Solaredge Technologies Inc

NASDAQ:SEDG

Earnings Call Transcript 2020-Q3

[Operator]

Good day, everyone. Welcome to the SolarEdge Conference Call for the Third Quarter Ended September 30, 2020. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Event Calendar page. This call is the sole property and copyright of SolarEdge with all rights reserved and any recording, reproduction or transmission of this call without the expressed written consent of SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the Event Calendar page of the SolarEdge Investor website.

I would now like to turn the conference over to Mr. Michael Funari at Sapphire Investor Relations, Investor Relations for SolarEdge. Please go ahead, sir.

[Michael Funari, Sapphire Investor Relations]

Good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the third quarter ended September 30, 2020, as well as the company's outlook for the fourth quarter of 2020.

With me today are Zvi Lando, Chief Executive Officer; and Ronen Faier, Chief Financial Officer. Zvi will begin with a brief review of the results for the third quarter ended September 30, 2020. Ronen will review the financial results for the third quarter, followed by the company's outlook for the fourth quarter of 2020. We will then open the call for questions.

Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in our press release and the slides published today for a more complete description. All material contained in the webcast is the sole property and copyright of SolarEdge Technologies with all rights reserved.

Please note this presentation describes certain non-GAAP measures, including non-GAAP net income and non-GAAP net diluted earnings per share, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation as we believe they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. Listeners who do not have a copy of the quarter ended September 30, 2020 press release or the supplemental material may obtain a copy by visiting the Investors section of the company's website.

Now, I will turn the call over to Zvi.

[Zvi Lando, Chief Executive Officer]

Thank you, Mike. Good afternoon and thank you all for joining us on our conference call. I'm happy to report that despite the second wave of the global pandemic in Europe, North America and Israel, our offices in all regions continue to function almost without interruption and we continue to focus on the health and well-being of our employees, while managing the business impact of the rapidly changing conditions and regulations, including lockdowns and travel restrictions.

Today, we announced third quarter revenues of $338.1 million, a slight increase quarter-over-quarter. Revenues for the third quarter in our solar business were approximately $312.5 million, also slightly above previous quarter’s solar revenues. This quarter, we saw record high solar revenues of $165.6 million in Europe, up from $144.3 million last quarter due to strength in the Netherlands and Germany, which are traditionally strong territories for us, as well as growth in smaller markets such as France, Poland and Switzerland, all of which experienced record revenues this quarter. We are confident in the continued strength that comes from our local offices and support teams throughout Europe.

In North America, while revenues did not increase quarter-over-quarter, we saw significant quarter-over-quarter growth in both installation rates and sell-through reported by our distributors. In fact, in September, sell-through reported by our distributors was up 22% in residential and more than 40% up in commercial megawatts sold when compared to August, and at a level higher than the same month in 2019. As a result, current distributor inventory of our residential products are at a healthy level. And thus, we anticipate approximately 50% growth in residential sales in North America in the fourth quarter. The situation in commercial, however, is more complex and similar in Europe and in North America.

Initially, there was an expectation that commercial will overcome the pandemic at a faster pace, and as such, distributors and EPCs increased inventory during the first months of the pandemic. In actuality, commercial installations both in Europe and the U.S. and even in Australia are recovering slower than residential and inventories in the channel are still high.

As for regions outside of North America and Europe, we see continued strong revenues from Australia, Taiwan and Japan.

On the manufacturing and operational side, overall this quarter we shipped 3.3 million power optimizers and 152,500 inverters. This quarter we began commercial shipments to the U.S. of optimizers and inverters from Sella 1, our new factory in Israel. In addition to providing capacity of non-tariff products, this factory, just an hour drive from our R&D team and labs, enables us to accelerate new product development cycles, especially during this period when we are limited in travel to other manufacturing sites. Our intent is to define equipment and processes with new developed products in Sella 1 and copy to the various contract manufacturers around the world. By way of example, this quarter, we produced in Sella 1 the first prototype units of the 330 kilowatt inverter planned for introduction in late 2021 and intended to give us access to the mid-sized ground mount and small utility segments. With Sella 1, coupled with the continued ramp of contract manufacturing sites in Vietnam and Hungary, we expect that 60% of U.S. product in Q4 will come from non-tariff regions.

