Corinne Blanchard : Hey, thank you for taking my questions. Could you comment a little bit on competition in Europe versus China-based company and maybe the risk of margin erosion in that market?
Raghu Belur : Yes. This is Raghu again. Competition is strong everywhere. It’s always been. It’s nothing new, both here in the U.S. as well as in Europe. And so for us, we are always striving to make sure that we are providing value and providing a highly differentiated solution. So if you look at the solutions that we provide, both here as well as the U.S. from a product point of view, I’ll talk about other stuff as well, from a product point of view, we are truly a distributed architecture that gives us much better performance, much better reliability. And because it’s a low-voltage DC system, both solar and batteries, et cetera, it’s arguably much safer as well in addition to being very simple to install, maintain and manage.
The second thing we also look at very closely is that providing very high-quality, high-reliability products. And that’s, again, a big differentiator, and it starts with the architecture as well as all of the work that we do in delivering a very high-quality product. And finally, it’s customer service. Just making sure that, as Badri mentioned, if you look at what our NPS is, look at what I call wait times. Somebody calls us, we answer the phone immediately. It’s one phone call to make because, typically, they’re buying the entire Enphase system. And so delivering the best customer experience, both for our installer — our distributor partners, installer partners as well as for the home owner. For the homeowner, they have just one app to look at, and they can — they have the control of their entire system on the palm of their hand.
So to summarize, it’s highly differentiated products, high-reliability products and great customer experience. And that’s how we manage — that’s how we deal with our competition and reflected in our — in pricing and gross margin, as Badri mentioned.
Corinne Blanchard : Got it. Thank you. And a follow-up to a different topic, but coming back to California, you mentioned there’s about a three to four-month backlog from the process that was done in 1Q. I know you do not provide like further than next quarter guidance, but do you expect like sequential improvement throughout the year, I mean, in the second half of the year better than the first half? Just trying to get a view there.
Badri Kothandaraman : It’s hard for me to say right now, but I know that NEM 3.0 has got great fundamentals in California. And contrary to what I’ve read from the reports, it is a change. Selling from NEM 2.0 to NEM 3.0 requires the installers to adapt. And now the storage attach is going to be a lot more, it is a change in selling. It is a change they are not used to yet. So the next three to four months will be probably well spent in training the installers on how to sell NEM 3.0, because with NEM 3.0 now, the consumption of the homeowner is important. NEM 3.0 has got tariffs for 24 hours during the day, times 365 days a year, so 8,000 plus points, 8,000-plus data points. So it’s very important. Your consumption profile is important.
So your savings obviously depends on the consumption profile. So we need to make a few things clear to the homeowner. And we need to clearly tell him that basically — him or her that self consumption — you’re going to do self-consumption most of the time, which means what, your consumption is going to be met by either solar and/or storage. But during the month of August and September, we have all seen blackouts in California, during the month of August and September, why? Because the demand on the grid is higher than supply. There — in August and September, under NEM 3.0, you get paid for actually helping the grid. You get paid handsomely. And at that time, battery is going to be your best friend. You’re going to be making a lot of money on batteries.
So I think, my personal opinion is NEM 3.0 — of course, it requires a lot of evangelizing, a lot of selling, but NEM 3.0 will be a catalyst for solar plus storage. Like Germany, if you go look at Germany. Germany, the solar market is over 2 gigawatts, maybe 3 gigawatts right now. The attach rate is over 80%. That’s a fuel self consumption market. And the tariff structure is similar. I think the import rate is €0.41 per kilowatt hour and the export is something like €0.11 per kilowatt hour, so a very similar construct. I think the result will be the same. Of course, it’s not going to be overnight. It’s going to take time, but great for the long term.
Corinne Blanchard: Thank you.
Operator: And our next question comes from Brian Lee from Goldman Sachs. Please, go ahead with your question.
Brian Lee: Hey, Badri and team. Thanks for taking the questions. Maybe just a follow-up on that one. Just if we drill down on storage specifically, that hasn’t really grown here for a number of quarters, and you’re guiding sequentially down there on shipments. I know NEM 3.0, it sounds like you’re going to take a little bit of time to filter through the market. But do you anticipate that your storage volumes will grow sequentially at any point moving through the rest of this year? That would be my first question. And then I have a follow-up.
Badri Kothandaraman: Yeah. I think the storage volumes are going to go — Q2 is probably the low. They’re going to grow from here on and simply because of one reason. We are going to be introducing batteries to a lot more countries. We just introduced to four countries. And we are going to be introducing the third-generation battery in Q2 this quarter. Then, we are going to be introducing the third-generation battery into multiple countries in Europe. So NEM 3.0 is a part of the equation, but not the only thing in the equation. And eventually, the installers are going to figure out how to sell batteries in the rest of the US, despite the high interest rates. So like what I said, I think we are turning the corner on batteries.
We have understood how to enhance the customer experience. Even our second-generation batteries are best in class right now. The third-generation batteries will obviously make things even better with double the power, double continuous triple peak. Yeah.
Brian Lee: Okay. Understood. So Q2 is a low point. That’s helpful. And then just my follow-up would be, I appreciate the additional commentary about sell-in versus sell-through and providing that context. But I was a little bit confused as to what it means for channel inventory situation and kind of what you’re expecting? Because it almost sounds like with sell-through being down much more than sell-in that maybe inventory levels in the US are elevated. I know you said, it was on battery storage, but not micros, but when do you expect maybe sell-in and sell-through to kind of match up more aligned? And then I guess, what is sort of the viewpoint on whether there’s some inventory drawdown that’s impacting near-term sort of volume opportunity?
Badri Kothandaraman: If you see a mathematic threat, if you see one week of channel inventory equals roughly 7.5%, right — of the quarter, right? If you split the quarter into 13 weeks, so one week is basically 7.5%. So if something, let’s say, if in one quarter if the sell-through is, let’s say, 15% down that equates to two weeks of inventory. And so it’s nothing over the top. It is if your normal channel inventory is somewhere around 10 weeks — or 8 to 10 weeks, this would result in a slight — instead of 8 weeks, you would be at 10 weeks. That’s what you’re talking about. So now having said that is we expect sequentially better sell-through. You know, Q1 is usually bad for sell-through due to a combination of weather plus now there is a macroeconomic effect on top of it. So Q2 is seasonally better plus with the installers getting little bit more adjusted to the situation. Things are going to be incrementally better in terms of sell-through in Q2 onwards.
Brian Lee: Okay. Appreciate that. Thank you.
Operator: And our next question comes from Philip Shen from ROTH MKM. Please go ahead with your question.
