NeoVolta Inc. (NEOV) Earnings Call Transcript & Summary

Thank you everyone for joining us this morning. We're happy to host NeoVolta, ticker NEOV. We have the CEO, Ardes Johnson; and CFO, Jing Nealis, on the line. We will go into Q&A. [Operator Instructions]. With that, I'd like to hand the call over to Ardes for just a quick intro before we move into Q&A.

Yes. Thanks, Sean. I appreciate that, and thank you, everyone, for being on. We very much appreciate it. I hope this is going to be a rewarding call for you. I'm Artist Johnson, I'm the CEO of NeoVolta. I'm joined by Jing Nealis, our CFO. And we're looking forward to telling you all the great things that's going on with NeoVolta and our manufacturing capacity.

Great. Ardes, I mean real quick to kind of set the scene for the call. for someone new to the name, where is Neovolta today versus where it was 2 years ago? And how do you transition from a residential LFP company to deciding to pursue this utility scale battery opportunity?

Yes, Sean, we get that question a lot. And if you think about it in a vacuum, it's a pretty big leap. But let me tell you, NeoVolta been around for many years. We've got our roots in Southern California. -- as a residential energy storage provider, an innovative technology. And I'd like to say to people, it's like, we may not know who we are, but we've been around for a while. We were 1 of the first companies that was on the California Energy Commission's list for residential energy storage and that's kind of a bellwether for who's out there and operating today the CEC list. And I'd like to say that we've been doing that. We unfortunately stayed a very local company through the first years of the company's start-up and growth I came on board 2 years ago and quickly said that we need to not only be in the residential business, but we really need to start looking at the other verticals, particularly at the beginning, it was C&I and that journey to go to the next generation, not only on product and residential, but also to grow in those other verticals led us to where we are today. and we can talk about that, but that's gotten us into not only what's going to be a C&I but also the utility scale manufacturing in the U.S.

Great. I'd like to like walk through the genesis of NeoVolta to power the JV in Georgia and just kind of the strategic trigger to stand that up. And then the partnership with Pods Edge, which is now long G. So how that relationship started, who brought that in-house and how you identified them as a potential partner there?

Yes. In that story I was telling about how we were looking to grow vertically into the other verticals. We started going around the U.S., and we were talking to potential partners. We were looking at some M&A potential as well as just some organic growth into manufacturing. During that journey, we came across a few partners that had mutual relationships with PotisEdge and we took that opportunity to introduce ourselves to them and start having that conversation. It ultimately turned into what was going to become the joint venture. We knew that the laws were changing in terms of the compliance requirements for U.S. and non-Chinese ownership models. So we started talking to them. It allowed us to accelerate the actual -- the plant because they were already considering coming to the U.S. as PotisEdge. We started that joint venture conversation and we're moving into a definitive agreement there. At that time, on came in and acquired a majority ownership of PotisEdge. So we ultimately did that joint venture with LNG as well as with PotisEdge part of their company. It is really, quite frankly, driven by the change in law, right? As far as the joint venture, the structure of the joint venture and the speed of the joint venture, was all driven by the change in law or for an entity of concern for compliance. It allowed us to put ourselves in a position to be the majority owner in the situation and really push this and take technology that's proven and existing today and accelerate and bring that to the U.S. So we looked at several different areas. There was already a consensus that north of Atlanta where the factory is going would be a good place to be. And once we formed that joint venture, we were able to move very quickly. And that's why from a joint venture completion to operation is going to be less than a year.

Great. And just to spend a little bit more time on PotisEdge since that's who you form the initial JV with and like I know it was acquired by long subsequently. But like PotisEdge maybe a little bit about their track record initially. So have they delivered commercial best at scale or utility scale best at scale. -- where were mines running previously, like where were deliveries previously done and like how much volume?

Yes. PotisEdge is in terms of definition is a Bloomberg Tier 1 integrator of energy storage systems. They've been around for many years. they do several billion in revenue. They've got well over 10 gigawatt hours of deployed assets globally. They have assets here in the U.S. as well. We were talking about some assets that they're actually deploying at this moment. So the technology is tried and true. They're very well known in terms of their integration capabilities, their battery management capabilities. So that was -- and I think it also is striking that when we were working with them, -- that was the company that LONGi's decided to go after, right? Long is the world's largest solar cell and panel manufacturer doing close to $10 billion in revenue on an annual basis. And like many other people in their industry, they were looking to vertically integrate into energy storage. And when they did that, they looked at PotisEdge is the partner that they wanted to do that with. So we feel very confident in not only their capability in producing but having it at the quality that's needed to meet the requirements of not only the developers, but the banks that are backing them. And we know that, that's a product that's tried and true, and we feel very confident that we're going to continue that process here in the U.S.