In our currently marketed products, we continue to see strong demand for our storage compatible inverters with approximately 6,500 Energy Hub inverters delivered this quarter in the U.S. and over 8,000 more storage compatible inverters shipped to Europe and Australia. Our current global install base of DC coupled residential storage systems is about 50,000 systems installed on third-party batteries. We believe that installers and homeowners appreciate the benefits and maturity that comes with having one fully integrated solution, that has proven itself in multi-year scenarios of backup, self-consumption, and thus enables grid services. This of course leads to the timing of the availability of our own residential battery.

While R&D activities continue as planned, the global pandemic and associated travel restrictions have impacted our certification and production target dates. And we expect this will delay the release of our residential battery by several months.

With the current travel restrictions, our R&D teams are limited in travel to the manufacturing sites and certification labs. While we are still aiming for initial shipments this year, as previously communicated, it is more likely that this will happen only in early 2021, pushing need for ramp up and consequently battery-related revenues to Q2 and Q3 of next year.

Additionally, on the product side, as was announced this quarter by Schneider Electric, we are collaborating with them on the development of a solution that will enable our Energy Hub inverter to seamlessly and easily integrate with Schneider’s Square D Energy Center distribution system. The collaboration is intended to serve market needs of new homes and new homebuilders initially in California, where solar is now required on all new home constructions. We are enthusiastic about this collaboration as this will give us an opportunity to introduce the SolarEdge brand and products to the new home market, which we currently underserve.

We also released in our beginning shipments of a 3-phase 600 volt residential inverter for Australia. This new product gives us better access to approximately 25% of the Australian residential market. We expect that it will add to the positive momentum we have seen in recent quarters in the residential market in Australia.

In the commercial and industrial markets, we continued to ramp production of the new larger capacity commercial inverter we released a couple of quarters ago. In addition, we released a new series of optimizers aimed to accommodate higher power modules of up to 550 watts. The recently accelerated trend of increasing module outputs is good for reducing the cost per watt of the module, and is also favorable to our business, as it enables reduction of the cost per watt of optimization, making the cost gaps to string inverters smaller and driving adoption. This is in line with our strategy to have cost effective optimizers that are compatible with practically all types of modules available in volume in the market. As a result, we are already seeing design wins in large rooftops and small scale ground mounts with EPCs and investors interested in the monitoring and safety capabilities provided by our system who hesitated until now due to the cost gap. While the commercial market has been slow during COVID, as I explained earlier, this segment is expected to see significant growth as the market recovers in 2021.

In our grid services offering, we continue to add utility customers to our virtual power plant platform on a quarterly basis in the United States, Europe and Australia. We also continue to diversify our product offering including a pilot of frequency triggered curtailment of commercial sites. This is our first non-residential grid services project.

In our non-solar business, we continue to invest heavily in these businesses which are to become additional pillars of growth for SolarEdge. Our non-solar revenue this quarter was $26 million, up from $22 million in the prior quarter, and we expect this to gradually increase as we approach a significant milestone as we gear up to manufacture and deliver the first significant batch of full powertrain solutions to a known automotive OEM.

For the last six months, 10s of electrical vehicles powered by our full powertrain units have been accumulating miles and going through an extensive qualification process. In the fourth quarter, we expect to deliver an additional 100 to 200 powertrain kits as mass production is scheduled to begin. As a reminder, a typical powertrain kit includes batteries, inverters, motor and vehicle control units. While not significant yet in revenues and margin, this is the first meaningful step for us into the e-Mobility market and towards materializing the bigger SolarEdge vision to become a global leader in smart, sustainable energy solutions.

On that note, I want to refer interested investors to our new Sustainability Report published this morning and available in the Investors section of our website.

And with this, I hand it over to Ronen and who will review our financial results.

[Ronen Faier, Chief Financial Officer]

Thank you Zvi and good afternoon everyone. As always, my review includes a GAAP and a non-GAAP discussion. Fully reconciliation of the performance GAAP results discussed in this call is available on our website and in the press release issued today. For the third quarter, total revenues were $338.1 million a 2% increase compared to $331.9 million last quarter and an 18% decrease compared to $410.6 million for the same quarter last year.

Revenues from the sale of solar products were $312.5 million, slightly higher than the $310.1 million last quarter. U.S. solar revenues this quarter were $105.9 million and represented 33.9% of our solar revenues. Solar revenues from Europe reached record high of $165.6 million or 53% of our revenues. Revenues generated from outside the United States and Europe this quarter were $41 million, representing 13.1% of our solar revenues this quarter.

