Meyer Burger Technology AG (MBTN) Earnings Call Transcript & Summary

Yes. Good morning, ladies and gentlemen. I welcome you to our analyst conference call on Meyer Burger's announcement to open a solar cell manufacturing facility in Colorado Springs. [Operator Instructions] So after Gunter's presentation, we will also have a Q&A session. [Operator Instructions] So with that, I would like to hand over to Gunter, please.

Thank you, Alex. A warm welcome also from my side, Gunter Erfurt speaking and also greetings from Colorado Springs, 2:00 in the morning. Pretty excited about the announcement of today. And we will run you through a few slides, give some explanations about the rationale of this move. And also business review and business outlook, we have communicated some preliminary H1 figures, and we will leave enough room for your questions. So this is the building. I hope you can see this. This is our new solar cell manufacturing site in Colorado Springs in the state of Colorado. It's been used by Intel beforehand as a semiconductor facility. It is large enough to have the capacity for the 2 gigawatt we currently need for our facility in Arizona to take the solar cells produced in Colorado and shipped them to Arizona and exclusively use them to feed the production lines there. But the building very likely can also absorb more capacity looking forward. Why a brownfield building? The reasoning behind is that we have taken the new guidance of the U.S. Treasury into account, which was communicated in May, such that solar cells domestically produced in the U.S. are required and the necessity to qualify for the additional ITC tax adder for our customers. And this has generated the momentum and we were looking into continuing our successful brownfield strategy, which saves time, which saves CapEx, and the building is as much as we -- as one can say for brownfield building, it's an ideal opportunity and also Colorado Springs and the entire region is well known as a tech hub and also provides us the ability to find enough personnel for this site. What does it do? It will directly generate 350 jobs in the first place and potentially more as we move on. We are producing almost 1.5 million solar cells there once the factory is up and running. And as I said, the cell production is exclusively used for Meyer Burger's own solar module manufacturing in Goodyear, Arizona, resulting in about 10,000 solar modules in the U.S. And as we have previously communicated, the majority of this volume is already part of offtake agreements from 3 esteemed partners and customers, which are DESRI, Ingka/IKEA and BayWa re: for their U.S. business. And the smaller portion of this facility will feed the U.S. residential segment. As we also had communicated, which is publicly known, the United States have done a great job in both incentifying the reshoring of manufacturing and in particular, the reshoring of manufacturing in the clean tech sector on the one hand and as well as the government implemented the measures that also protect the industry that's being erected and protect the inner market in the U.S. And it seems to be a perfect match for a company like Meyer Burger with our ability to produce solar cells. There are not so many outside of China that can do this. And in terms of the financial package, we are receiving from 2024 through 2032 or are at least eligible for. It's amounting to approximately USD 1.4 billion, of which the largest part is coming from the Inflation Reduction Act money. By moving the solar cell to the U.S., we are adding $0.04 per watt peak for every module produced and sold in the United States, which will be an EUR 0.11 per watt peak for the Meyer Burger setup. We had previously communicated that under the offtake agreement with our partners, we are sharing in some part of the module-related Inflation Reduction Act, which is $0.07. So a few cents from it are being shared, the exact number we have kept under confidentiality. But the important thing is the additional $0.04, which is USD 80 million for 2 gigawatts per annum, this is not being shared at all. So this remains fully with Meyer Burger and helps the future growth in the financing of the company. In addition to that, we will be receiving other incentives from the City of Colorado Springs and from the State of Colorado, plus we are in the process of applying for a department of energy loan under the DOE loan program, which comes at preferable terms compared to the market, and we anticipate that these funds will be available also in 2024. And the -- out of the USD 300 million, here, we have it in the split, about USD 90 million at least are coming from local incentives by the City of Colorado and the State of Colorado, which we are very, very thankful for. So the reason why we can fast track this project on the one hand, because we have to because we have offtake agreements in place, which are starting to be observed from 2024 around midyear. We are expecting to start producing in the Goodyear facility. And if we had to build a solar cell facility from scratch greenfield, that would take much, much stronger. Here, we have the existing building. Here, we have a building that formerly did semiconductors, which means that also facility utility requirements are pretty similar to solar cell manufacturing. It's a great fit to be fast. But more important, we have the ability to halt the already announced project in Germany, the additional 2 gigawatt, which we had planned to integrate in the former Solecross building in our location in Thalheim, also brownfield. And we basically reroute the already ordered equipment now to Colorado Springs and use the identical equipment. And since this equipment is already in the making, we are not losing too much time except, of course, of shipment and the preparation of the facility. So we believe that we can start with a little lag between the module factory and the solar cell facility in the U.S. For the ramp-up of the Goodyear facility, the solar cell supply is secured because this will be coming from our Germany facility and then we can smoothly move into ramping the solar cell facility in Colorado and then provide the solar cells from here to the Arizona facility. It does not mean that Meyer Burger is stopping its activities in Europe. We have just recently communicated that we were awarded the EUR 200 million from the Innovation Fund. We were selected -- our project was selected. Now we are working with the European Commission on all the grant agreements and all the elements that are required from an administrative point of view. But we are very optimistic also on Europe initiatives to restore the clean tech sector that comes with, for instance, the EU Innovation part -- Innovation Fund. That's one part. The other is the so-called TCTF funding that we have already communicated about, which was enabled by the European Commission in March and the Federal Government of Germany has now started a tender process, that Meyer Burger is definitely applying into with the deadline of mid-August in the month or less than a month, which will also allow the member states, in that case, in particular, Germany to fund such activities. Moreover, and that is also important for the business outlook that I will get to in a second is Europe's and in particular, Germany's ambition to also protect the inner market, which is very important in a time where the market -- the European Union