt of sales from Samsung SDI in 22, I know that's not completely linear, but can you give us a sense of how much of that capacity you're to be dedicated to the resi battery storage product versus other battery products in the portfolio. And then, on the mix question, I just had a follow-up. If we look at sort of the price Per watt metrics, it seems like it's up a decent amount in 2Q versus 1Q.
I know that has some mix element attached to it. But given some of the moving parts here with respect to mix and then also the modest price increase you guys have announced here for 3Q, I guess, how should we think about volume trends? Because you've seen sort of flattish volumes on a megawatt basis. Does that sort of revert back To a more normal sequential increase into the Q3? Or are we going to continue to see sort of more muted Volume trends on that megawatt basis, just given the mix that you guys would love to understand that a little bit better for modeling.
Thanks guys.
Okay. So I'll answer 1 by 1 and if I forget anything, please feel free to remind me. So with regards to the sales coming From our supply agreement, actually all of them are going to go into our residential batteries. That means that, Of course, if there is more demand in this amount, we can utilize once the Selah II factory starts to work The Kokam sales for this business and if not, there are other independent businesses that Kokam can do with those sales, but at least the Samsung sales are all designed towards our residential battery. And we hope that it will be consumed at these levels because it's a relatively Large capacity compared to what comes today to the United States.
When it comes to the volumes, actually, again, I think that this Quarter, the ASP, as we said and we noted was a little bit, I would say, artificial because when we're calculating the ASP per watt, of course, it's based on the nameplate capacity The inverters and when we sell more optimizers, the dollars come on the revenue, but the capacity does not go in. And in general, I think that the more commercial you will see, you see more ratio of optimizers to inverters. We do expect to see volumes growing in both of them, but since you can see that at least in the last 2 or 3 quarters, even though we are improving in commercial, The ratio was lower than in the past, then the ratio of higher amount of optimizers to inverters should be maintained in a sense. The one thing to say though is that the fact that as Tivi mentioned in the previous answer, since some of this is Related to new inverters that are now just produced, we do have a little bit of shifting from, let's say, Q3 Into Q2 with the amount of optimizers. So it's a kind of a temporary jump in the number of optimizers that will go down in Q3.
But in general, the more commercial you see and the more improvement you see there, you will see better ratio of or higher ratio of optimizers to inverters. And lastly, again, when coming to the price increases, I think that the effect here is in general going to be minimal On almost all of the segments due to the fact that they are, first of all, very modest, as we said, low Single digit percentages of increase and therefore we do not expect to have major impact On ASP due to these increases. Did I forget anything?
Okay.
No, we captured
it. Great. Thank you. Thank you. We'll take our next question from Maheep Mandwali from Credit Suisse.
Hey, thanks for taking your questions. Ron, if you could just talk about, if you could Talk about the 1 gigawatt battery cell arrangement with Samsung. What's the duration and is it kind of recurring in nature and will it Support the Cela II factory production or would Cela II kind of replace this arrangement going forward for you guys?
So as we said and Loren clarified, it's 1 gigawatt hour of cells from Samsung to be supplied more or less linearly over 2022 and all to be used In our residential battery and a quick calculation will say for a 10 kilowatt hour battery, 1 gigawatt hour of sales that translates to 100,000 batteries. This is in addition to the sales that will begin to come out of our factory in the second half of the year. And as I explained, as we do also in our inverter business, we have our own factory that is of new technologies and we use lithium ion batteries in multiple segments and businesses. So we expect That Sela 2 will provide us both capacity of cells to meet additional demand on top of the contract that we signed And also the ability to introduce new products and manufacture the initial volume of those new products. So these are 2 separate sources of sales that are going into similar products In order to give us the flexibility to meet demand and develop new products rapidly.
Thank you. We'll move on to our next question from J. B. Lowe with Citi.
Hey, Zvi, Ronan, Erica. How are you doing?
My question was just a follow-up on some of the storage data you guys gave. When you're going to be selling your new product, is that going to be are you going to be selling it exclusively with a SolarEdge inverter? Are you going to be selling it to selling it into houses that maybe have a competitor in Verger already?