On a megawatt basis, this quarter we delivered 419 megawatts to the United States, 708 megawatts to Europe and 254 megawatts to the rest of the world. Residential products represented 49% of our megawatts shipped and commercial products were 51%. With quarter our top 10 solar customers represented 61% of our solar revenues and included more European customers than last quarter. Two distributors accounted for more than 10% of our quarterly revenues each.

Blended ASP per watt of our solar products increased this quarter by approximately 1% compared to the last quarter. This quarter, revenues from our non-solar products were $25.6 million led by sales of lithium-ion batteries by Kokam and increased sales of e-Mobility, automation machines and products sold by our critical power division.

GAAP gross margin for the quarter was 32% compared to 31% in the prior quarter and 33.9% in the same quarter last year. Non-GAAP gross margin this quarter was 33.5% compared to 32.4% in the prior quarter, and 35.1% in the same quarter last year. Non-GAAP gross margin for the solar business was 34.8% compared to 33.8% in the last quarter. This increase is a result of improved exchange rate on sales in Europe, coupled with cost reduction activities, and a reduction in the volume of Chinese made products that are subject to custom tariffs in the United States, in our overall product mix. This quarter, approximately 43% of the products shipped into the United States came from non-tariff production.

Cost of goods sold in the solar business included costs related to the ramp of production in our Sella 1 factory this quarter, and this will continue until the second quarter of 2021, as we continue to increase production volumes. Our normalized inventory levels enable us to eliminate air shipments this quarter.

Non-GAAP gross margin from our non-solar activities was 16.9% compared to 13.5% in the previous quarter. The increase was a result of higher margins in lithium-ion product sales, offset by an increased e-Mobility preproduction expenses.

As mentioned by Zvi, our e-Mobility division is preparing for supply of powertrain kits for 100 to 200 electric vehicles in Q4. The powertrain is a highly complicated system that includes several components that are produced in part by contract manufacturer and assembled in our Italian manufacturing facility. During the last quarters, we have been building manufacturing capacity in Italy that includes an increase in the number of employees and associated expenses that are charged to our cost of goods sold. Given the current small number of units, the complexity of manufacturing and the start-up phase of this manufacturing process, the e-Mobility sales are characterized with low gross margins.

Moving to our operating expenses. In total, GAAP operating expenses for the third quarter was $77.7 million, or 23% of revenues, compared to $73 million, or 22% of revenues in the prior quarter, and $73.3 million, or 17.9% of revenues for the same quarter last year. On a non-GAAP basis, operating expenses for the third quarter were $63.2 million or 18.7% of revenues, compared to $61.1 million or 18.4% of revenues in the prior quarter, and $54.8 million or 13.3% of revenues for the same quarter last year.

As previously reported, at the end of the first quarter, the company took measures to reduce spending in response to the global pandemic. The company continues to remain cautious on OpEx spending, while allowing growth in R&D activity, mostly in the non-solar businesses and selling equipment in the solar R&D organization. The increase in G&A expenses is mainly related to a provision resulting from an IP litigation judgment in China that is under appeal.

Our non-GAAP solar operating expenses as percentage of solar revenues were 16.7% compared to 16.2% last quarter. Our GAAP operating income for the quarter was $30.4 million, compared to $30 million in the previous quarter, and $66 million for the same period last year. Non-GAAP operating income for the quarter was $50 million, compared to $46.6 million in the previous quarter, and $89.2 million in the same period last year.

This quarter, non-solar activities resulted in non-GAAP operating loss of $6.6 million, compared to an operating loss of $8 million in the previous quarter as a result of our increased investment in e-Mobility and critical power activities offset by higher profitability in the battery business. Financial income for the quarter was $15.9 million, compared to financial income of $11.6 million in the previous quarter, and a financial expense of $17 million for the same period last year. This income is a result of foreign currency changes resulting mostly from unrealized exchange rate fluctuations, and the accounting treatment of intercompany balances and intercompany loans provided for the acquisitions in Korea and Italy.

Tax expense was $2.4 million this quarter, compared to a tax expense of $4.9 million in the prior quarter and $7.3 million for the same period last year. Our non-GAAP tax expense was $1.6 million, compared to $8.1 million in the previous quarter and $10.2 million for the same quarter last year. Mainly a result of higher deductible expenses related to the exercise of employee stock options and restricted stock units by our employees in Q3 2020.