market is the only market of a significant size being flooded with Chinese product in most of the cases at dumped or dumping prices, which, of course, puts all players under pressure. And this is nothing that is specific to Meyer Burger, but the market in general in Europe is currently very challenging. There's a lot of stock in also our customers' warehouses, which is not necessarily Meyer Burger but from all suppliers and there is a bit of uncertainty in the market right now, which surely we will all get over, but for the time being, it is a challenging situation. And as long as the European Union is continuing its efforts to come up with a stringent strategy, we absolutely believe that the market in Europe will remain attractive also looking forward as it is one of the largest international markets with a total installed capacity as of last year -- in the last year of more than 40 gigawatts, and that number will continuously go up and reach very likely a 3-digit gigawatt number in the years to come. Maybe a bit of a summary of our U.S. long-term strategy. We have very early started before the inflation reduction at to focus on the U.S., also for the reason that the United States is a great market in solar and is developing very nicely in the next years. So we had communicated the access to the Goodyear facility. The Inflation Reduction Act implementation, of course, generated another momentum and so did the IRS decision that I spoke about on the additional ITC tax adder. And we have increased already volume in our facility in Goodyear. We have now the ability to produce the 2 gigawatts in Colorado. And we are also actively looking into more offtakes, into more capacities because of the attractive and foreseeable market in the U.S. So the issues that led to our decision to for the time being, refrain from providing a 2023 EBITDA guidance. We believe once the United States production is up and running and sales is -- product is flowing and the sales is increasing that we have a much, much better -- much, much better foresight given the current -- given the current -- or the setup on the industry policy front with all the measures for the support of the local businesses. So the business revenue and outlook, we have decided that together with this press release around the facility, we also give some insights into H1 business. So let me go through the items here. We have seen a pretty decent increase in manufacturing. So we have pretty much produced in the 6 months what we had produced last year in 12 months. So actually going very well. The ramp-up of the third line is underway such that we are ready to take these volumes into production and also increase there. So technically speaking, the team has done a good job, and we are already with increased volumes. I spoke about the call for interest tender of the German Federal Government for multi gigawatts that we are applying into. Interesting about the tender just to mention this year is also the criteria around it. So you cannot just make solar modules and then you are eligible for such support, you need to meet certain criteria, which we believe we will be among the view that can do this with certain environmental requirements and also requirements on the efficiency and [indiscernible] the solar modules. So that being said, we have the 3.5 gigawatt solar module project planned for Germany still, while we are ramping up in the U.S., and we now have to see how all the other measures the call for interest, but also the local content that is discussed in Germany first and then under the Net Zero Industry Act in the European Union is supporting the business for European module makers looking forward. As I said, we are working on additional multi-gigawatt offtake agreements. We are continuously looking into additional sites where we can increase capacity in the U.S. Now is the time now the volumes have to be determined and agreed upon also in offtake agreements. And again, as Meyer Burger has the ability to bring both solar cells and solar module, we feel that we are in a pretty unique position here. Coming to the EBITDA result, which is, of course, not amusing, clearly not. And again, it's also not yet audited, but we will land at around minus EUR 40 million or EUR 42 million due to the challenging market environment. And especially for the reason that Europe's market is so much flooded with product, and this is leading to special effects on inventories and we have an agreement in place with our customers about stock protection. It may sound more disastrous as it is because Meyer Burger continues to sell at very, very high prices comparing the rest of the market, but we have done a significant price reduction or have announced it. And with a product that is in inventory or which is still stock protected, we have this effect of an impairment for these reasons. And to explain a little bit further why it had an impact on H1 and why we are more hopeful for the second half of the year is when initially in December, Chinese polysilicon makers dropped prices from one day to the other or within a week by 50%, which was not really a market effect, but a political module prices did also dropped with a little time lag by the few weeks only, but wafers didn't. So wafer prices remained very high until May, June. And -- so we have a lagging effect here of comparably high wafer prices comparing to what we will see in the second half of the year. So we see the effects of dropped wafer prices already, and we will do more so towards the next month. And this definitely has a positive impact on our cost structure. Because of the uncertainty of the market, I mentioned one example if, in a market that grows steadily where the entire environment globally has not really changed, demand goes up, we see pretty attractive year-on-year CAGRs. In such market, where from one day to the next polysilicon prices dropped by 50%, how can a company foresee all of this? This is very difficult. I have to mention that. And since we do also not know how this is finally continuing in the second half, we have decided to refrain from an EBITDA guidance for 2023, and will resume to provide it as soon as we have better visibility into the situation. And what is a capitalizer for this is a discussion that is happening currently in Germany. There is a revision planned by the federal government in very likely still the third quarter of this year, so in the next 2.5 months and to be in effect, very likely in the fourth quarter already is a revision of the feed-in tariff law, the EEG, which defines all the solar tender mechanisms, solar subsidies for residential customers. And there has been an initiative, interestingly enough, not even driven by Meyer Burger, but by associations and other industry players, and we, of course, are supporting it to implement a local content, if we will. It's differently named, of course, but it is related to a bonus system for European or Germany made products and the more content you have in there in the product coming from Europe, the more incentives you will get, either via tenders or directly via the feed-in tariff law. So this still is in the works and in the making, and we are pretty hopeful that this will be an initial part of Europe's ambition to also protect the inner market. And with this, I'm through the presentation. Thank you very much for listening and joining on such a short notice and happy to take your questions.

