Canadian Solar Inc. (CSIQ) Q2 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Canadian Solar's Second Quarter 2025 Earnings Conference Call. My name is Daryl, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Wina Huang, Head of Investor Relations at Canadian Solar. Please go ahead.

Thank you, operator, and welcome, everyone, to Canadian Solar's Second Quarter 2025 Conference Call. Please note that today's conference call is accompanied with slides, which are available on Canadian Solar's Investor Relations website within the Events and Presentations section. Joining us today are Dr. Shawn Qu, Chairman and CEO; Yan Zhuang, President of Canadian Solar subsidiary, CSI Solar, Ismael Guerrero, Corporate VP and President of Canadian Solar subsidiary, Recurrent Energy; and Xinbo Zhu, Senior VP and CFO. All company executives will participate in the Q&A session after management's formal remarks. On this call, Shawn will we go over some key messages for the quarter. Yan and Ismael will give business highlights for CSI Solar and Recurrent Energy respectively. Xinbo will go through the financial results. Shawn will conclude the prepared remarks with the business outlook, after which we will have time for questions. Before we begin, I would like to remind listeners that management's prepared remarks today as well as their answers to questions will contain forward-looking statements that are subject to risks and uncertainties. The company claims protection under the safe harbor where forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections of the company's future performance represent management's estimates as of today. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law. A more detailed discussion of risks and uncertainties can be found in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Management's prepared remarks will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP. Some financial information presented during the call will be provided on both a GAAP and non-GAAP basis. By disclosing certain non-GAAP information, management intends to provide investors with additional information to enable further analysis of the company's performance and underlying trends. Management uses non-GAAP measures to better assess operating performance and to establish operational goals. Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP. And now I would like to turn the call over to Canadian Solar's Chairman and CEO, Dr. Shawn, please go ahead.

Thank you, Wina, and thank you all for joining our second quarter earnings call. Please turn to Slide 3. In the second quarter, we delivered 7.9 gigawatts of modules near the end of our guidance -- near the high end of our guidance. Storage shipment reached 2.2 gigawatt hours below guidance due to tariff impacts, which shifted deliveries into the second half. Revenue totaled $1.7 billion for the quarter also impacted from certain project sales delay. Gross margin exceeded guidance at 29.8%, driven by a higher mix of North America module shipments with notable contributions from our Texas module factory, which has made strong progress in ramping up. Robust storage performance further supported margins. Profitability was weighted down by certain nonrecurring operating expenses, including the impairment of remaining legacy manufacturing assets. As a result, we reported net income attributable to shareholders of $7 million or a net loss of $0.08 per diluted share due to the [ PIK ] accounting for our preferred shareholder of recurrent. Over the past few months, our industry has faced a challenging policy environment. While the industry continues to adjust to the recently passed One Big Beautiful Bill Act, I would like to discuss some potential impacts at this time. Please turn to Slide 4. The One Big Beautiful Bill Act has swacking implications for both supply and demand in the U.S. On the supply side, solar and storage domestic onshoring is challenged by increasingly strengthened FEOC requirements and higher import duties on both equipment and components. According to Wood Mackenzie, up to 23 gigawatts of operating solar module capacity could be affected. Cell capacity, which requires more complex manufacturing process and higher capital expenditure could also moderate. On the demand side, outlook across solar, energy storage and distributed generation appear mixed. Other than projects that have been safe harbored, the Investment Tax Credit, or ITC for solar will phase out by the end of 2027. Meanwhile, energy storage project must navigate annual FEOC threshold to maintain developer credits. Despite this near-term uncertainty, the long-term outlook of our industry remains strong. AI, cryptocurrency and other energy-intensive applications are driving rising electricity demand and solar plus storage is among the most cost competitive solution to meet this demand. Future growth will continue to be underpinned by solid fundamentals. As with challenges we have overcome in the past two decades, we believe that a new paradigm creates new opportunities. Today, every part of our business is deeply engaged in the U.S. market. We deliver both solar and storage solutions across utility scale, C&I and residential applications. We are a domestic manufacturer and a local project developer. We remain committed and will do what is necessary to continue prioritizing this market. Another ongoing commitment is our focus on sustainability. On May 29, we released our 2024 sustainability report. Please turn to Slide 5. We are proud of our continued progress in our sustainability journey and reporting standards. In 2024, Canadian Solar reduced greenhouse gas emissions, energy, water and waste intensities by 54%, 37%, 75% and 53%, respectively, compared to 2017 levels. Consistent with our commitment to improving our environmental footprint, we increased the percentage of recycled and reused waste to 94% in 2024, while maintaining 100% recycling or reuse of all packaging materials used in our production process. We also continue to uphold the highest standards of ethical business conduct across our supply chain. After receiving Silver-level recognition in 2023 for the RBA VAP audit of our Thailand module facility, we achieved another Silver-level recognition this year for our solar cell factory in Suqian, Jiangsu Province, China. In 2024, we conducted 147 supplier ESG audits, including 31 on-site evaluation, surpassing our 2023 totals. Following collaborative consultations and corrective action plans, all suppliers met our stringent ESG criteria. With that, I will now turn the call over to Yan, who will provide more details of our CSI Solar business. Yan, please go ahead.