And then you mentioned that they've got 10 gigawatt hours globally installed but curious in terms of like the manufacturing footprint that you're pursuing in Georgia, does it map to what they've done historically globally? Like I mean, how much risk is there in terms of standing up this line in your view versus what they've done historically?

Yes. And it's a great question because what we don't want to do, and we didn't want to do at the beginning, it was to do something that was completely unknown and brand new. So we are essentially taking the technology and mimicking and replicating some of the lines that they have globally, whether it's in China or other places that they're working. In fact, Steve Bond and I, Steve Bonds a co-founder, former CFO and now the President of the JV, he and I went over to China. We saw the line that we have that we're getting was put together all the automation, all the testing, all the welding, everything was there. We did a factory acceptance test while we were there. We saw it producing packs and ultimately the best modules. -- and we did that acceptance test. And when we left, they took that thing apart, put it in creates, put it on containers, and that's what's been coming over in the U.S. But it's key to understand is that it's not a new technology. We're not doing something that's brand new not to say that we're not looking from an R&D perspective of innovation over time. But right now, we're really making sure that what we put in the ground in Atlanta something that's known. It's something that they can see operating not only in Atlanta, but they can see the same technology in other places of the world, and they can see the finished product in the field. So that's what's really key to what we did, and that was really a cornerstone of our partnership was to make sure that we have a technology that is tried and the risk is very low.

And in terms of the stuff that's been deployed in the U.S. from Codes Edge, like have they won on technology, price point? Just trying to understand kind of like their right to win in the U.S. and how that will translate to you over time.

Yes. Yes, that -- to understand that is to really kind of understand also the marketplace, right? We're in a market that's growing very rapidly, and the demand is very high, right, between all the data centers, the AI, the utilities needs for energy storage to harden the grid and the integration of solar and other renewable and energy technologies out there. They make a very competitive product. I mean, in our industry, in any industry that you're in, you've got to be price competitive, right? So we feel very confident in our price competitiveness, but we also very confident, not only in that, but also in our ability to manage the energy storage. You can put a pox together and you can book batteries in that box, but you need to be able to have a great battery management system. You need to have a safe, clean way to operate it allows developers and their engineering teams to size systems appropriately. And PotisEdge has that capability and historically had that capability. And what we're doing is we're utilizing all that in the tech transfer and everything from an IP perspective, we're able to take that and continue that forward here in the U.S. We feel very confident that it is going to be a highly quality, highly competitive product but in a market that is growing very rapidly, right? The demand, particularly obviously for U.S. manufacturing and the compliance rules for the 480 tax credits, we feel very confident that there's going to be plenty of opportunity for -- and that tide is going to lift all ships. So we really feel that we're going to be not only in a competitive position, but our speed to market is allowing us to be in a position to really go after multiple gigawatts of opportunity -- gigawatt hours of opportunity.

Okay. Great. Before we move it sounds like the status of Pinnogras and the JV facility itself, can you map sort of the governance and the economics that are going to flow through NeoVolta power the split? And then kind of what other agreements you've maybe signed with MG. It's -- in my opinion, like you did this very cleanly. And I think maybe like LONGi executed on previously on the module side, which has helped just sort of, again, kind of map the governance of the JV, how you qualify for credits and the historical record that once has on the modular side with that same structure.

Yes. As you were saying, LONGI has done this before, right? They've done the same sort of operational joint venture on the solar panel side. And they've got a plant in Columbus, Ohio that they're operating today under the FIA compliance rules. What's great about what we're doing is we're not taking 2 existing entities that are operating and trying to put it together. We started this very clean from the very beginning. The NeoVolta power was formed under the current compliance regulations and rules and standards that are required to be compliant in the industry. So we've been essentially set up to be compliant from day 1. We weren't taking entities and trying to change them and change structures and putting 2 things together. The plant started from ground 0 as a compliant plant. We'll have 80% ownership of the joint venture. We have full control of the Board. All of these are rules and regulations that are required. There's no demonstrable effect or control that LONGi has over the joint venture. They essentially get 20% of the profits of the joint venture. In exchange for that, we've got a technology service agreement where we get the technology transfer. We get the equipment here. It's fully funded. We fully funded it under the compliance rules. So everything was done in a way that it's all of essentially NeoVolta's ownership into that from a joint venture perspective and to enable to power, we have complete control over that. So we have full board control, full decision control, and essentially, as I like to say, playing by the rules that are put in front of us, right? And what's a cornerstone of the agreement is that we will be for compliant. So if the rules change, we will change with those rules in order to maintain our compliance. And as you know, and many people know dealing with Washington, D.C., it tends -- it's particularly with treasury, right? It tends to be somewhat of a nebulous world. People want exact answers. They want exact definition. And I've been doing this for about 15 years, whether it's in storage or in solar. And I've always said, if you really want to ask the IRS to give you a definitive answer, they're not always going to give you the answer you want. So you work under the interpretations that you have with the rules that they have. And if those things change or things become more final, then we will adjust in order to make sure that we stay compliant. But in terms of how that works, we're going to have that LONGi has some ownership of the NeoVolta level. They bought about 1 million shares or we have about 1 million shares of ownership in our company, 2% or something like that. So it really enables us to make sure that we are really together we have a shared success, and we definitely have a shared outlook and outcome in order to fill the factory.