Yes. Thank you very much, Gunter for the presentation. So we will start now with the Q&A session. [Operator Instructions] So I see here the question from Constantin, please.

Thank you very much, Alex. Gunter, first of all, thank you very much. I think we all appreciate that you're doing a call. I'll try to keep it short here. So 3 questions from my side. One is on the cell facility capacity, the expansion potential there. So in the press release and even on the call now you said an initial 2 gigawatts, could you maybe give a bit of color on how big or how much capacity can you actually build in that facility? And then furthermore, on offtake agreements, could we potentially still expect offtake agreements to take place in 2023? That's my first one.

Thank you, Constantin for the questions. So the additional capacity in the building is not yet fully clear. We are still investigating, but the building is large enough -- it could be up to 1 gigawatt additional capacity in there, but it's too early to say. Maybe more, maybe a little less. So we are still working on the layouts on all the facility requirements, but it's definitely more than 2 gigawatts. This is what we can say. And the good news is that it helps us also to meet immediate demand if it's coming because then we have a home for additional equipment and adding a few more lines in there is the easier than building an entirely new facility, if we have to be quick. And on the second question, I mean, it's -- probably, it's not my role to speculate a lot, but given the fact that we are in discussions with many, many parties and in particular, in the United States, this move that we have announced today will increase interest because of the ITC adder. And there is a good likelihood that we will come to terms still within this year. And as I mentioned in my presentation, that's why we are also looking into additional sites if we have to grow more than the additional maybe up to 1 gigawatt that we could fit into the Colorado Springs building.