Thank you, Shawn. Please turn to Slide 6. In the second quarter of 2025, module shipments reached 7.9 gigawatts, near the high end of our expectations. Energy storage deliveries were below guidance due to tariff impacts shifting some shipments to the second half. Despite this, we still delivered one of our strongest quarter with 2.2 gigawatt hours of storage shipments. Revenue reached $1.7 billion, with gross margin expanded 890 basis points quarter-over-quarter to 22.3%. This increase was primarily driven by a stronger mix of North American module volumes and the installation surge in China, which increased both industry-wide volumes and pricing. As a result, we achieved a sequentially higher average selling price in our module business. Strong storage volumes and healthy margin further reinforced gross margin performance. Given the phase-out of legacy PERC technology, we wrote down our remaining related assets, together with other smaller nonrecurring items. Operating expenses rose sequentially from 13.2% to 15.3% of revenue, and we delivered $121 million in operating income. Although costs in the module business remained stable in the second quarter, we are now seeing rising supply chain costs, driven by the anti-involution campaign in China. Combined with tariffs, duties and the incremental impact of underutilization, these factors will raise unit costs in the second half. While module pricing shows signs of improvement, we expect price increases to lack rising costs, creating pressure on module profitability. We expect additional pressure from normalizing storage margins. The cost benefit from decreasing leasing carbonate prices, which supported gains in 2024 and the first half of this year is now tapering off. For more details on this business, please turn to Slide 7. In the second quarter, In the second quarter, we recognized revenue on 2.2 gigawatt hours of storage solutions with sizable deliveries to customers in Europe, North America and Latin America. Due to tariffs, some opportunities shifted into the second half and 2026. Importantly, these are not lost opportunities. Demand remains robust, and we continue to actively support customers in navigating trade-related uncertainties. As of June 30, contracted backlog, including long-term service agreement, was $3 billion. To support our growth, we are expanding our globally diversified capacities from 10 gigawatt hours of BESS and 3 gigawatt hours of battery cell today to 24 gigawatt hours and 9 gigawatt hours, respectively, by 2026 year-end. The expanded BESS capacity will enable us to scale shipments as needed from quarter-to-quarter with additional headroom if we add working shifts. Our battery cell capacity also strengthens our upstream strategy by helping us manage risk across cycles while providing customers with greater supply chain flexibility. The market is growing quickly, and we are scaling alongside it. To remain competitive, we must continue to uphold the highest safety standards and drive product innovation. Please turn to Slide 8. In June, we successfully completed large-scale fire testing for our SolBank 3.0 energy storage system. The test confirmed that our system meets key fire safety criteria by containing thermal events within the single enclosure. The results were independently witnessed and verified by both CSC Group and the Energy Safety Responses group. In residential storage, EP Cube won the Japan International Pioneer Design Award for IDPA in the electrical products category. This award was established in 2018 in Tokyo and has since become one of the most influential international design awards for pioneering design globally. This quarter, our proprietary residential energy storage system also earned the prestigious RedDot award, often described as the Oscars of industrial design. These recognitions are in addition to the iF Design Award and the MUSE Design Gold Award that EP Cube received earlier this year. EP Cube has made strong progress in its target markets. Since we earned the prestigious JET compliance certification, shipments to Japan have surged, now approaching 1,000 units per month. We're also steadily advancing in Europe and the U.S. We expect significant growth ahead in this business, and we continue to develop other emerging profit drivers such as bundled cell solutions. With that, let me hand the call over to Ismael, who will provide an update on recurrent energy, Canadian Solar's global project development business. Ismael, please go ahead.

