Badri Kothandaraman: Yeah. IQ9, first of all, we were going to — we are working on two flavors. One is a 427 watt microinverter and the other is a 548 watt microinverter. The 427 watt microinverter would be what I would consider the bread and butter for the US in probably a year from today, which is right in the timeframe that we are introducing. And I would say that typically an introduction in the ramp for a new product like that would be four to six quarters based upon our experience with IQ8. So, two flavors, 427 watts and 548 watts. In the 548 watts, things get a lot more interesting. We are now going to have the 548 watts for three-phase, 208 volts as well as 480 volts small commercial installs. So, that’ll be good. The principal thing about IQ9 is it uses gallium nitride.
Gallium Nitride enables a high — much higher power with similar form factor. It’s got a good efficiency and it doesn’t dissipate as much heat. So, when we are using it in our — both the AC as well as DC FETs, we are able to get — we don’t need to blow up the microinverter form factor. And the other advantage with gallium nitride is it allows us to operate at a higher frequency. Earlier, we used to operate at — or today in IQ8, we are operating at 100 kilohertz. With gallium nitride, we can go up to a megahertz and we need to — we are working on our ASIC in order to get to that capability of a megahertz. But once you get to a megahertz, then what happens is you can basically get rid of your big transformers. And the transformer sizes can all go down.
And anyone who knows about inverters know that there is a lot of dollars going in there. So, in terms of form factor, things will get a lot more tighter, so that now since they get tighter, you’re not talking about blowing up the area due to higher power because one of the concerns always is efficiency. When you have higher power, if you operate at your same efficiency, you’re dissipating a lot of heat. Like for example, at 548 watts, you have let’s say, 97% efficiency, that means 548 watts times 3% that’s 16 watts of power and 16 watts of heat. But with the gallium nitride FETs, we are able to operate them with good efficiency. And so, we don’t need to blow up the inverter and we can keep it with an elegant form factor. For installers, we can look at bringing the dollars per watt continuously down.
Because for us, the more compact we make the microinverter, the more integration we achieve, the better it is. And just as FYI, where there are four silicon FETs before on the AC side, we will only need two silicon FETs or transistors because we got something called as a bidirectional switch for GaN. It can operate both ways. So, just zooming back to a higher level, GaN will allow us to operate at higher power, lower efficiency with the same form factor thereby dropping the dollar per watt because you’re increasing your power a lot.
Kashy Harrison: Helpful color. Thank you.
Operator: Thank you. And our next question today comes from Mark Strouse at JPMorgan. Please go ahead.
Mark Strouse: [Technical Difficulty] questions. Just got two questions on gross margins. For the 2Q guide, the 39% to 42%, that’s down a bit from what you’ve been guiding the last couple of quarters. In response to Colin’s question earlier, you mentioned mix as a part of that. I just want to confirm, are you kind of talking about kind of mix of just kind of random installers that you’re selling to in a given period, or is there anything to signal as far as kind of international mix or storage mix? Any other color there would help.
Badri Kothandaraman: Yeah, there what I was talking on the question from Colin, which was microinverters was installer mix. That’s correct. But this question that you are asking, the 39% meaning, we guided 39% to 42% for non-GAAP gross margin without IRA in Q2. Your question is why? And yes, we increased our battery guidance by 30 megawatt hours. As you can see, Q1 guidance was 70 megawatt hours to 90 megawatt hours. We increased 100 megawatt hours to 120 megawatt hours. That means we are — the battery to microinverter ratio is increasing from before. We are getting a — we are getting better and better and better on the gross margin of batteries, and you’ll see those numbers continuously improve. On batteries specifically, I called out three factors.
I said the cell pack costs are continuing to come down rapidly. We are beginning to manufacture now our microinverters, which are used in the battery. We are beginning to manufacture them in the US. Those will provide us with the production tax credit, which is exactly the intention that we need to produce that product in the US, the inverter is made in the battery. And then, the last one, which is exciting one is where we are moving to a more integrated architecture for power conversion and battery management. And basically, what’s going to happen is our third-generation battery, the Y direction is going to almost get cut by 40%, and instead of six microinverters that we have in the third-generation battery, we will now have two microinverters, one on each side of the fourth-generation battery significantly cutting down the form factor.