GAAP net income for the third quarter was $43.8 million compared to a GAAP net income of $36.7 million in the previous quarter and $41.6 million in the same quarter last year. Our non-GAAP net income was $65.9 million compared to a non-GAAP net income of 52.1 million in the previous quarter and $63.6 million for the same quarter last year. GAAP net diluted earnings per share was $0.83 for the third quarter, compared to $0.70 in the previous quarter and $0.81 for the same quarter last year.

Non GAAP net diluted EPS was $1.21, compared to $0.97 in the previous quarter, and the same $1.21 in the same quarter last year. Our non-solar businesses generated an $0.18 non-GAAP diluted earnings per share loss.

Turning now to the balance sheet. As of September 30, 2020, cash, cash equivalents, bank deposits, restricted bank deposits and investments were $1.2 billion, increased significantly as a result of our convertible loan raised at the end of this quarter. Net of debt, cash, cash equivalents, bank deposits, restricted bank deposits and investments were $553.8 million. During the third quarter of 2020, we generated $28.4 million in cash flow from operations.

Accounts receivable net increased nominally this quarter to $183.1 million compared to $181.7 million last quarter. Days sales outstanding this quarter in the solar business was 70 days, a decrease from 73 days last quarter. We continue to see reliable payment patterns from our customers and our credit terms are back in general to the pre-pandemic times.

As of September 30, 2020, our inventory level, net of reserves, was at $297 million compared to $264.5 million in the prior quarter. this increased level of inventory is a result of both higher finished good inventories of solar products, which allows us to be flexible in the delivery schedule to our customers and increase raw materials in the e-Mobility division in preparation for the planned Q4 deliveries.

Moving now to the guidance for the fourth quarter of 2020. We expect revenues for the fourth quarter of 2020 to be within the range of $345 million to $365 million. Revenues from the sale of solar products are expected to be within the range of $320 million and $335 million. We expect non-GAAP gross margins to be within the range of 32% to 34%. Non-GAAP gross margins for the solar activity is expected to be within the range of 34% to 36%.

I will now turn the call over to the operator to open it up for questions. Operator, please?

[Operator]

[Operator Instructions] We'll hear first today from Mark Strouse with JP Morgan.

[Mark Strouse, JP Morgan]

Just wanted to dig in on your comments around C&I uncertainty. Can you kind of reconcile that with the comments I think you made about greater than 40% sell-through from your distributors in C&I. First of all, was that just the U.S. number, was that a global number? And then kind of help me think those two things out with what you're hearing from your distributors and kind of the commentary about that recovery being slower than resi? Thanks.

[Zvi Lando, Chief Executive Officer]

So indeed December was the first month of a significant increase in the sell-through of commercial products through our distributors in North America, and it’s a positive time after several months where installation rates and sell-through were fairly consistent and not very high. So it's a positive indicator. At the same time for the reasons that I explained, the inventories level -- the inventory level is still high. So we believe that it will take a few more months of sell-through attach rate until significant new sales from us to the distributors will resume. So that's why we think that 2021 we will see a growth in the market and growth of sales as the inventories decline, but the fourth quarter will still be quite low in terms of commercial sales.

[Mark Strouse, JP Morgan]

And then just kind of general news around certain lockdowns in certain countries internationally. Just curious, if that is starting to impact your business at all?

[Zvi Lando, Chief Executive Officer]

So this is in line with the same message. So we saw also during the first round of lockdowns in most of the world that residential continued almost without interruption. And as we were reporting throughout the first phase of the pandemic, Europe was installing during the lockdowns of early 2020s, still at a higher rate than residential installation in 2019.

So as far as we can tell, and all of the signs that we're seeing now is that this will be the behavior also during this round of lockdowns also in Europe, and also in Australia and other countries. At the same time, residential is continuing and no signs of slowdown. Commercial, we believe that the recovery will continue to be at a slower pace than residential, although the commercial installations are increasing as well in the U.S., as I mentioned before, and also in Europe.

As I said, the bigger, I would say constraint for us around the lockdowns is the ability to move our people around. And that has definitely impacted and will probably be a couple of more months at least until that begins to ease.

[Operator]

We'll go next to Colin Rusch with Oppenheimer.