Thank you, Yan. Please turn to Slide 9. In the second quarter, we generated $106 million in revenue. Revenue was sequentially lower, primarily due to lighter project sales. We monetized over 200 megawatts of projects in Europe and Japan, including our first profitable sale of a battery storage project in Italy, while a large project sale in Latin America shifted into the second half of the year. Gross margin was 32.4% reflecting healthy project sales returns and a stable margin in electricity sales from our operating portfolio and growing power services business. The solar power system write-down in Latin America, combined with other nonrecurring expenses, led to elevated operating expenses and an operating loss of $74 million. We remain focused on disciplined execution while managing ongoing trade and policy risks. We energized our first merchant 200-megawatt hour for Duncan storage project in Texas. Despite Duncan being a merchant storage project, we were able to secure both project finance and tax equity for this project. Within the quarter, we also achieved an important milestone at Blue Moon Solar in Kentucky, closing $260 million of project financing and tax equity. The offtake for this project is Constellation who will purchase power and renewable energy certificates generated by this nearly 100-megawatt facility. Please turn to Slide 10 for an update on our pipeline. As of June 30, 2025, we own interconnections for 8 gigawatts of solar and 16 gigawatt hours of storage globally, excluding projects already in operation. Our total pipeline now stands at 27 gigawatts of solar and 80 gigawatt hours of storage. In the U.S. and Europe, we have 500 megawatts of solar and about 1.7 gigawatt hours of storage already in operation. Meanwhile, we are building more than 1.3 gigawatts of solar and 600 megawatts of storage in these markets as we speak. This positions us with one of the largest and most globally diversified pipelines in the industry, giving us significant runway to grow in the future and the flexibility to focus our resources to advance the most attractive projects and markets. In the U.S., we have already safe harbored 1.6 gigawatts of solar projects that are in execution or late-stage development. We continue to execute our safe harbor strategy on an additional 2.3 gigawatts of solar through off-site start of construction, providing both increased flexibility over the coming years and a competitive advantage as U.S. assets gain value under the updated tax credit policies. At the same time, we are expanding our battery storage pipeline, particularly in the U.S., Europe and Japan, where we already hold a strong market positions. Our O&M business continues to gain traction with 10.5 gigawatts currently in operation and 3.2 gigawatts contracted coming into service in the next quarters. Finally, we are advancing development of our data center sites in both the U.S. and Spain, where we expect to have the first products ready within the next few quarters. Now I will hand the call to Xinbo to review our financial results. Xinbo, please go ahead.

