Badri Kothandaraman: Right and to add a little bit more is solar plus battery self-consumption, the payback, let’s say in a world without net metering. That payback will be around eight to nine years. And then you add on the savings due to dynamic tariffs where the batteries can help, batteries as well as solar can help manage the situation. That will reduce the payback by a year or so. Then your imbalance also has the capability and balance management also has the capability to reduce that payback further down by a year or two. So you get to have a very nice payback, which is six years — six to seven years with solar plus batteries and software gives you good payback. And the good thing is if you have net metering, those numbers will get even better.
Christine Cho: Okay. And then part of the issue of the slowdown in the California recovery is because California installers don’t know how to install the batteries. And California homes are bigger, and I suppose there are more rules here around the batteries and placement, which also has complexity. The Netherlands homes are much smaller. And from what I understand, the rules there are so relaxed around the permitting for solar. So I can’t imagine that they’re going to be that different for storage. But should we think that the actual installation for batteries is easier there and less of an off as it has been in California. And given I don’t think they really have outages, should we think that the batteries and installations will be primarily for load shifting?
Badri Kothandaraman: And it’s exactly that, meaning there isn’t too many outages in Netherlands at all. So right now, if you look at many countries in Europe, they will all talk about only grid-type batteries. These batteries do not need back up. Of course, we offer backup as well. It is what the customer wants, but the customers have been asking for grid tied batteries. Grid tied batteries have simpler in a sense, you don’t need to worry about backup panel and all that. It is like installing solar. Grid tied batteries are not in the path of power, like solar. If you want to do backup, you have to insert a switch in between the utility and your home. And so all of that is not required. It is simply an economical place here. And essentially, it stores energy and you can discharge it for use later.
So yes, I mean — and also, the homes are small. As you rightly pointed out, the battery sizes may be between five kilowatt and 10 kilowatt. The sweet spot could be something like a five-kilowatt hour battery for all the installations and the attach rates in Netherlands could be very high, 80% to 90% at five-kilowatt per hour, which is not a big dent in in the pocket, but enough to basically have the energy companies feel happy that okay, the customers have a way to manage and not export solar all the time in an unmanaged fashion.
Operator: The next question comes from Jordan Levy of Truist. Please go ahead.
Jordan Levy: Good afternoon all and thanks for all the detail. Maybe just to start quickly on the U.S. battery manufacturing side. And you may have touched on this, but just to get a sense of how we should think about the trending for margins on the battery side versus micros once you start to bring on that U.S. manufacturing capacity later this year?
Badri Kothandaraman: Yes. Today, our — I mean, today, our supply chain is predominantly in China, and we assemble our batteries there. Going forward, our supply chain will have two parts. One will still have one with the best-in-class cost structure will have basically the assembly of the battery in China with microinverters made in the United States. So that will help us because the microinverters are made here. The other is the entire battery is assembled in the U.S., including the microinverters, obviously. And the latter one, we plan to have it in the third quarter of 2024. And of course, some customers, especially the EPO customers will have the benefit of getting an additional 10% in ITC as long as we meet the domestic content requirement which we plan to meet.
So — and we expect to get — we expect to have a slight premium there to compensate for the cost of assembly in the U.S. So I think either way both parts will have similar gross margins in my mind, but they will all continuously improve as our cell packs get lower cost and our microinverters are manufactured in the U.S.
Jordan Levy: Appreciate that. And just a quick follow-up. Along those same lines, you’ve been a big pioneer in increasing U.S. manufacturing capacity. This is a question that will come up probably a lot over the next 12 months or less. But out of the election in November, I just wanted to get your thoughts as it relates to an existential threats to the IRA or any of the components of the IRA as we approach the election?
Raghu Belur: Yes. Obviously, we don’t have a crystal ball to predict who is going to win the elections. But to some extent, we don’t think it will matter because at the end of the day, this is about creating jobs. And investments and both of which we have done, given our factories both here in — the two factories here in the U.S., both in South Carolina as well as in Texas.
Operator: The next question comes from Kashy Harrison of Piper Sandler. Please go ahead.
Kashy Harrison: Good afternoon. And thank you for taking the questions. So the first one, just a quick follow-up on the comment, Badri you made earlier. I think you said half of your activations in January were for NEM 2.0, the balance is NEM 3.0. Can you just give us a sense of what the NEM 2.0 mix of sell-through was in 4Q? And then when do you expect that NEM 2.0 backlog to run out completely?
Badri Kothandaraman: Yes. I mean, I leaned in a little bit and gave you the numbers in January. Those correspond those. When I say system activation, this one is even further. It is not — it is sell-through happens when distributors sell to installers. Activations means those installers finish installation, and it goes up on roofs. What I gave you was we see homes coming up on our software platform. And we are able to clearly say how many of them are NEM 2.0, how many of them are NEM 3.0. So in January, 50% of them were NEM 3.0, 50% of them, therefore were NEM 2.0. If you ask me what is that ratio in the prior quarter, I don’t know, but my guess is it was approximately 70-30, 70% NEM 2.0 and 30% NEM 3.0 in the prior quarter Q4. And in Q1, I expect it to be more like 50-50.
Kashy Harrison: Got it. Helpful. And then just a quick follow-up question. In your discussions with your distributors, has there been any indication whatsoever that they may want to hold less inventory on hand moving forward versus the eight to 10 weeks they used to previously. And really, the root of the question just stems from the fact that a lot before you were shipping a bunch of stuff to the U.S. from India. So you have longer lead times, given you’re going across the ocean. That changes once Texas and South Carolina ramp and become two-thirds of your shipments. And so I’m wondering if simplistically, shorter lead times means less inventory from a distributor perspective?
Badri Kothandaraman: That’s correct. It does mean — and at the end of the day, look, I mean we need end customer demand at the end of the day. Distributors are definitely a critical part of the equation, but we need the end customer demand. So anything that shortens the cycle time is actually good for us. Anything that compresses the overall cycle time, which U.S. manufacturing will do is good for us because then there is — inventory doesn’t have a lot of money on it. And so we think that’s what you pointed out will be a net positive for us once we come out of this.
Operator: The next question will come from Andrew Percoco of Morgan Stanley. Please go ahead.
Andrew Percoco: Great, thanks so much for taking the question. Maybe just if you can maybe elaborate or give us an update on your SunPower contracted exclusivity there. I think it was set to end of — the end of March here. So if you could just provide an update in terms of how those negotiations are going and maybe what’s baked into your guidance in terms of run rate revenue for 2024 as it relates to that contract?
Badri Kothandaraman: Yes. I mean we have enjoyed our contract with SunPower over the last five years almost. It is going to come to a close in Q1. And of course, we are in discussion with them. And I’ll just leave it at that. I don’t want to comment on any revenue. We don’t comment on revenue associated with one customer like that. All of those decisions are confidential. But if there is something that gets finalized, you will know.
Andrew Percoco: Fair enough. And then maybe just one housekeeping item. Badri, I think in your prepared remarks, you mentioned 50% of your customers under NEM 3.0 are using your battery. But I think you also said the industry data is showing battery or attach rates of close to 80%. So can you maybe just comment on what’s driving that delta and maybe how you can get a higher attach rate for your battery specifically on those NEM 3.0 customers?