So it's a philosophical question that we think about, but in the foreseeable future, The demand for new installation and add on to that, the huge installed base of our own systems that is out there, Such that I think our focus will be on selling the batteries for new installations with our inverters And adding batteries to already installed SolarEdge system and less about the ability to attach The battery to non SolarEdge systems.
Thank you. We'll move on to our next question from Eric Lee with Bank of America.
Hey, thanks for taking the question. Just on storage with the 25 30 Megawatt hour expectation for 3Q, can you talk about the ramp expectations and the Sequential improvements into 2022, given the 2 50 megawatt hour availability from Samsung per quarter that you cited. Do you think about the constraining factors for ramping volumes here? Thank you.
So in general, As we mentioned, I think that since the part of the production that we do is mostly the, I would call it, assembly of the battery cells in the battery. The ramp up is supposed to be relatively simple as it's not a very, I would call it complicated or capital intensive investment that is needed by our contract manufacturers. And therefore, The ramp is mostly, I would say, determined by the supply of cells rather than our own ability to process them into batteries. I don't think that it's going to be linear because by definition, the quantity that we still have for this year coming Prior to the new agreements that will start in the beginning of 2022 are not even getting closer to the 250 A megawatt hour that we will be able to provide next year per quarter. And therefore, I would assume that you should see, I would say almost linear increase towards the end of the year from where we started.
So that means about 25 to 30 A megawatt increase in, let's say, the 4th quarter, maybe a little bit more again depends on the amount of sales. And then you will see an acceleration in Q1 that will get us up to 250. I do not expect that this will happen immediately in Q1. So I would say A kind of a linear growth of about 25 to 30 megawatts per quarter in Q3 and Q4 of ramp, Then an increase that is steeper in Q1 and then somewhere in Q2, middle of Q2 at least, we should be In a sense, stabilizing it to 2 50 megawatt hour per quarter.
Thank you. We'll hear next from Kashy Harrison from Piper Sandler.
Thank you. Good evening.
Thanks for taking my questions. So the 3rd quarter guidance implies non solar gross margins in 10%, which is a significant improvement relative to Q1 and Q2. Can you talk about what's driving the improvement in non solar gross margins? And then as you think about ways to increase value for shareholders, do you think it might make sense for SolarEdge at some point to spin out the eMobility business into a publicly traded Equity, seems like the public markets are more willing to reward standalone stocks exposed to EVs than maybe what's implied in your
Okay. So I'll start from the margin, which is the easiest question here. At least in the margin, the main issue here is ramp. Especially in the e mobility area, the fixed assets or the fixed, I would call it, means of manufacturing that we have Our putting away on the gross margin depends on the amount of vehicles and part time units that we are delivering. And We started to really deliver substantial amounts in Q1, then of course we grew in Q2 And we expect to see steady growth towards Q3 and Q4.
And that means that over these next quarters, This will actually generate a situation where all of these fixed amounts will be spread over much larger amount of units, Of course, improving the margins. In addition to this, we also believe that there is a growth that we see in the Lithium ion business of Kokam that is already characterized with a healthy gross margin. And the combination of 1 The shrinkage of the negative effect of the e mobility plus the increase in the battery that is coming with very good Margins, at least at this stage, will help us to get to this, I would call it, positive and Higher single digit to low double digits of gross margins on all of the non solar. As of splitting the business of the eMobility, at least today, we're not looking at the short term, I would call it optimizations just by the way that the capital markets are working. We truly believe that For the long term and this was the reason that we acquired the eMobility division to begin with is that having a company that is Basically, specializes at energy, smart energy management and energy conversion and being able to have a one stop shop coming from the generation of electricity Into the, I would call it, storage of electricity up to the utilization, not just by our eMobility business, but also by our Critical power businesses that will grow, this all provides much more value to the shareholders as well as one company at least as we see it today.
Thank you. We'll take our next question from Jeff Osborne with Cowen and Company. Please go ahead.
Good afternoon, guys. Just two quick ones on the storage side. Can you talk about whether you expect the initial customers to be more Tier 1s Selling direct or would you be selling through distribution is part 1 of the question. Part 2 is, can you talk about what efforts you're doing are already underway around training and Commissioning, those are two factors that have stunted growth of other new entrants in the space. I'm just curious how you can overcome that?