Thank you, Ismael. Please turn to Slide 11. In the second quarter, we delivered 7.9 gigawatts of modules near the high end of our guidance. We shipped 2.2 gigawatt hours of storage, below expectations due to delayed shipments. With the additional impact of delayed project sales, total revenue was $1.7 billion. Gross margin was 29.8%, elevated by a sale type fee is related to a U.S. project and AD/CVD to our adjustments. Excluding this onetime impact, gross margin would have been 21.6%, sequentially higher due to a stronger North America module mix and the storage volumes. Operating expenses increased to $378 million, primarily due to nonrecurring items, including impairment charge related to certain solar and storage assets as well as manufacturing assets. Without these items, operating expenses would have been $259 million or 15.3% of revenue compared to 16.3% in the first quarter. Net interest expense rose from $28 million in the first quarter to $35 million, reflecting higher borrowings and recurring energy and lower interest income. Net foreign exchange loss was $13 million, primarily driven by dollar weakness. Net income attributable to shareholders was $7 million or a net loss of $0.08 per diluted share. This result included a positive $30 million HLBV impact or $0.45 per share from tax equity arrangements tied to certain U.S. projects. $0.19 per diluted share of preferred dividend impact led to the diluted loss per share to shareholders. Please turn to Slide 12 for cash flow and the balance sheet. Net cash inflow from operating activities was $189 million, compared with an outflow of $264 million in the first quarter. Cash inflow was primarily driven by change in working capital, specifically a decrease in inventory. Total assets grew to $14.8 billion with project assets rising to $1.7 billion. Solar power systems and battery energy storage systems now stand at $2 billion. CapEx totaled $173 million, mainly reflecting payments for existing capacities. Our full year 2025 CapEx outlook remains unchanged and approximately $1.2 billion, primarily driven by investment in U.S. manufacturing initiatives. Total debt increased to $6.3 billion, mainly due to new borrowings for project development and operational assets. We closed the quarter with a cash position of $2.3 billion. Looking ahead, we remain focused on disciplined debt management and prudent liquidity oversight, aligned with industry dynamics and our financial fundamentals. In light of ongoing profitability pressures in both manufacturing and the project development businesses, we expect to gradually reduce leverage from current levels over the next month. Now let me turn the call back to Shawn, who will conclude with our guidance and the business outlook. Shawn, please go ahead.

Thank you, Xinbo. Please turn to Slide 13. For the third quarter of 2025, we expect to deliver module volumes between 5 to 5.3 gigawatts. For energy storage shipments, we expect to deliver 2.1 to 2.3 gigawatt hours, including about 250-megawatt hours to our own projects. We project third quarter revenue to be in the range of $1.3 billion to $1.5 billion, with gross margin expected to be between 14% to 16%. Sequential lower margins reflect the impact of rising solar manufacturing costs, driven in part by supply chain price increases and normalizing storage margins. For the full year of 2025, we are narrowing our module volume guidance to 25 to 27 gigawatts, including approximately 1 gigawatt to our own project. The reduced midpoint of our module guidance primarily reflect our self-restraint, which results in a decision to reduce exposure to less profitable markets. For energy storage shipments, given increased near-term visibility in the trade environment, we are maintaining our storage shipment guidance of 7 to 9 gigawatt hours for the full year of 2025, including approximately 1 gigawatt hour allocated to our own projects. We are revising our full year revenue guidance to between $5.6 billion and $6.3 billion. This reflects the delay of certain project sales into 2026 and more conservative module pricing in the second half, driven by weakening demand in China. With that, I would like to now open the floor for questions. Operator?

[Operator Instructions] Our first questions come from the line of Colin Rusch with Oppenheimer.

Can you talk a little bit about the PERC write-down here and the impact ultimately on margins? I'm just trying to get a sense of how much that really impacts from a percentage basis on your margin sale or on your module sales. Does that start to look like 2 or 3 points or it's a little bit more than that?

Well, we decided to write off pretty much all of our PERC equipment asset this quarter because in Q2, we stopped the manufacturing of PERC product. So we think this is the right time to write-off. Now the write-off was -- I believe, was quite a big impact. Yes, it's $46 million.