Okay. Yes, that's great. And then in terms of the remaining capital phase by capital to fund the JV I think there's like a $8 million Phase 2 payment, $10 million equipment payment at the end. But just like what's left and where do you stand on that in terms of funding that?

Yes. With the raise that we just completed and Jing can go into a little bit detail on that, but with the raise that we just completed, we are fully funded through commissioning. We feel very confident that we're going to be able to get it to the operational place that we need to start putting out product.

Yes. We funded the initial $7 million earlier this year, and then we -- on the rate may raise $27 million of net proceeds. We funded $8 million Phase 2. And then the next 1 million will be funded through as commissioning of the plan. So -- at this point, I think the plant is fully funded, given the rate at that time.

Okay. And then like what's the status of the installation going on like -- so how much of the equipment is on site versus still needs to be delivered and where are you, artists in terms of the install and start-up of the facility.

Yes. We've been doing a lot of what they call tenant improvements over the past few months. preparing the facility to receive the product as well as raw materials that are going to be coming into the facility, particularly the storage cells. But now we're right around 85% of the way there in terms of the equipment and tooling that are coming. I think the final tools may be showing up in the next few weeks. We have 2 different processes in the plant. We've got the pack assembly. That's there. We're getting that installed and started up right now. And then the final best some of the tooling in the integration of the battery energy storage solution. Some of the tools -- some of those tools are still yet to arrive. But on the way, so we're very confident about that. If you go into our facility today, there's teams of our people, there's teams of vendors there, engineers everywhere. We're hiring our staff as we speak. We have the PotisEgdge of the LONGi energy storage team there supporting us. They're helping with the startup. They're also helping with training of our employees and preparing them and they're going to be there through obviously, start-up commissioning start-up and the ramp-up phase. We've got temporary housing right now set up. So we have housing for our vendors and our partners that are coming over from China as well as everything that's going on there. So we put out like a Monday report on LinkedIn and Instagram. I'd like to -- for all of our investors, I understand the stock moves on a day-to-day basis. But in this world, from an operational perspective, it's weeks and months, right? And so everything is on pace and moving as scheduled from a tenant improvement piece from a tooling piece and from an employment piece, everything is falling into place for what we're calling the August acceptance and ramp-up at the end of August start the beginning of the ramp-up.

Okay. And then just like what does the mine look like in terms of equipment, automation versus labor? And just like how does that flow through the line? And just kind of on that automation piece, has that been implemented previously at the other factories or the other lines that PotisEdge run?

Yes. Yes. When you think about a line, you typically think about here's the manufacturing components of it, and then automation has put over the top of that. we're going to be a fully automated line, right, in terms of -- particularly in the pack design and development. Even from moving raw materials from 1 place to another, we're going to have automation automated vehicles that are going to be moving things from A to B. We actually saw that automation tooling in China operating. So it's already been engineered. It's already been designed. It's already been set up. and they essentially picked it up and brought it over. So it's not starting from scratch from an automation perspective here in the plant. Highly automated. There's going to be employees, of course, everywhere. But most of the integration and the manufacturing of it is going to be an automated portion of it.

Okay. Great. And then just like I want to move on to talking about the bankability of the product and how that flows. If we can start with the tax credit side. Last week, you put out that you had a third-party opinion on the [indiscernible] status. So maybe just like an overview of that and the precedents for those opinions and other factories. I'm assuming you use a well-known auditor or legal firm there to get that. So like how that stamp of approval helps you.

Yes. Well, just the stamp itself is kind of like the litmus test for whether or not you're going to have a product in many of our potential customers and people that are working with us are looking for that first step. And we've completed that. We are designated as a non prohibitive foreign entity, right? And that's really on the ownership level of it. We worked with Holland & Knight on that, a very well-known tax council to support us on that. They've done that before as well. We leveraged that relationship that LONGi had on the solar panel side of the business in terms of that when that joint venture was formed. So we were able to take advantage of that. We feel very confident about our position there. And now we're working through the BOM piece of it and others. We're working with KPMG and a few others on that to ensure that at the BOM level, everything fits the compliance. And at the end of the day, we feel very confident from a bankability perspective that, that's going to -- we're in a really well-positioned spot to be able to supply product that meets the compliance, gives the confidence to the developers so they can start designing our product into their projects. And now we're moving from that perspective to now moving into trying to get some final agreements at purchase orders for first supplies, yes.