So, we expect that to bring in another big level of improvement in gross margin. So, those are the gross margin puts and takes on our batteries.
Mark Strouse: Okay. Very helpful. And then my quick follow-up question on the 45X within gross margin. Last quarter you talked about 500,000 units being about a $12 million to $14 million benefit. For 2Q, you’re talking about a similar number of units, but with a $14 million to $17 million benefit. I’m not sure if I’m just splitting hairs there, but just wanted to see if you’re kind of signaling that you’re maybe keeping more of that 45X credit.
Badri Kothandaraman: No. What happens is, there is a few things that happen there. It depends upon the power of the microinverters that we are building. Sometimes we may build a 384 watt microinverter, you do the $0.11 per watt math there or we may build a 640 watt microinverter that is used inside the battery. So, it’s a function of that and purely a function of that. So, it just falls out. The higher power we make, the more advantage we have, which is why we are beginning to — I told you that we are beginning to make our small commercial IQ8P microinverters starting in Q2 as well from the US. So those are 480 watts, so $0.11 a watt is $53 gross benefit, gross production tax credit there.
Mark Strouse: Yeah. Okay. That makes sense. Thank you very much.
Badri Kothandaraman: Thank you.
Operator: And our next question comes from Praneeth Satish with Wells Fargo. Please go ahead.
Praneeth Satish: Thanks. Maybe just staying on the battery, so looking out to the fourth-gen battery, it seems like there’s a very large cost reduction coming. I guess, how do you think about keeping these cost savings versus passing it on to customers? I guess, specifically, I’m thinking about this in the context of Tesla Powerwall 3. Today, you can buy a Tesla Powerwall 3 with its integrated inverter and that’s going to be cheaper than an Enphase battery, an inverter solution. And I know it’s apples-to-oranges because they’re using a string inverter. But I guess with the fourth-generation battery, you have the ability to close that gap while still earning more margin. So, I guess, I’m just trying to see how you think about that opportunity next year with that new battery.
Badri Kothandaraman: Yeah, I mean — yeah before that, let me give you a color on — you talked about many things there. You talked about battery, you talked about competition, you talked about string inverter integrated into the battery. I just want to remind you of our benefits and why we offer tremendous value. So, in my trip in the last four weeks, many of our customers are — they are very experienced. They have used string inverters and you have no idea of all of the troubles they have gone through. And they — for them some of the customers mentioned safe AC on the roof is religion for us. So, safe AC on the roof. You don’t want high-voltage DC above you. That’s the first point on Enphase. Production: we have microinverters for every panel, MPPT at a panel level.
Production can be enhanced almost by 5% to 15% when you compare to normal string inverters. Per panel monitoring: many of our installers love that, per panel monitoring and their homeowners love it because they are able to say, okay this particular thing isn’t working and they are able to get service from Enphase ultrafast. We are open 24/7. Reliability: you can count on. That’s why we provide 25-year warranty. Most of competition may be 10 or 12 years. No single point of failure: unlike string inverters that causes much higher uptime for your system, and that you’re all familiar with. Simple plug-and-play install — our installers love the simplicity. No additional RSD, Rapid Shutdown Devices, needed. Any orientation: if you have roofs in any — roofs in different orientations, it’s got to be Enphase, nothing else.
Grid farming IQ8 Microinverters enabling sunlight jump start for depleted batteries. Everybody knows this, but if I were to emphasize, you are running off grid, you have a power shutdown, you’re running off grid, your battery — let’s say, you’ve turned on the AC on by accident, your battery runs down, your battery runs down all the way to a particular percentage, then the battery has got a capability to do what is called Black Start. It opens, it wakes up every few minutes the next day and it says, I am ready and it asks solar, are you ready, and that can happen for one or two days. But after one or two days, that — even that energy in the battery goes away and the battery is dead. That is the state of charge drops to percent or below. Now with Enphase IQ microinverters, you could do sunlight jumpstart.