That is great. The second part of my question, just before I go to EBITDA, just on Europe very quickly. So now August 15, you have the expression of interest, you have to hand in all the documentation. Is there any news or any potential further insight that you have in terms of the timing now that it might take Germany to make its decision and any potential additional color that you may have on this local content requirement potentially be included in the Net Zero Industry Act. And when we might expect the Net industry Act to be boded on?

Yes. So this is not very easy to answer, but from what we know, I mentioned already because this is pretty new and has been discussed in the last couple of weeks only the initiative by the German solar industry to implement already, let's say, Germany Net Zero Industry Act before the European Union is moving the big thing because this is super important for the market protection because, again, if China is flooding European markets with 40 gigawatts that sit in warehouses, 40 gigawatts, this hit the front pages recently, this is exactly 100% of what has been installed in Europe in the entire year of 2022. This can only happen if a continent misses to protect its own interests, and I think this is now another wake up for the government to move quickly here. Because, again, the challenges we are facing, this is not unique, not at all unique for Meyer Burger. Currently, the entire market is under pressure, including distributors and other cell and module -- other module makers in particular in Europe, but also the Chinese, I mean, that's a critical situation. And so there needs to be more regulations. So this is good news. And this -- if it passes the German government in the first quarter, there is a good chance that this is turning into effect as a law already this year. This would be great. Net Zero Industry Act could pass the European Parliament also within this year towards the end of the year, but that remains a bit intransparent at least to us, but there is a possibility that it's coming. It is heavily debated in Brussels. So it's not that people are sleeping over this and forget about to implement it. So there is a lot of debate and discussions and I think also some likelihood that it's passing the parliament. If not this year, then it's coming next year. And the challenge here is it has to be before the election of the parliament in Brussels, otherwise, it will be pushed out into maybe late next year, which would, of course, not be good. But we are remaining optimistic and are doing our part to push this. On the call of interest, so what we have heard, and this is nothing that you find in statements necessarily that the government is funding the initiative or planning to fund the initiatives from what's called the [ KTF ], the climate transfer funds. And there's currently a little bit of fighting over what amount of the [ KTF ] goes into what project. But what we have learned is that the German government also wants to make a decision on the use of the funds in the third quarter within this year after the summer break essentially. So timing -- that makes also the timing a bit clear now for why the government has set such a short notice deadline for the call of interest because it's quite some work to submit until mid-August because the -- then there will be a selection of projects and -- and then once in the coalition in Germany, the use of the funds under the [ KTF ] funding is clear. That could turn to effect probably also next year, and then we could continue growing in Germany or in Europe. And the combination of different instruments make the entire case potentially as attractive as the IRA, even though I agree, it's way more complex than it is here in the United States. I hope that answered the question, Constantin.

It does. And then I appreciate it's late, but I do have to ask about EBITDA. If we can talk a little bit about the dynamics in the second half. I think after Intersolar, I think there was obviously already inherent risk that you might downgrade guidance given all the pricing pressure that we were seeing. But if we can talk a bit about the dynamics in the second half, I mean you have lower wafer prices. Prices seem to be stabilizing because polysilicon prices have now reached cost, which means pricing pressure is probably not a story in the second half. We have a significant increase in volumes, meaning significant increase in utilization as well. And by the way, just one point here, your volumes were much better in the first half than anticipated, which, I guess, seems that production is really smooth. You have lower costs in the second half as well. So if I put all that together, without, of course, talking about numbers or anything, but directionally speaking, is it fair to expect that we could see a positive EBITDA in the second half of '23 combining all of that together? I mean you talked about a challenging market environment, but if prices stay stable given that polysilicon prices have reached cost, is EBITDA positive in the second half, I guess, is my question.