Okay. And like are there any certifications that are needed to service the utility scale customers? Like, what do they need to see from a certification standpoint? And then also just like physically, what do they need to see out of the plant? what's the qualification program look like for them?

Yes. Many developers and banks ultimately everyone has their own potential set of qualification requirements. Most of them are very similar. We're going through all the UL requirements that are needed. This is not a brand-new product. It's a product that's been UL other places. So we're able to the product we're able to UL the factory, everything that needs to be done. We're working through the opportunity to look at third parties coming in from an audit perspective, QA/QC, we're inviting potential developers and partners in early, so they can see the products as we start to make the product, they can see the finish. They can see the operational rigor going through that. They're going to want to go through all the installation practices. They're going to -- excuse me, the manufacturing practices, they're going to want to ensure that we've got the right QA/QC. They want to see the documentation. A lot of that ends up being done by third-party engineering firms -- so we're working with -- we're going to be working with those as we start to move forward even in the early stages, right? Because we want to get to a place where we feel qualified enough to by the beginning of next year, we're able to ship product that customers feel confident meet the requirements to be on their approved vendor list, so to speak. So -- like I said, everyone has a little bit different requirement, but we're going to be able to do that. We're going to all the burn tests, all the requirements for UL,-9540,9548, all those things are going to be done. Some vendor -- or some off-takers are going to want us to send product to them, so they can test their innovation centers and whatnot. So we're starting to have those conversations today. and we're going to start working through that. And if we've got to do an extra burn test here, we've got to do this extra test there. It's going to -- we look at it as kind of part of doing business and any supply agreement that we're going to get. So we're ready to go on that, and we feel very confident about it.

Okay. And then on the BOM, you mentioned working on that. I think the biggest piece of that are the base swing is just the cell supply self-sourcing. So can you walk us through this year and then how that transitions to next year, that becomes a bigger issue to have a FI-compliant cell supply outside of China. So what's your visibility there? And how are you maybe leveraging some of the long supply chain or their scale to help out.

Yes. Obviously, the bum can swing very drastically depending on where you get the calls. So we get the cells and you could change the boom completely on the other side of that equation based on where the cell supply is. So we have several different bonds that we're working through, whether they're China cells or the non-Chinese cells or the domestic cells. But our strategy is flowing with the compliance strategy or the changes that are coming. We obviously are using Chinese sales for the remainder of this year. And then we're also working with non-Chinese Southeast Asian opportunities as well as domestic opportunities, and we're looking at a sort of a blend. Obviously, with the rules that the IRS has come down with you have that capability to do a blending strategy. We're looking at it from both FIO compliance, which can be somewhat more binary, but also domestic content strategy. So we're working with that, and we're looking at potential supply from U.S. manufacturers, we're looking at potential supply from non-Chinese Southeast Asian, and we're really working to make sure that we ensure compliance as we get into '27. There can be somewhat of a safe harbor approach there a little bit. But for us, we're we're heads down saying, we need to have the right number and the right amount of suppliers that can get us compliance and then potentially domestic content.

Okay. Move and then like moving on to the customer or the developers. I think you've announced an LOI with Infinite Grid on a few discrete projects. I guess if we focus there, I mean, like in discussions with Infinity Grid, like what do they need to see to kind of move that LOI to firm purchases?

Yes. For them, I think they're very confident. They've installed the PotisEdge equipment. So they're very knowledgeable and confident about the equipment that we're going to get or at least the finished product that they're going to get. So I think we've moved already -- obviously, Infinity Grid Capital is a partner of ours. They've invested in our company, and we're working very tightly with them and they were a driver -- one of the drivers for our beginning relationships, actually, they were the driver for the beginning relationship with PotisEdge. So they're very familiar with PotisEdge and their equipment that they have. They have a few projects that they're working on now. for us, getting the contract finality with them, it's more about them getting the financing set up and done on the projects that they're working with. So I think they're working through some now. We expect to get to some definitive orders in the very near term with them, at least at the beginning with some potential deployment of product even towards the end of this year. but we feel very confident that they're going to be able to move. But really, what I want to say is Infinity Grip capital is very important, but 1 of our partners, the PotisEdge team that was preexisting that was selling into the U.S. is a very robust team, not only from sales but from technical support and product management. and after-sale support. They have a large pipeline of projects that they're working on that is going to simply flow through us. And then, of course, the long side coming in over the top of that, even bigger, right? So Longi has got an opportunity. They are looking at it from 2 different factors. There's the stationary -- there's a storage-only gone, and then there's the solar team. that's out developing and they're installing or they're manufacturing 3 to 5 gigawatts, somewhere in that range of solar. And what they're telling us is like, look, every 1 of these solar fields that are going out there are going to need storage. So you can think about it from 2- to 4-hour storage on 3 to 5 gigawatt hours, there's plenty of pipeline and opportunity for us to fill our factory, particularly the 2 gigawatt level and very, very quickly.