[Colin Rusch, Oppenheimer]

Can you talk a little bit about what's going on from mix perspective, what’s driving the guide on gross margins? What are you seeing with an annualized that growth rate quarter-to-quarter?

[Ronen Faier, Chief Financial Officer]

So it's a combination -- first of all, to see that there are changes in the mix of sales during the move from Q3 to Q4. On one hand, we do see a decline in the sales that are going to Europe, this is following the seasonal effects that we usually see in the fourth and the first quarter in Europe. And at the same time, as Zvi mentioned, we see close to 50% increase in the residential sales in the United States due to the higher sell-through that we see from vendors.

This is actually what is helping the gross margins. In general, U.S. sales, especially resi, are characterized with higher gross margins. And the fact that we're selling more resi into the United States, is helping the margins. By the way, the gap is not as big as it was in -- when we moved from Q1 to Q2, because at that time, the euro was lower by about almost 10%. And therefore, we lost a little bit more. So now the difference is a little bit smaller. So the first thing that happened is this one.

The second issue is that we continue to do at the same time cost reductions. Cost reductions are now realized to the P&L a little bit slower given the higher inventory levels that we had, but they still are materialized over time. So I think these two effects combined together are helping the growth in the solar gross margins.

As you saw in our guidance, actually the guidance for the non-solar or to the overall remains the same despite the growth in the solar and this is reflecting the increased volumes of sales that were going to e-Mobility. These are sales that are characterized with lower gross margins, and therefore they lose, sort to say, the increase in gross margin of the solar business when it comes to the consolidated numbers.

[Colin Rusch, Oppenheimer]

And then just on the powertrain business, shipping these kits out. Can you give us a sense of how many customers you're working with and who they are, and how far along they are in their development process? Obviously that, that can be a slow emerging market but Zvi just wanted to kind of get a sense of how deep you are into that market at this point?

[Zvi Lando, Chief Executive Officer]

We're working with one significant size customer and one significant size project that is very close to start-up production. We're working with other customers but at a much, much earlier phase of the cycle.

[Operator]

We’ll go next to Maheep Mandloi with Credit Suisse.

[Maheep Mandloi, Credit Suisse]

Just on the commercial, residential mix, could you just talk about like how significant growth of the 50%. I think you said for -- from Q2 to Q4 for residential. Does that imply U.S. residential shipments flat year-over-year? And I just wanted to see how should we think about that mix going forward, do you still go back to that 60/40-ish range we saw historically for Q4 and next year?

[Zvi Lando, Chief Executive Officer]

In our -- the big difference between last year to this year in the fourth quarter is safe harbor. So there are no safe harbor soon shipments in our Q4 residential North America revenue. So it is significantly down from the same period of last year, partially because of safe harbor and partially it's still at a lower rate than 2019.

[Maheep Mandloi, Credit Suisse]

And just high level on the battery product launch, which you said was delayed by a few months here. But beyond that could you confirm if that would be DC coupled solution? And if you have any plans for an AC coupled, or how do you think about this retrofit opportunity where most of the customers so far have been opting for an AC coupled solution?

[Zvi Lando, Chief Executive Officer]

As I mentioned, we have proximately 50,000 systems that are installed, that are DC coupled solutions with third-party batteries, typically LG Chem or originally Tesla batteries. Obviously we believe -- and this number of 50,000 is quite significant when compared to any other storage -- residential storage system. DC coupled has a lot of advantages that it allows for oversizing and -- of the PV and of the modules and harvesting, all of that energy during the period of a blackout and extending the time that you’re resilient to the absence of power.

So -- and it's more efficient, because it reduces the number of conversions back and forth from DC to AC. So we believe -- and as I said, many customers adopted the idea that the DC coupled system is better. Now, we still have many systems on top of these 50,000 that are installed in an AC coupled configuration. Our battery will be primarily DC coupled, because that's the right way to do it. But it's not just there's any technical reason why it won't be able to be AC coupled.

[Operator]

And from ROTH Capital Partners, we'll hear next from Philip Shen.

[Philip Shen, ROTH Capital Partners]

In terms of the solar outlook, it was much weaker than we were looking for Q4. And I know you talked about strength in Europe, and also in the U.S. resi market. I was wondering if you could talk through, what you expect or the reasons for that potential weakness? And then as you look into 2021, I know you haven’t given guidance and don't plan on it but can you talk through how you expect the solar revenues possibly to trend next year? Thanks.