So the answer to the first question, like many of the other questions, is both. And we also mentioned that we already Our running in parallel both in Europe and the U. S. So it's also direct to some Tier 1 customers and also through distribution. And the answer to the second, we didn't want to elaborate it I'll elaborate on it too much, but we did we are employing a mechanism of both training and certifying Installers prior to enabling them to install a SolarEdge battery and a system to monitor and control So that the installations are done properly and with high quality.
And of course, in the first wave of installations, We will make every effort to have our people participate to the extent possible to give not only theoretical But also hands on and accompany the installers during their first experience with the battery. And this is on the basis of the system that we've been employing for training on The solar or the inverter equipment for years and it's just a bit more deep and a bit more restrictive In the fact that we require to be certified prior to executing an installation.
Thank you. We'll take our next question from Moses Sutton with Barclays.
Thanks for taking the questions. Can you confirm on the storage product, just to continue on that? It's all fully certified UL and Anything else? It's entirely clear to shift widely.
Yes. So the battery has the required to be installed indoor and outdoor in Europe and the U. S. And I think the listings are either up or will be up Certainly, I didn't check lately, but the certifications are in that enable those type of installations.
We'll hear next from Joseph Osha with Guggenheim Securities.
Hi there. I'd like to ask a question, not about storage. You had talked previously about how the automotive business might get $120,000,000 and change or so this year and maybe double next year. Curious in particular as to whether that rough target Soul Sands for next year. And then to return to some of the questions in margin, the hope that maybe as we get out of next That we might be kind of into the low single digits gross margin.
Wondering if you can comment on those expectations. Thank you.
So first of all, with regards to the quantity, we mentioned the $100,000,000 to $120,000,000 for this year. We feel Comfortable with this and of course since the we said that the year was mostly characterized this year With growth, that means that, yes, once we stabilize on the higher levels, of course, we can increase this amount in the next year. We need to remember though that, of course, this is also an issue of the orders that Stellantis will have to the car itself, because the fact that we can actually Manufactured doesn't mean that it has customers. We believe that it has and they are nice customers for this vehicle. But I think that this will Be the thing that will determine the most what are going to be the revenues and at least right now, we do not see a problem Meeting the numbers.
And I forgot, Joe, the second part of the question.
Just looking at gross margin, I think you guys I've said that that business is probably running at a negative gross margin right now, but wondering if you can comment On what the trajectory of that is and whether it might get to sort of gross margin breakeven as we move through next year?
So the answer is yes in this case. First of all, this is a project that in many senses we inherited when we acquired the eMobility division. And I would say that it was seeded before we acquired the company and when we came to actually fulfill it, we found that we need to Make this product more of automotive grade from quality, reliability and safety and therefore added a lot of cost. And in a sense, When we came to this project, the cost the price was already locked. The cost was the only thing that we needed to increase in order to make it A safe product and therefore we're relatively, I would say, at low margins when we go to full capacity in this project.
It is a profitable project, though, once you go into mass production, it's the levels that Stellantis and I and we agreed upon because in general, we do not believe that you should do business where you're losing on every unit that you're shipping. So in a sense, The negative margin today is a kind of a learning curve that we have. It is not going to be an extremely profitable project as a whole As long as we stay with this specific configuration, but at least once we go get to the end of the year or starting of next year when we Level at the desired, I would call it level by Stellantis, this should be a positive single digit low single digit project.
Thank you. We'll now take a follow-up question from Moses Sutton with Barclays.
Just a quick follow-up on one of Jeff's questions. How many initial or beta systems have actually been installed for the storage, perhaps in total or in terms of how many installers have at least installed 1?
It's in the range of 10, but we're not giving the specific number.
Thank you. And that does conclude today's question and answer session. I'd like to turn the conference back over to Mr. Landau for any additional or closing remarks.
Thank you and thank you everyone for joining our call. I just want to take this opportunity to thank our customers, employees and Thank you for their support during this period. And while I'm satisfied with our performance and results, I'm even more excited about the opportunities that are ahead of us. So thank you all again and have a good day.
Thank you. That does conclude today's conference. We do thank you all for your participation. You may now disconnect.