Okay. Yes. I mean, can, we walked through the Infinite grid one, I think, it's 1.1 gigawatt hours and then kind of talked about the Pode pre-existing opportunity pipeline. Can you quantify that at all, like in terms of size, what that was?

Yes. I think from a pipeline, you talk to salespeople that it can be a very large pipeline. But what I would say is it's it's several gigawatt hours of real opportunity, right, a real opportunity. I mean, it's -- any pipeline can say 15 to 20 gigawatt hours, but I think in the terms of what we're looking at in the near term, and from the opportunity, it tends to be -- we're looking at a few gigawatt hours at least of opportunity. That's with PotisEdge. And then obviously, Longi is going to bear their relationship and their bank ability with some of their large customers on the solar side. who are also looking for storage, and we're going to be leveraging that relationship. We have a commercial -- a written commercial marketing relationship with them to start driving some of that business. And having those customers who are a little bit more forward thinking to say, okay, we're willing to take a chance on a portion of this. You got to meet the QA, you got to meet the standards, here's our third-party audit engineer. Here's the burn test we want to do. Here's the Innovation Center Semi product. All those things have to happen over the next 6 to 7 months. but we really feel confident that we're going to work with that and really leverage that relationship with them.

Will you -- like in terms of the LONGi relationship, will you be like preferred choice or sole choice for U.S. deployments for them? Or like if someone wanted to a non -- I guess you would have to be like in terms of fiat compliance? Or could they supply via some other avenue for Fiat compliance too?

No. I think the way that Longi looking at it is particularly on the solar assets, right? It's like, listen, we're going to get you to this relationship. We're going to get you in a position to do this, but you got to stand on your own. We're going to work with you on the bankability side of it, but you've got to show that you've got the pricing the capability and the functionality, everything needs to be done. So I would think if you talk to Eric Leal, who's the President of Longi North America, he would say, look, my guys sell solar, right? And now the energy storage team with Dennis and the team leading that from the long side of the business now, they're going to be from a technical perspective supporting that, but we need to be in there as well. So it's kind of -- it's a triangle of development and support that we're going to be working on and make sure that we supply that. I don't -- I wouldn't even want to put that at their feet to force them to have to do that. We've got to meet the requirements. And I was -- like I said, -- if they sell 3 to 5 gigawatts, that could be 10 to 15 gigawatt hours of storage getting applied to that. We're not looking to get all of that, right? We just want to make sure that we get in there with a few other partners and get locked in for some of the supply of our 2 gigawatt hours.

Yes, that's great. Is there any thoughts like contract structures and how that would look in terms of maybe like prepayments or milestone payments obvious like you're ramping up prepayments would be helpful, I'm sure.

Sure, right. We -- I mean, there's an industry standard that's out there. There's down payments that come. Whether we're looking at an individual project or we're looking at more like a contracted supply agreement. Obviously, as a manufacturer, we want to make product every day, all day, right? And if a customer says, I mean a gigawatt hour, well, I don't want to supply that -- I don't want to build that gigawatt hour and deliver it. We want to deliver on a monthly basis. So that's how we'll do it. We'll set those contracts up to have timely shipments based on their installation progress, we would receive progress payments and we would have certain net terms, but it wouldn't be net to a contract, it would be net to deliveries, right? We work on everything on deliveries. -- and ensure that we get that payment so that we can get cash flow in an appropriate way that we're doing it. It's a difficult business to try to go ask some money for a 50% down payment. But at the same time, I think on some of the smaller projects, we can probably get larger down payments on some of the bigger projects. We're going to have to contract those out in a way that we get the certain down payment on the overall contract that we have. and then we get incremental milestone payments as we start to build and deliver product, and we'll finance it around that way.

Okay. Yes, that's really helpful. In terms of just kind of working through the economics of the utilities of the JV, but like from a gross margin standpoint, I mean, like what are you sort of expecting in terms of utility scale versus like what you may produce for commercial opportunities? And then just like general splits, I'm assuming the majority of this will be utility scale.

Do you want to?

So I think the youltimately, the gross margin goal is above 20%, 20% to 25% or will fully ramp up. There will be a process as a starting point to any as any factory goes, it will go from [indiscernible] utilization to 80 95. And we need to create hire people themselves. So there will be sort of a gross margin increase over time once we start ramping. But the expectation is once we are fully ramped up to 2 gigawatt hour on ship, that's the fiscal 2027 goals and we should be at 20% to 25%. And then [indiscernible] can talk a little bit on the C&I. I think the the split depends, but mostly utility. The C&I will provide higher margin, higher ASP, although it's a smaller volume, but it is a very attractive for market as well. We have a small as coming out in September. So on the C&I side, we're going to be margin will be higher is given. There is a short supply and very high.