Okay. I'll follow up on the manufacturing afterwards. Just with the treasury rules that have come out, I think everybody is trying to understand how developers are going to approach their safe harbor and strategy and qualification. Can you guys give us a sense of where you're at from a safe harboring perspective? What you're seeing from any of your customers on the module side and how you anticipate some of the enforcement realities for the industry, given just your first look in less than a week of being able to evaluate the new rules?

Yes. Colin, as you know, our subsidiary Recurrent is a long-term player with 20 years of operating in the U.S. market. So we have been safe harboring several times because ITC reached the debt line several times in the past 10, 13 years. Every time we approach the deadline, we safe harbor. So we are very -- we are very familiar with the rules. So -- and we are pleased to see that the newly released guidance -- the new guidance for the safe harbor pretty much confirms that our standard strategy for safe harbor is correct and also is prudent. So our current safe harbor project, we see no change. And as Ismael said in his speech, we are safe harboring a little bit more. Well, actually, we're safe harboring 2.3 gigawatt more of project, so if Recurrent achieve this goal then 1.6 plus 2.3, 1.6 plus 2.3, We will be able to safe harbor somewhere close to 4 gigawatts. So that will give us a very strong pipeline in U.S. 4 gigawatts is almost equal to 1 gigawatt each year. So you can see that for 4 years safe harbor is pretty significant. This shows our strong ability -- Recurrent the strong ability and very solid practice in the development procedure. As for the whole industry, that's a good question. Our -- we have been [ setting our antenna up ]. And -- but it has only been a few days. So I don't have that much industry-wide safe harbor information. However, I would say for the developers who have similar experience, they should see the same thing as Recurrent. So I think the industry has believed that at least their work so far has been recognized. Ismael, you want to add some more color?

Thank you, Shawn. Look, I think, Colin, thanks for the question. I think we've been a little bit lucky too because many of our projects have local community others. So we started to safe harbor to make sure that we enjoy those others. And as a result, we have a pretty advanced pipeline of safe harbor already online. And we always use the offside start of construction. So it looks like the current regulation is not changing that. So we've been a little bit lucky this time.

Our next question has come from the line of Philip Shen with ROTH Capital Partners.

This is Matt Ingram on for Phil. Given the OBBB and FEOC in the U.S., do you believe Canadian Solar and its subsidiaries are currently FEOC-compliant? If so, could you please give some details around what gives you confidence? And then if not, like what steps are you taking to comply with FEOC? And then lastly, on FEOC, how are you planning for potentially stricter FEOC IRS guidance that could come out sometime next year?

Mark, thank you for the question. I kind of expected this question. Now as you know, OBBBA have different FEOC requirement for different years. So based on that yearly FEOC requirement, yes, Canadian Solar is compliant with OBBBA requirement at this moment and we will continue -- we believe we will continue to be compliant for the future years. As you know, every year, the FEOC condition change, including the percentage change. So we have a plan to make sure that the Canadian Solar has 3 factories, which is solar module factory, solar cell factory and also the energy storage factory continue to meet the OBBBA requirement this year.

And just on potential guidance, they're going to release guidance on the FEOC restrictions and those potentially could be a little bit stricter than kind of the language that's in the bill. How are you guys planning for that kind of situation?

Well, we -- our internal legal team, accounting team and the external teams have debated and due diligence in past more than a month, ever since July 4 when the OBBBA was signed to law, we have been studying and debating and doing due diligence. So we think our understanding of the bill is pretty conservative. And while there may be some change or some clarifications of the guidance, well, I mean the IRS guidance might clarify some of the point. And -- but I believe as long as those are the guidance to interpret the OBBBA, it can't change very much from the legal language itself in the bill. Therefore, we believe some, a little bit more restrictive, a little bit less restrictive guidance from IRS will not change our judgment call. So I think our current strategy is quite solid so that we can -- first of all, we make sure our customers will be able to claim their ITC because our shipment meet the OBBBA rule of that particular year. And also our factory, 3 factories in U.S. will be able to claim the 45X for any of the particular year.