You have even without the grid, sunlight comes, you form the grid, you jump start the battery at that time and the battery state of charge comes up. So that’s an example sunlight jumpstart that we do. And of course, our microinverters are now being made in America. That’s a big deal. Many of our installers love that. When it comes to storage, safe chemistry, lithium-ion phosphate, big deal, UL9540A Fire certification, very big deal. And we have worked with the fire departments and make sure that we have optimized the placement of batteries there. So, we have done it for a lot of [AHJs] (ph) in California. Best warranty in the industry: you see competition at 10 years approximately, our warranty is 15 years, no moving parts or fans. Low-voltage DC operation of the batteries.
If you see a concept of a hybrid inverter where one inverter takes care of solar and storage, obviously, there is a lot more stress on that. But we have a distributed architecture, which means you’ve got inverters on the roof that take care of solar. You got inverters in the battery that take care of storage and even if one inverter in the battery goes down, the other inverters are there to help. The system is never down. Field serviceable: in situ without taking the battery of the wall minimizing downtime. I talked about gross margin. This time I didn’t say this, but it is a big deal. Our overhead costs in running a battery business are dropping quite a bit because we have figured out how to not do expensive RMAs. And expensive RMA is what you have a big system hanging off your wall.
The worst thing you do is it doesn’t work, you take it off the wall, the homeowner is off commission for many days in a row, then you have to take it back to the installer’s warehouse. The OEM or the component manufacturer, battery manufacturer has to ship product to him and the installer have to spend his valuable time on the field once again installing the new battery. The homeowner is down, he is losing solar and storage. He is losing the self-consumption dollars, and especially in a place like California, that can add up a lot. It can be a major source of annoyance. With our field serviceability in situ, instead of taking a $5,000 battery, we can take a $50 board, PCB board off, take that out, put the new board in, in a matter of an hour, you’re up and running, and so enhanced serviceability.
The next one LRA, 48 ampere LRA for every 5 kilowatt hour battery, 144 amperes for a 15 kilowatt hours, enough to start a four ton in a two batteries, two of our 5 kilowatt hour batteries are enough to start a three ton air conditioner. And our power is double both the peak and continuous power are double that of the previous generation and our installers love that. Simple to install and commission: for example, the NEM 3 scenario, much like Germany, our installs — many of our installs, most of our installs are what called as a grid-tied install. A grid-tied install or a rate saver install or a time of use install or a savings battery, they are all identical. That is the battery is simply provides economic advantage and installing such a battery is trivial.
You finish your solar, you’re done with AC on the roof, you then all you need to do is to take two of our 5 kilowatt hour batteries, you hang it off the AC bus, there is nothing to size, there is no main panel upgrade. You don’t need to worry about where to place it. You simply hang it off the AC bus. And the installation can be done in less than two hours, you connect it to the same Combiner box that you use for solar, no extra component and you’re up and running. So, that’s becoming very popular rate saver battery or grid-tied battery becoming extremely popular. So, that’s that. So I told you the benefits of Enphase Solar and Enphase Storage System. If you look at all-in-one mobile app, the problem with having multiple solar and storage manufacturers is that the homeowner has got a mess of apps.
And it’s possible, but it’s difficult to keep track of all of that. So, all information and control at your fingertips. The ability to take the home off the grid through an Enphase app, we provide that as well. We provide 24 hour — 24/7 customer service with 100 field service technicians who will take care of the batteries. The installer doesn’t need to spend its valuable time. He can focus on a new install. And as you know, the big advantage is with an AC coupled system is, you have both the power from your solar system as well as from your batteries. So, the combination means even more power. You don’t have one inverter constraining your output. And of course, the last one is our PCS software, Power Control System software. That one is invaluable, going to be invaluable to installers to not do main panel upgrades.