Yes. Yes. For us, C&I is what we continue to talk about is this missing middle of opportunity and product that's out there. And we really believe that, that's going to be a really growth model for us in terms of how we do it. As it reflects into the plant itself had 2 gigawatt hours we're putting in goals to get into that 20% to 25% range percentage of C&I. As we start to scale up, go to further shifts potentially out another line because the facility can go all the way up to over 8 gigawatt hours. We would probably see that ramp and that growth be on the utility scale side of the business. But we really believe strongly that there's going to be a great market for U.S.-made C&I product, we're already seeing it today and the demand is there. And as Jing said, it is -- it can be up to or considerably higher ASPs depending on the size of the the system that you put into the facility. So we feel very confident that, that's going to be a driver for us. And then we think that, that will uplift the overall ASP -- excuse me, the gross margin at the end of the day.

Jing, are those gross margin like pre-credits -- or like do they include the 45x credits or don' include the 45 price?

No, it doesn't. We haven't factored in the 45 a credit, so that would be upside. We'll [indiscernible] process once the factory is up and running. But 45 axis is there. So we cope monetize it to once we start shipping to third-party customers, but it's not considered in our model.

Okay. Great. And then in terms of like sort of the expected scale up here, like I think you're saying like end of August for kind of grand opening initial and then you'd be scaling some qualification volumes, I assume in the back half of the year. But how should we think about just how the factory scales up? And then to build on that question is like adding a shift like that seems like a relatively easy decision at some point. But how do you think about the timing of adding potential shifts and what you would need to see out of the line to do that?

Yes. Well, we have a ramp-up schedule that we're putting together. And we full -- for us, we're on a fiscal year, starting in July, right? But towards the end of the calendar year this year, we expect to be getting into that ramp-up of 10% to 15%. And then by the time we get to the second half of next calendar year, the end of our fiscal year, we expect to be fully ramped to full utilization 95%. So we see that if you can kind of do that math, it gets you into the 400 to 600-megawatt -- 700-megawatt range in the first half. And then towards the end of the fiscal year is when we're going to start considering based on demand, do we need to start scaling to that second shift. And I like to tell -- it is a relatively light lift in terms of it's just people -- but it's not -- that's not -- that still takes a couple of months, right? So we want to make sure that we get the appropriate people hired, get them trained in the right way. We've got to maintain all the QA/QC that's required in order to manufacture, but we're looking at that into the second half of next calendar year as we ramp potentially up to the near 4 gigawatt hours.

Just add to that, maybe it's useful for [indiscernible] now what it takes to add the shift. This pathway is fully automated with upgraded machinery. So to add it, we're talking about 35% labor increase. So it is they need to be trained as already said, it will take some time to turn to hire on the stuff. But it's not like we need to hire hundred workers to have a ship just given how automated is lines.

In fact, Sean, and for investors to understand is we also are building in a model that has a certain amount of overtime as we start to get into that. So there's ability for us to be flexing as we start to bring on the new hires and putting people with opportunities to get uptick on a day-by-day basis, maybe not over a course of months, but we can flex in terms of how we're looking at it from a single shoe to a single shift with a certain amount of overtime to a single ship and potentially working on certain weekends and things of that nature. There's a lot of opportunity and flexibility in that number of what we call 2 gigawatt hours in terms of the operations.

Okay. And then like the equipment maybe get a little bit ahead, but like a second line the equipment costs needed to do that. I mean you're already putting a lot into the building. So just curious about kind of the incremental -- the tricremental costs for a second line.

Yes. The second line, from a CapEx perspective, we're looking at most likely between $13 million to $15 million to put in the second line, maybe a little bit on the facility but not to out. So I would say militia CapEx investing in the second line, which will take us to a lot our 2 shifts.

Okay. And then we talked about funding the JV and the the finishing payments there. But just on the working capital standpoint, Jane, how should we think about working capital needs as you ramp up and then sort of your ability to fund that be it debt or nondilutive opportunities there?

Yes. We are funded through commissioning of the plant and initial production of new units. And I think -- from a working capital perspective, depending on the gap between the AP and AR as we work through our supply chain and customer acquisition process. We will secure working capital most likely from revolvers of asset-based line of credit and equipment financing type of debt to fund the growth from the working capital perspective.

Okay. Just is that similar to how the -- not to go back to the longi module facility, do they use similar structures in their ramp up now or?

Yes. They -- I think so, they have line of credits and working PotisEdge there, I'm not sure it's wrong that they use, but yes, there is...

Okay. And then on the Fortive 5x side, that potential monetization would you I'm assuming you would transfer the credits, but just kind of have you had any discussions with potential partners on transferring at some point as you build some credit backlog.