So in the press release, we have communicated that we are, for the time being, refraining from EBITDA guidance. But what I can say is it is absolutely correct that from the visibility we have, we will definitely see massively lower wafer prices. The price reduction comparing beginning of the year and maybe end of the year is around 50%. So it's really massive. It has a huge impact. And of course, we have not lowered our prices by 50%. That's also clear, and we are not planning to do so. So the challenge here, Constantin is clearly not so much the input cost because this is coming in a positive way. The challenge here is how will we be able to move products, and this has to do with the duration of the market. And again, Meyer Burger is in these challenges like many others as well. So what we are doing here to get a better visibility and to make the lot of the increased volumes moving out the door to our customers is we have also strengthened sales initiatives. We will come up with more initiatives, some creative ideas to more directly reach our customers. We are working on a few international projects also in commercial -- in the commercial and industrial segment. So we have the volume part in the works and are pushing very heavily on getting this -- getting these volumes out. If we are able to do so, I think it will have a pretty good effect given the input costs that go down, also the load factors going up and fixed cost being more dilutive internally. So it's definitely correct. What I have to mention, though, is the initiative now in the U.S. is putting some way on the P&L because this is another project where we have cost involved clearly and also pretty much immediately as we have to be fast. We have the ramp-up all the installation ongoing in Goodyear. We have activities ongoing, of course, also in Germany with our third line, which are associated to ramp-up costs. So -- but once we would look into the individual contributors, I think it is correct to assume that there is a good chance given the low input costs and at higher volume as that's possible to see a positive effect in H2.

So the next question goes to Emrah, please.

Yes. Just a couple of questions left actually after the first one. For the Department of Energy loan, you said the terms will follow, but could you indicate a little bit what that could mean in terms of loan terms.

Yes. So this will be a little bit above 4% in interest rates.

And duration?

It's 10 years loan. And currently, we are looking into initially a EUR 200 million loan, but not yet fully decided. And it can be more, it can be less. So the DOE is pretty flexible. The grant application is taking some 2, maybe 3 quarters. And once proved, then the money is available, but the DOE loan program is designed for such activities, and we are perceived a pretty trustful partner in Washington, D.C. for this and also potential for additional projects.

Okay. Great. Like what were kind of like the main 1 or 2 criteria to become eligible for such a loan? Because as I know in the past, it was -- you had some big names like Tesla that received a loan like that one [indiscernible], right? So just to get a bit of a better feeling what that means. Was it the product capabilities? Or what -- can you give a bit more color to that?

So first of all, when you look into what happened after the IRA was announced, there have been many projects announced, of which some are in the works, others, well, until so far only blowing smoke. But they were dealing primarily with module. So it doesn't really help the U.S. to increase resilience because then they still are fully depending with the engine of the module as we say, the solar cells to be imported from China. And the ITC adder additional 10% that has to be seen maybe as I would interpret it as a bit of a correction in order to spore also more solar cell installations in the U.S. -- manufacturing installations. And when Meyer Burger entered the doors of the DOE, they clearly see that we are a nice fit into that strategy, both because we can do it, and we have the technical abilities. And guess what, also when we said we are Meyer Burger, it is something. So we have quite a good reputation here. And so the combination of Meyer Burger as a company with our abilities plus the fact that we're already investing here has placed the trail, if we can say so. And so far, we haven't really seen a roadblock. And it is administrative work, like whenever you fly into something like this, it's also a couple of hundred pages that you need to fill in, but we are working also with professional advisers to make sure it's going to work on time.

Great. Now in terms for -- in terms of the additional subsidies. So do you expect to share a part of the subsidies for the cell production with the partners as well?

No.

This is fully for you?

It's fully for us, clear no. So the sharing of the EUR 0.07, whatever that is, this has been a single event. And also be reminded when we speak about 2 gigawatts module making in -- as a target in Goodyear, 1.4 is utility, which is subject to the IRA sharing to some extent, only for the module, but the remaining 600 won't be shared. So also this part is Meyer Burger alone. So that's why I'm saying if you crunch the numbers, and if you would assume that we are up and running more or less from 2025, maybe a little bit of ramp up still in there. Then this makes us eligible for way above USD 1 billion in combined subsidies from all these instruments. So that's super attractive and also explains why we are currently looking into replicating this as quickly as possible because now is the time, now you really set this up and then you can benefit from the support from the government.

Great. And now the third and the last question is a bit more of an open one. So now with your announcement, I mean, Europe is eventually losing 2 gigawatt of capacity. Just looking from far the TCTF magical seems to kind of like be like a shot in its own foot, right? Because you have to prove that you can get subsidies somewhere in another country. Now you're getting there, but you're moving in production there. So have you been talking to German politicians recently? Like what's the sentiment there? I mean I assume that we're aware of your potential or eventual move? And do you think that's going to trigger now like a step-up in German subsidies?