[Zvi Lando, Chief Executive Officer]

So I think in summary, and as what we tried to explain in the comments, there are two factors that are, I would say, below expectations or shifting in the Q4 down. One is the typical seasonality in Europe. So Europe has been excellent for us this year. It's been excellent for us in Q2. It is still going to be pretty good in Q4, but it's going to be down from Q3 as it is practically every year. The second challenging element is commercial. So commercial revenue for us has been declining for the last couple of quarters, and it's not going to pick up in Q4. Those are below expectations if you will and the positive is on the residential North America where we're expecting significant growth from Q3 to Q4 as inventory levels are down and installation rates are significantly up than they were earlier in the year, and coming close to those of the same periods of last year.

[Philip Shen, ROTH Capital Partners]

Great, Zvi. And then in terms of '21?

[Zvi Lando, Chief Executive Officer]

So obviously, it's very early to say, as we look at all of the question marks around the pandemic, et cetera. We believe that the same strength that worked for us during the challenging times of 2020 in terms of our geographical spread and our product diversification, will put us in a good position for 2021. I would say market is recovering across the board then -- meaning in geographies and all segments, then we will be in a great situation because we are, for the most part, from a market share position as far as we can go, if anything, in a better position in most countries and most segments than we were a year ago. And from a segment coverage point of view, we are covering more segments with the larger inverters enabling us to cover bigger parts of the commercial market. Some of the residential additional offerings that we added like in Australia, like the Schneider Corporation that gives us access to the new home market, which we previously were very weak or practically non-existent in. So putting those together, we're -- actually what is in our control, we feel very optimistic about 2021 in terms of our share position in the geographies and the offerings that we have. And again, in early or at some point in 2021, also the battery revenue will start kicking in. The question mark on the dynamics of the market and how all kinds of external factors will affect that, that's out of our control, and it's difficult for me to try and predict any better than what is publicly published.

[Operator]

We'll hear next from Jim Ricchiuti with Needham & Company.

[Jim Ricchiuti, Needham & Company]

The commercial and C&I business, is that more concentrated in the U.S.?

[Zvi Lando, Chief Executive Officer]

No. Actually, our C&I business is very strong in Europe. It's very strong in Australia. And our C&I business in the U.S. is smaller compared to those, but it's still a significant business and a significant opportunity.

[Jim Ricchiuti, Needham & Company]

So when you talk about seeing some positive signs in September C&I business in the U.S., what are you seeing in some of the other geographies, which clearly are more important right now to those?

[Zvi Lando, Chief Executive Officer]

So I mentioned the C&I market in 2020 in Australia and Europe will be down compared to 2019, while the residential market in both of these regions will be up compared to 2019. I don't have the ratio on top of my head, but the markets are probably in the range of 10% to 15% down, maybe. And again, I don't remember the number exactly. So that's roughly the C&I in that regard.

[Jim Ricchiuti, Needham & Company]

Okay. Fair enough. And just one, may have given some color on OpEx, and I may have just missed it. But I'm just wondering how we should be thinking about OpEx, just particularly with some of your R&D levels moving up a little higher? How should we be thinking about that Ronen for the current quarter?

[Ronen Faier, Chief Financial Officer]

So in general, it should be very close to -- in Q4 compared to what we see in Q3 with a little bit of an uptick. As we mentioned before, first of all, in the non-solar businesses, these are businesses that we are developing, and we are in an investment mode. So that means that we are increasing R&D. We are increasing sales and marketing activities, and we are trying to approach more customers in new end markets. When it comes to the solar business, here, the -- first of all, mobility is a little bit more mature. And therefore, no major additions are needed in most cases. In the R&D though, we are using the opportunity that we see talent now in the market, we see some lay-offs that we saw from other companies. And we now have opportunities to bring people that maybe prior to COVID, we were not able to do it. So in general, controlled R&D can grow. Sales and marketing remain relatively similar. And G&A today, most of the changes that we see are related to, I would call it, external factors that are not within our control, may be the judgment that we had in Q3 that we needed to accrue for more extensive insurances, but not something that we can control as a company.

[Operator]

We'll hear next from Brian Lee with Goldman Sachs.

[Brian Lee]

I guess, first off, on the C&I market in Europe. Can you give us a bit of quantification around sort of where inventory levels peaked on a weeks basis? And where they are today? And kind of how you see them trending going forward? And then with the inventory situation, are you seeing pricing getting a bit more competitive in that space, just given that's always been an area where you've had more suppliers, you're competing against in general? And then I had a follow-up.