Great. Really appreciate the color there, Shawn. If I could just squeeze in one more on policy. Given like the upcoming Section 232 case on polysilicon and its derivatives as well as it seems like they're reinforcing USLPA Qcell's getting recently detained. How are you guys looking at your upstream supply chain and maybe different strategies there for the U.S. capacity?

Well, you probably know that Canadian Solar filed our comment to the Department of Commerce for the Section 232 polysilicon. And I believe you can get access to our filings through url or whatever. So basically, we believe that polysilicon for solar is not a national security concern because I don't think U.S. even want that much solar anyway. So why is solar grade polysilicon a national security concern, the country have enough coal, oil, gas, everything, right? The country is very fossil fuel plenty. So that based on that, we don't feel like polysilicon for solar is -- should be a national security concern. However, we are waiting for the process to run to the end. And at this moment, I don't want to speculate.

Our next questions come from the line of Maheep Mandloi with Mizuho Securities.

Maybe one more on the FEOC side. I appreciate the color there. But could you just talk more about the 45X eligibility for the U.S. assets -- the U.S. manufacturing line, the strategy to be compliant there? Or do you need more information from treasury guidance to help with that? And then I have a follow-up basically on tariff.

Yes. Well, I think our team, including our internal legal team and our external consults believe that OBBBA is quite clear in terms of the FEOC and the material assistance definition requirement. So we pretty much understand the meaning of those language and clauses. As I mentioned, that the IRS guidance may clarify a few points, but so long as those guidance follows the language in the OBBBA itself, then I think our strategy is we have a good understanding. Therefore, our assessment is solid. And for 45X, both the 45X and for energy storage and for solar will continue according to the previous schedule. As you know, there's no change on the -- like in terms of the schedule, in terms of the time frame and also the run down schedule of those incentives. And however, there are different material systems table for each year. So we just have to -- every year, we do our due diligence and calculate and just to make sure that our products meet those tables. And fortunately, solar as a global manufacturing. Energy storage is also more or less a global manufacturer. So there are suppliers of the key material for both solar and for energy storage from several different countries. So I believe that gives us the ability to navigate the navigate and to meet to comply with the material assistance requirement, the percentage for each year. Now you mentioned IRS guidance. Well, people have been speculating how much -- maybe the IRS guidance can help people a little bit. For example, IRS published a table for the domestic content in the past, which stop guessing each component, the guidance specified percentage. So it makes the job easy and also standardize it. So we will see whether the IRS guidance for material assistance follow the same path or maybe follow a different path. So for me, that's something we are waiting to see. If somehow they follow the same path, well, they stop, then at least everybody will use the same table. But maybe we will follow a different path for material assistance. So that's something we are waiting to see. However, the -- as I said, the OBBBA itself is already quite clear. For example, it defines the component like to be, for example, over 60% for 2026 for energy storage and I believe 55%, right, or 50% for solar. So that's pretty clear. Any company who have employed a few capable content can do their calculation. So yes, just with this language, we can already calculate our percentage. But if IRS instead publish a table for everybody to use that also work -- so I think one way or another, we already calculate, look at our product. We think our -- so far, at this moment, our percentage will be way over above the minimum requirement for the next few years. So that's why I think we are -- we have a good strategy to be OBBBA compliant.

A bit of color on the materials, Shawn. Let me just like a quick one on the 45X to get that. Do you anticipate reducing CSI Solar's ownership in the U.S. manufacturing? Just trying to understand like the strategy there and the time line on when to expect any changes in the structures of the U.S. manufacturing business?

Yes. This year, we don't have to -- our structure compliance. Next year and the year after, we will -- ever many company will have to do something to make sure they always comply with the OBBBA. Canadian Solar will do the same. As I said, we have a strategy. So we will be able to be -- we will be -- I think we have a solid strategy to be OBBBA compliant every year.

