Badri Kothandaraman: Well, I’ll be lying if I tell you I’m not seeing something irrational. Of course, installers are very stressed, right? They do want to take advantage of the lowest cost available at a given point in time. So therefore, sometimes without understanding, they may want to switch to somebody who’s offering low cost. But we usually, most of our installers are, they have a lot of experience. They’re very well trained now. And they understand the importance of distributed architecture. They understand the importance of single point, no single point of failure. They understand quality. They understand customer service. And therefore, you might save a few dollars up front, but if you have a quality problem, a service call by the installer is a truck roll.
You spend a lot of money in one truck roll. And if you just do one more, I mean, that’s it, you have no more room there despite the low cost. So it’s a penny wise pound foolish strategy to do that. And they’ve all realized it. And, if you actually put things in context, let us say the pricing is $3 or $3.50 for what? You look at the inverter bill of materials, probably of the order of 10%. Should you play around there? Should you take a lot of risks there? And it’s their call at the end of the day. And many of them are wise to say, we’re not going to make that call. So, I mean, we have a lot of robust discussions. This is the time where we are talking to customers more than ever. We have a lot of other tools at our disposal. For example, Solargraf.
We do design and proposal. We can generate leads for installers at very economical rates. We can help them on permitting services, for example, sometimes even free of charge. We have a lot of tools at our disposal to reduce their soft costs. And that’s critical because we have to look at everything. We cannot look at component level. We have to look at the full system level in these times. And once you start looking at that and have these discussions, usually it comes back to, we get more market share, not less. And more installers want to move to us, not less. You can see some evidence of that in the third party reports.
James West: Okay, okay, got it. That’s very helpful, Badri. Thank you. And just one quick follow up for me. You mentioned producing IQ batteries in the U.S. by middle 2024. Did you give a capacity number along with that?
Badri Kothandaraman: No, we have not given. We will provide more details as we come close to that date.
James West: Okay, got it. Thanks.
Badri Kothandaraman: Yes, thank you.
Operator: Our next question will come from Eric Stein with Craig-Hallum. Please go ahead.
Eric Stein: Hi, everyone. So just talking about California, I can appreciate talking or thinking about that as a wild card given what’s going on in the market. But if I think about the expectation that that market stays flat, but then the hangover from NEM, which you said has a few quarters here left to work out, I don’t want to put words in your mouth, but I mean, is it fair to say that there is some cautious optimism about California as we get into the back half of next year?
Badri Kothandaraman: Absolutely, yes. As we get into the back half, absolutely. Meaning one is the utility rates are continuing to go up. The second is, let’s assume the utility rates go up even by half the amount they are advertised, the payback, like what I said, is going to become, I mean, for a solar plus storage system is going to become the same as, almost the same as a solar only NEM 2.0 system. And, the economics are there actually today. The battery can not only provide resilience, it can help the grid during times of stress in August and September when the grid needs it the most. So it’s a combination of you get resilience for yourself, you make money by providing grid services, which is incorporated into the utility rates right now.
And we are well positioned to doing that. Why? Because we got great microinverters, number one. We got batteries now that can discharge at very high power, double the power of our earlier batteries. Why is that important? Because during certain hours, you have the utility paying you a lot for exporting power to the grid. And what we can do because of a high discharge rate, during those times we can maximize the power. So we can do that. So we have solar plus storage. And of course we have complete energy management software. And we couple that with our Solargraf design and proposal tool. We have everything, all the optimization at the fingertips of the homeowner. And many times he needs to do nothing. He just needs to turn on our optimization engine.
It’ll do the right thing for him. So we’re absolutely very bullish about California towards the second half of 2024.
Eric Stein: Got it. And maybe just sticking with California for my follow-up, with NEM, is that whole, that transition takes place being the biggest factor? I mean, what are some of the other factors that could do, that cause California to be a wildcard? What are the things that are maybe top of mind for you that could cause that market to take another leg down?
Raghu Belur: Yes, this is Raghu. And as Badri mentioned, all of the potential tailwinds that are there, remember in an environment where the demand per home is continuing to go up, people are continuing to electrify. People are buying more and more EVs, heat pumps, etcetera. And couple that with utility rates where they are and going further up, this is the right solution. Solar plus battery is the right solution. The energy management software is absolutely the right solution in order to drive your ROI and as well as reduce your payback. And to that end, what we have done as well is a lot of education into the marketplace in terms of explaining to people, what the benefits of, solar plus battery system with energy management and etcetera.
And going out there and educating the market as well as providing them with a lot of tools. So in this environment where demand is going up, you have the education, you have the tools, the financials are there, the payback is very good. That’s the reason why we are extremely bullish about California coming back strongly.
Badri Kothandaraman: So to answer the question in another way, the headwinds are, headwinds that we see are if installers, aren’t educated by us properly. If we don’t do a good job of educating the installers, things can stall out a little bit. So it is important for us and other companies to, in this space, to make sure the installers, whatever we provide installers, the tools are very easy to use so that they can sit at the kitchen table and look at the homeowner and say, your payback is six years. And here is why your payback is six years. And explain to them very confidently. And it’s not just Enphase, it is Enphase plus our competition, plus all of the energy companies. All of us have to do our job in training the, installers. And I think that is, of course, that’s a piece that is not very easy to do. And you cannot have enough of it. So that’s the biggest headwind that I see.
Eric Stein: Okay, thank you.
Operator: Our next question will come from Colin Rusch with Oppenheimer. Please go ahead.
Colin Rusch: Thanks so much, guys. Can you talk a little bit about how much modulation you can do with the OpEx? As you look at investing in these incremental programs and bringing these products to market, is there some incremental cutting that you can do? Or there’s going to be a regular spend increase on the R&D side?