[Zvi Lando, Chief Executive Officer]

So trying to pull out the exact data. So well, just to give a feel for it. While inventory levels in Europe for residential products are in the 7-week range, for commercial products the inventory levels are about 1.5 quarters. So we're about 14, 15 weeks. So that's roughly the inventory level for C&I versus residential in Europe. The second part of the question, just remind me, Brian, please?

[Brian Lee]

Just around pricing trends, just given the inventory, if you're seeing some of your peers being more competitive or aggressive on the pricing side?

[Zvi Lando, Chief Executive Officer]

Yes. So in C&I, in particular, in Europe, the price difference between our selling price is practically the only MLPE for C&I globally, and in particular, in Europe, are quite significantly higher than the standard string inverter pricing in the region. So the gap is so big that it is not -- the small fluctuations in price don't really impact market share as such. It's just the execution of the project is being delayed, and those that chose to do their projects with an MLPE solution or with our solution, as long as the project is delayed, they're not pulling the product out of the distributors and the distributors are not replenishing. And that's what we expect will gradually resume and projects will get back to being constructed at a higher pace. But right now, companies are moving slower on these types of investment decisions.

[Brian Lee]

Okay. Fair enough. And then just a second question, Ronen, you mentioned the margins, historically, I think you had talked about a 400 basis point to 500 basis point delta between U.S. resi and Europe C&I, for example. And so today, it sounds like it's compressed. Can you give us a sense of where it is today? And then just in that context, I thought the margin guidance for Q4 maybe would have been better given the 50% -- I'm sorry, quarter-on-quarter growth for your best margin end market, the U.S. resi. So maybe if you could just provide a little bit of color around all those moving pieces and maybe why margins are moving a bit higher in the guidance for Q4?

[Ronen Faier, Chief Financial Officer]

Sure. So it's a combination of several things. First of all, if I would say that it was close to 400 basis points before, I would assume that today, it's closer to 200 basis points due to the euro strengthening against the U.S. dollar. But there are many moving parts that are coming, especially right now at this point of time, when we're talking about margins when it comes to the United States. First of all, products going into the United States, of course, from areas with tariff are holding higher costs. And actually, the non-tariff countries are still on a like-to-like basis more expensive than the tariff manufacturing that we have in China. And therefore, specifically, on those products we see today as the business ramps up, a little bit of a lower margin than the usual. You add to this the fact that some part of the sales that we're going to do into the United States are coming now from our Sella 1 factory in Israel, which is still going into a ramp-up phase, that means that you do not have even straight two shifts a day. This is a factory that will go up to 3 shifts towards the second quarter of 2020, and that means that, again, that a little bit more costs are now built into those specific products.

So the reason for the, I would say, lower growth in the margin when we go into more sales in the United States, first of all, the compression of the difference between the euro and the sales in Europe and the U.S. due to euro. And second is because of the cost elements that are added today on our U.S. products, more than we have them -- these cost elements on the non-U.S. products.

[Operator]

[Operator Instructions] We'll hear next from Joseph Osha with JMP Securities.

[Joseph Osha, JMP Securities]

Two questions. First, I'd like to return to e-Mobility. We've heard about how that business is margin dilutive for the near term. I'm trying to understand what a success case looks like? Does this business eventually get to the point where there's at the level that the rest of the business is at? And roughly what sort of scale would you need out of e-Mobility to get to that level? And then I do have a follow-up.

[Zvi Lando, Chief Executive Officer]

So first, it's important, that this is a long-term move. So obviously, the potential of this market is huge. And as we explained also on the Analyst Day, we believe that it bodes well within our strength at the company in technology and manufacturing technology. So potentially, the scale is much more significant in the scale of the PV industry. But that is years away. For us, when we're looking at what is success now, it is moving from production of tens of 200, which is a move that we're beginning to do in this quarter and moving to the thousands of units in the next 6 to 12 months. And beyond and improving margin and profitability as we go along, what we're selling today were products that were qualified before we acquired the company that we acquired. And as a result, our ability to optimize and cost reduce is limited in the way that the automotive industry operates. So it is something that has tremendous potential, but it is a long path until that will materialize for sure in terms of flexibility, while top-line, we believe that there's potential to begin to see benefits already on a shorter scale than within 6 to 12 months.