Got it. I'll take rest offline.

Our next question has come from the line of Alan Lau with Jefferies.

I would like to ask on -- there was a meeting in China, I think it was probably on Tuesday in the Ministry of Industry and Information Technology. So first of all, I would like to know if Canadian Solar has participated in that meeting? And then secondly is, do you think the price hike in China would lead to price hike in the rest of the world as well?

Canadian Solar representative -- well, the Canadian Solar China factories have received invitation, so we sent representative to the meeting. And the government in Beijing is trying to resolve the -- some of the -- like the supply-demand balance issues. So I think it's a good approach. And this is -- also, I think this is what other countries has been expecting China to do. So I'm glad that the Chinese government got the message and start to work with the industry to put a better balance of supply and demand.

So I heard there was clear guidance on a higher module price after the meeting. So -- because in the results briefing, I remember we mentioned that we expect this manufacturing cost hike, I guess, it's the cost hike in polysilicon and wafer. But if module prices are higher, do you think that would actually improve your margins?

Well, I think Yan answered your question. Yan said, we have seen upstream material price increase. I'm not going to say hike, how much, we saw some increase, especially the polysilicon and wafer. And Yan said, we expect the module price to go up or maybe lack the movement of the materials. Yan, do you want to...

Yes. So there's no top-down minimum pricing on module. However, there's an industry -- there's companies volunteered to actually put out some more discipline on pricing, some predefined price, but that's not a top down. And the execution for that price was not carried with high efficiency. So I have to say, so it's basically still mostly market-driven. The upper stream is actually price went up because it's easier for upper stream because of the lack of a number of players. So that's why I said module price likely to go up as well, but maybe not as much as the upper stream.

[Technical Difficulty]

Sorry, you were breaking. We can't hear you.

Can you hear me?

Yes, now it's clear.

So I would like to know your view on the U.S. solar demand because President Trump yesterday has posted that kind of he would not approve any projects, et cetera. So how do you think like the demand in U.S. and how much projects might be affected with the federal land approval requirement?

I don't know. Well, we're not a market survey company. So you are asking the wrong person and I don't want to comment. On White House speech also, I don't want to comment.

Our next questions come from the line of Vikram Bagri with Citi.

I apologize in advance for asking another question on FEOC, but the press release mentioned that there has been some pushouts and I saw that the storage backlog declined marginally also in second quarter. I didn't see a pipeline number in the presentation. I was wondering if you saw any cancellations in the quarter? And if there is a common theme that explains the pushouts/cancellations in the quarter, is FEOC playing a role? Are customers asking for confirmation of compliance in a contract before signing a contract? And that's sort of like creating an uncertainty or slowdown in backlog bookings? If you can just explain the pushouts and cancellations and if it's somehow related to FEOC.

The new FEOC requirement also take effect next year. So this year's project is a project, which reached COD this year, and there's no new FEOC requirement. So -- however, I mean, we mentioned that there are some projects pushed to second half due to tariff issues. So tariff is different from FEOC. I also want to clarify that our pipeline didn't go down. We delivered 2.3 gigawatt hour, but we add new pipeline. Our new energy storage pipeline, in terms of dollar value actually went up a little bit. You can find that in our press release.

So actually, we do have some major deals that is at the very last stage of negotiation. So there's some big numbers there.

Got it. And as a follow-up, you mentioned that the storage margins without the benefit of falling lithium carbonate pricing have been normalizing. Historically, you've mentioned 20% margins and later on, 15% to 17% margins. Is the second half lower than 15%, any indication on current margins or margin on backlog would be helpful?

We are working on 20% as a target.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to management for any closing comments.

Thank you for joining us today and for your continued support. If you have any questions, or would like to set up a call, please contact our Investor Relations team. Take care, and have a great day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. enjoy the rest of your day.