And I think the ROI is well worth especially considering the net benefit to us. So, our logic was quite simple. We weren’t worried. We did a few back-of-the-envelope calculations. We thought it is the right thing for us to invest in these lines and fortunately, we have very strong and great contract manufacturing partners who need to do a lot of the heavy lifting, all our capital that we set out is quite limited. They do a lot of the heavy lifting, like what they are doing today, and two of them are existing contract manufacturers. So, we have deep relationships. And we are going to work with them in the long-term. So, we thought that’s the right decision for us to do, and we basically accelerated that effort. And once we make a decision, it takes us a few quarters.
In the past, it has taken us four quarters to six quarters to ramp up the likes. So, our thesis is quite bullish on solar, and we think that’s the right call.
Steve Fleishman: Okay. No, that’s €“ so ultimately, expect obviously, significant volume growth from that. And then on margins, you mentioned, I mean you have had the gross margin held up well, but then the $20 to $30 that you just mentioned, is that a gross margin benefit net of cost?
Badri Kothandaraman: That’s the net €“ the IRA gives you an incentive, which is $0.11 a unit, $0.11 per AC watt. Now, every microinverter that we make, let’s say, the microinverter that we make 320 AC watts. 320 AC watts multiplied by $0.11, right. So, that number is roughly about $35. So, that $35 is the net benefit. Now, it takes us some incremental cost to manufacture in the U.S. versus manufacturing in Mexico, call that as some delta, right. It also takes us €“ we want to make sure our contract manufacturing partners are healthy as well. So, therefore, they share a little bit of that incentive. Therefore, the net benefit for us would be that $35 minus the incremental cost adder, minus the benefit we pass on to our contract manufacturing partners, and that number is what I reported as $20 to $30 net benefit per unit. That’s all incremental to what we have today.
Steve Fleishman: Great. I will leave it there. Thank you.
Operator: The next question comes from Jeff Osborne of Cowen & Co. Please go ahead.
Jeff Osborne: Hi. Good afternoon Badri. I have two quick ones. You touched a lot on Europe, but I was wondering if you can specifically drill down on the visibility you have there in terms of Q1 and Q2.
Badri Kothandaraman: Yes. Europe is actually the opposite. We do have good visibility. We do have these strong orders. Partners, our installer partners, distributor partners, they rely on us for supply. A few of them even come to our headquarters quite routinely, that’s something that we are starting to see. And we also visit them quite a bit. So, I think we do have decent visibility there.
Jeff Osborne: Great to hear. And then either for yourself or Mandy, I didn’t know if there is a way of doing sort of a gross margin walk between Q3 and Q4. Certainly, the IQ8 cycle is helping. But wasn’t sure if that’s the complete story, if there is a mix issue in terms of ancillary equipment or softer battery sales that led to the strength in the quarter? And then how do we think about the gross margin walk to get to the high end of the range for next quarter?
Badri Kothandaraman: Yes. It’s mostly about IQ8 mix. The IQ8 mix is 55% in Q4. That means if we €“ out of the 4.8 million microinverters that we shipped worldwide, 55% are IQ8. So, that’s principally contributing to the gross margin. And that number, the 55% was, how much Mandy in?
Mandy Yang: It was 47% in Q3.
Badri Kothandaraman: Yes. 47% in Q3. That number, we expect that number to be a little greater than 60% in Q1, that explains the model.