Yes. We potentially could monetize that. I know on the Longi U.S. factory, they have done that. They sold the credits like $0.96 to abalo or something there quality of people or they're buying these credits. So that is also a potential way to monetizing at actually out of it. Appreciate it.

Okay. Yes, that's great. So I mean, I think we covered a ton in the last like 40 minutes or so. There are no questions in the Q&A. But I mean, like with that Ardes just kind of maybe as we kind of think about the next 3 to 6 months? Like what are the key milestones that you think investors should be looking at like in terms of announcements to come?

Yes. I would continue to think about the completion of the factory, right? That's the biggest goal. And like I said, we're on pace. Everything is looking good. I know that it seems to investors that -- it's moving at a snows pace, but for us, it's moving very quickly in terms of a manufacturing facility coming online. And like I said, we're going to have a grand opening towards the end of August. We want to make sure that it was there and things were operating. Equipment was moving. Automation was happening. I think those are things interesting to people and investors who come to see, but the reality is, is getting that plant completed is goal 1, getting the team higher, getting everybody put in place to make sure that we're doing that. Steve is leading that charge for us and doing an excellent job. And then ultimately, getting those -- both the LOI and other opportunities in the pipeline to closure to the first orders, purchase orders, which we, of course, would make sure that we get out there to the investment community so they understand what's going on and then start deploying that product into the field. And ultimately, the couple of hundred megawatt hours that we think we can get to sort of in this time frame between now and in the calendar year, getting to that ramp up. So you start to hear us ramp up and deploying on a monthly basis product into projects that we're working through. So -- those are going to be the key things. Obviously, from a company perspective, we are looking at the C&I side of it as well. So we expect to have news on that front, not only with our partnership with Lumena, but other C&I opportunities that we're looking at -- and we continue to operate our residential business, and we've got some news coming out on that. We've got the new product deploying as soon as August, we're looking at some third-party ownership models that we're looking at from a finance perspective. So you expect to see those things sprinkled in as well. But obviously, what people are here listening to and interested in today is what's going on with that factory. So getting that thing done. -- getting purchase orders, getting product built, getting products shipped. Those are the milestones that we're looking at and then building up that pipeline into backlog, right? That's really what we're going to be working on over the next 4 to 6 months.

We had a question come in, which we'll kind of ask it's Sungrow and Hatim appear to have already built some U.S. project presence through existing or potentially safe harbor pipelines, just from your perspective, how do you compete against these players in the near term, especially if they can still leverage low-cost Chinese supply chains where do you see differentiation and it goes back to kind of the produced product and where it differentiates.

Right, right. PotisEdge is a competitor. I mean, Sungrow, hit the goes guys coming in. The safe harbor is going to run itself through, right? Ultimately, that safe harbor is going to run itself out. The great news is there's plenty of projects to deploy this across, right? We have got several opportunities, we're not necessarily running into the competition of safe harbor just yet. We see that happening. But typically, the safe harbor that's there has to already be deployed to a project, right? So it's already going to be assigned to our project. What we're typically working on is new opportunities. And so all the new opportunities, and there's plenty of them out there. None of that can really be looking at a preexisting safe harbor product. Not to say that we can't have 2026 calendar year safe harbor strategy going into the beginning of '27 with some projects that we're working on. But the truth of the matter is, when you think about safe harbor, that's looking at preexisting projects. It's already been accounted for and set aside to do and again, there are a lot of players coming into this market. There's a lot of people talking about coming into the U.S. you can come to Atlanta, Georgia today and you go north about an hour, and you can see our factory and putting equipment in there. So we feel very confident that we're doing the walk with the talk, right? And we feel that there's going to be a lot of opportunity for us to deploy projects going forward. And again, we expect competition, right? We're in this industry because we believe it's a big industry. It's a growing industry. When you have a big growing industry like the energy storage market, other players are going to want to get engaged. We're going to be speed to market. We're going to be nimble and innovative, and we're going to continue to develop projects and products that support our customers and their needs. So we feel -- we don't we think that there's -- like I said earlier, there's a tide lifting all ships right now. And we really want to make sure that we become an industry leader, a thought leader in this space. So we're hiring the right people, the right technical people, the right commercial people and the right manufacturing people to make sure that we've got a quality product that's ready to go.

Yes. Just to kind of push on that a little bit more with like, again, like the service agreement you have with LNG now. I know some of the best players. I mean it's a big density push today, like, right, like more that you can pack per acre, better [indiscernible] some announcements about that. It seems like a pretty workable solution to do that right. But just curious if that's in the pipeline for you all? Or what types of things long he kind of sees as important for this business moving forward from a tech standpoint.