[Joseph Osha, JMP Securities]

Okay. I guess that's clear, but we heard for the first time this quarter, you did mention when you talked about the fourth quarter, the e-Mobility was big enough that it was beginning to sort of blip into the overall calculation for the financial model. And then I hear you talking about going from tens of units to hundreds of units to thousands of units. So this is going to become highly relevant, say, 12 months from now. So is there any way you can kind of help us put some brackets around what this is going to mean for what the financial model looks like, understanding that it's still early days?

[Zvi Lando, Chief Executive Officer]

Yes. I think it's still early for us to give that in a more -- in a specific number frame. We're -- I think it's positive for us in this regard is that we're coming closer to that point in terms of where we solidified some short to mid-term contracts that allow us to give you the information that allows you to fit it into the model for the next, call it, 12 to 24 months. At this point, it's still in the range of a handful of million dollars a quarter, which doesn't really impact the model of the company.

[Operator]

We'll hear next from Jeff Osborne with Cowen & Company.

[Jeff Osborne, Cowen & Company]

Most of my questions have been asked, but I just wanted to follow-up on 2 things. One, if I heard right, you mentioned the 330-kilowatt utility-scale inverter, is that now targeted for late ‘21? I was thinking that, that was coming out either later this year or earlier next year, but maybe I'm mistaken on the timing.

[Zvi Lando, Chief Executive Officer]

In terms of -- especially because we intend to do longer alpha and beta testing for this type of product, which is our first real endeavor into medium voltage type installations and utility at scale. So as I mentioned, we began to produce prototypes. We'll be moving into alphas in the earlier part of the year. But real volume shipments will be only in the late part of 2021.

[Jeff Osborne, Cowen & Company]

And is that -- just to be clear, is that in time or in line with the timing that you were thinking a year ago, or no?

[Zvi Lando, Chief Executive Officer]

Roughly, yes. Yes.

[Jeff Osborne, Cowen & Company]

Got it. And then maybe just one comment that Ronan had on the storage side. Can you just crystallize what exactly the certifications or delays that you're referencing as it relates to COVID? Is that the qualification of third-party sells on the integration into new packs? Or is it some type of safety test? I was just unclear what exactly you were referencing that's leading to the few months delay?

[Zvi Lando, Chief Executive Officer]

No. The battery -- the full battery system-level certifications, both in Europe and in the U.S. that we have batteries in routes to the lab. And usually in this type of condition, we would want to have people there, so that any type of debugging and corrective actions is aligned on the spot, that cycle is going to be longer under these circumstances. And similarly, production, we began producing initial units in the factory in Hungary. And again, without our R&D people presence on the line, it is becoming -- all of these cycles are taking longer. It's all at the full battery level, it’s not at the seller or the pack level, it’s at the battery level.

[Operator]

Next from Marshall Carver with Heikinen Energy Advisors.

[Marshall Carver, Heikkinen Energy]

Yes, so I think you somewhat addressed this with the last question. But the -- so the longer -- I would imagine at this point, the longer-term battery targets, such as the $300 million a year in 2022. Those are now pushed back at least a couple of quarters as well?

[Ronen Faier, Chief Financial Officer]

No. Actually, no. The numbers that we gave, the $300 million target for 2020 is related to batteries that will be based on sales coming from our 2-gigawatt factory in Kokam in Korea. The battery that we are now testing and shipping to the U.S. is our first-generation battery that is based on third-party sales. And therefore, the delay in this one is not necessarily implying to the delay to a possible delay on the batteries coming from the Kokum factory.

[Marshall Carver, Heikkinen Energy]

Okay. Very helpful. And you gave the commercial inventory levels at 14 to 16 weeks, was that in Europe or for the total company? And could you give a similar number for the residential inventory levels?

[Ronen Faier, Chief Financial Officer]

So that was for Europe. And at the company level, it's quite similar in that range of around a couple of quarters. And residential also, company level, it varies a little bit between countries, but it's in the seven, eight weeks in that type of range.

[Operator]

And at this time, I'd like to turn things back to Zvi Lando for any closing remarks.

[Zvi Lando, Chief Executive Officer]

So thank you. I just thank everyone for joining us on the call. And I just wish everybody to stay safe and thank you.

[Operator]

And that will conclude today's conference. Again, thank you all for joining us.