Yes. When we sit down with the team, what I'd say, the traditional Botas Edge team, which is now on G, right? Like I said, I only say that since the traditional potential because they have a many years' experience, Minjae who is our Co-Founder and CTO of the former PotisEdge and help leading this up for us. We're already looking at next generation, not only from a Ampower and cell capacity going from a 5-megawatt hour to a 6.2 giga megawatt hour container solution. but we're also looking at how do we take DC blocks, integrate more compact AC solutions and things of that nature. Because at the end of the day, like you said, we're trying to make the boxes that go on the ground, easier to install, more capacity per square foot. -- all those things we're looking at, too. So we've got a product road map out there that's pretty interesting, not only on the utility side but also on the C&I side as well that looks at things such as higher capacity closer integration of the AC solution, things of that nature and continued development of not only the battery management but also the energy management solutions. -- on that. So we think all those things are very critically important, and we're not sleeping on the existing box that we have. So I want people to understand just because we're putting in these lines, doesn't lock us in to only doing 5-megawatt hour DC blocks over the next 5 or 10 years, it's not that way. We're already looking at what's the next generation that we can get out of the existing line. and we're working towards that, and that would likely come into play next year for sure.

Okay. Another question came various just in the east, looking at 2028, do you expect like a split in terms of segments like lower cost, legacy like safe harbor projects and then premium compliant, domestic projects? Or how do you kind of think about that? And it seems like you might be able to supply both a little.

We're definitely going to be flexible in how we supply for sure. And the way that the new rules have been laid out from the IRS and the guidelines that they have, there's a way to mix products in terms of source of the supply. That's really going to be focused a little bit on the domestic content piece. But if we get a domestic content compliance sell or a feat compliance sell, that flips the script on the bom right? So then we can look at the -- the rest of the BOM components coming from lower cost areas. So we definitely are looking at it from a bond perspective, and being flexible because there is talk in the industry about going just the lowest cost you can. But I mean, people also understand that the ITC is not built around the lowest cost just on the equipment. It's not the 30% on the equipment, it's the 30% on the project that you're looking for, right? So it has a bigger impact. Not to say that there won't be people trying to work those solutions. But we feel that on the 6-plus gigawatt hours of demand that are coming in, there's going to be plenty of space where domestic content or domestic manufactured product for sure.

Add one point on the cost structure, the Chinese made imported products from December of the world. There is a huge tariff coming in. So I think from a cost competitive perspective, we should be competitive given that our customers will be able to take the ITC benefit. So if you take all the economics of good deal into consideration, the end of the tariff still in place, they're not -- it's not like the Chinese made us much cheaper. Also, there's a whole layer of BMS, cybersecurity control of persistent, which we have through our JV, which is, I think, very important for the where we still have U.S. and for lateral management system.

And then this kind of builds on the BOM question, but like in terms of the conversations you're having with customers, how important is U.S. assembly versus U.S. cell sourcing in these conversations? Are they satisfied with local assembly? Or are they increasingly wanting like domestic cells sourcing or origin also.

Yes, there's a fine line between domestic sales and overall cost, right? And we feel that there's a lot of opportunity for domestic cell suppliers to be cost competitive and effective -- there is a definite ramp-up period over the next 18 months. It's going to be required in that. And I think it's our job as best manufacturers to try to support that ramp up right? But that means it's a percentage of what we're going to be doing, and we're going to be cost averaging that and trying to support some of these partners that we're working with to help them to ramp up and get their cost down. From a customer perspective, there's -- when we talk about domestic, domestic adds that 10% bonus potential to it, right? So it's a little bit less impact. And that really does come into a true cost-effective conversation, right? So what we're looking at it is we're looking at bonds that are domestic bonds that are fiat compliant and then comparing them to non-F-compliant bonds and how that looks, a fully imported fully covered, as Jing was saying, not just made in China, but actually delivered to the U.S. because there's still going to be tariffs and other things applied to that. And what we're looking at is fiat-compliant, and domestic content compliant. And if we get a domestic content sell, that adds a high, high percentage, well above the domestic content requirements and how do we potentially blend those 2 together. But we're not necessarily getting a demand that says we must have domestic cells. It's really more of -- you got to be compliant guys. We've got to be compliant, and we've got to be cost competitive. And then we've got to do the math that says we can have domestic content or not. That's really what we've been seeing lately.

Okay. That's super helpful. All right. Great. We're coming up on the top of the hour. So yes, Ardes, Jing, thank you so much for the time today. And like artists, if you want to leave us with any closing thoughts, that's great. I think we already did that and then move into Q&A. Reiterated that's fine.

No, I just want to appreciate the partnership that we have with Needham, and thank you for doing this for us. And again, like I said, we're excited about where we're going. We know it's going to be not easy, and we're going to continue to push for that, and we feel very confident that we're going to be able to compass our goals and looking forward to the next 12 months.

Great. Thank you guys so much. Thank you, Jing. Thank you, Ardes.

Thank you.