Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of 1933, as amended (the “Securities Act”), which are subject to risks, uncertainties, and assumptions that are difficult to predict. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements concerning, among other things: the length and severity of the ongoing COVID-19 (novel coronavirus) outbreak, including its impacts across our businesses on demand, manufacturing, project development, construction, O&M, financing, and our global supply chains, actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impacts, and the ability of our customers, suppliers, equipment vendors, and other counterparties to fulfill their contractual obligations to us; effects resulting from certain module manufacturing changes; our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, products, projected costs (including estimated future module collection and recycling costs), warranties, solar module technology and cost reduction roadmaps, currently anticipated delays in the implementation of our CuRe program and related estimated impacts, restructuring, product reliability, investments, and capital expenditures; our ability to continue to reduce the cost per watt of our solar modules; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; the potential impact of proposed legislation intended to encourage renewable energy investments through tax credits; effects resulting from pending litigation; our ability to expand manufacturing capacity worldwide; our ability to reduce the costs to develop and construct PV solar power systems; the impact of supply chain disruptions, further exacerbated by the COVID-19 pandemic, that may affect the procurement of raw materials used in our manufacturing process and the distribution of our modules; research and development (“R&D”) programs and our ability to improve the wattage of our solar modules; sales and marketing initiatives; and competition. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “seek,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” “continue,” “contingent,” and the negative or plural of these words, and other comparable terminology.

Forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q and therefore speak only as of the filing date. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason, whether as a result of new information, future developments, or otherwise. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include, but are not limited to, the severity and duration of the COVID-19 pandemic, including its potential impact on the Company’s business, financial condition, and results of operations; structural imbalances in global supply and demand for PV solar modules; the market for renewable energy, including solar energy; our competitive position and other key competitive factors; reduction, elimination, or expiration of government subsidies, policies, and support programs for solar energy projects; the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules; the passage of proposed legislation intended to encourage renewable energy investments through tax credits; our ability to execute on our long-term strategic plans; our ability to execute on our solar module technology and cost reduction roadmaps; our ability to improve the wattage of our solar modules; interest rate fluctuations and both our and our customers’ ability to secure financing; the creditworthiness of our off-take counterparties and the ability of our off-take counterparties to fulfill their contractual obligations to us; the loss of any of our large customers or the ability of our customers and counterparties to perform under their contracts with us; the satisfaction of conditions precedent in our sales agreements; our ability to attract new customers and to develop and maintain existing customer and supplier

relationships; our ability to successfully develop and complete our systems business projects; our ability to convert existing production facilities to support new product lines; general economic and business conditions, including those influenced by U.S., international, and geopolitical events; environmental responsibility, including with respect to CdTe and other semiconductor materials; claims under our limited warranty obligations; changes in, or the failure to comply with, government regulations and environmental, health, and safety requirements; effects resulting from pending litigation; future collection and recycling costs for solar modules covered by our module collection and recycling program; supply chain disruption, including the availability of shipping containers, port congestion, cancelled shipments by logistic providers, and the cost of fuel, all of which may be exacerbated by the COVID-19 pandemic; our ability to protect our intellectual property; our ability to prevent and/or minimize the impact of cyber-attacks or other breaches of our information systems; our continued investment in research and development; the supply and price of components and raw materials, including CdTe; our ability to attract and retain key executive officers and associates; and the matters discussed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020, elsewhere in this Quarterly Report on Form 10-Q, and our other reports filed with the SEC. You should carefully consider the risks and uncertainties described in these reports.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q. When referring to our manufacturing capacity, total sales, and solar module sales, the unit of electricity in watts for megawatts (“MW”) and gigawatts (“GW”) is direct current (“DC” or “DC”) unless otherwise noted. When referring to our projects or systems, the unit of electricity in watts for MW and GW is alternating current (“AC” or “AC”) unless otherwise noted.

Executive Overview

We are a leading American solar technology company and global provider of PV solar energy solutions. Developed at our R&D labs in California and Ohio, we manufacture and sell PV solar modules with an advanced thin film semiconductor technology that provide a high-performance, lower-carbon alternative to conventional crystalline silicon PV solar modules. From raw material sourcing through end-of-life module recycling, we are committed to reducing the environmental impacts and enhancing the social and economic benefits of our products across their life cycle. In certain markets, we also develop and sell PV solar power systems that use the modules we manufacture and provide O&M services to system owners. We are the world’s largest thin film PV solar module manufacturer and the largest PV solar module manufacturer in the Western Hemisphere.

Certain of our financial results and other key operational developments for the three months ended September 30, 2021 include the following:

• Net sales for the three months ended September 30, 2021 decreased by 37% to $583.5 million compared to $927.6 million for the same period in 2020. The decrease was primarily driven by the sales of the Ishikawa, Miyagi, Anamizu, Tungabhadra, and Anantapur projects in the prior period, partially offset by an increase in the volume of modules sold to third parties.

• Gross profit for the three months ended September 30, 2021 decreased 10.2 percentage points to 21.4% from 31.6% for the same period in 2020. The decrease in gross profit was primarily due to the volume of higher gross profit projects sold during the prior period, a decrease in the average selling price per watt of our modules, an increase in logistics costs, and an increase to our module collection and recycling liability due to lower estimated by-product credits for certain semiconductor materials recovered during the recycling process, partially offset by continued module cost reductions and a higher benefit from reductions to our product warranty liability in the current period due to lower-than-expected claims for our older series of module technology and the evolving claims profile of our newest series of module technology.

• As of September 30, 2021, we had 7.9 GWDC of total installed Series 6 nameplate production capacity across all our facilities. We produced 2.0 GWDC of solar modules during the three months ended September 30, 2021, which represented a 33% increase in Series 6 module production from the same period in 2020. The increase in Series 6 production was primarily driven by the incremental Series 6 production capacity added in Malaysia in early 2021 and higher throughput at our manufacturing facilities. We expect to produce between 7.6 GWDC and 7.8 GWDC of Series 6 modules during 2021.

Market Overview

The solar industry continues to be characterized by intense pricing competition, both at the module and system levels. Although module average selling prices in many global markets have declined over several years, recent module spot pricing has increased due to elevated commodity and freight costs. For example, the price of polysilicon has significantly increased in recent months due to a coal shortage in China, which resulted in higher energy prices and Chinese government mandated power restrictions that led to curtailments of silicon metal production. Given the majority of global polysilicon capacity is located in China, such higher energy prices and reduced operating capacities have further exacerbated the supply and demand imbalance in the polysilicon market, contributing to the increase in polysilicon pricing. While the duration of this elevated period of spot pricing is uncertain, module average selling prices in global markets are expected to continue to decline in the long-term. In the aggregate, we believe manufacturers of solar cells and modules, particularly those in China, have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. Accordingly, we believe the solar industry may experience periods of structural imbalance between supply and demand (i.e., where production capacity exceeds global demand), and that such periods will also put pressure on pricing. Additionally, intense competition at the system level may result in an environment in which pricing falls rapidly, thereby potentially increasing demand for solar energy solutions but constraining the ability for project developers and diversified module manufacturers to sustain meaningful and consistent profitability. In light of such market realities, we continue to focus on our strategies and points of differentiation, which include our advanced module technology, our manufacturing process, our diversified capabilities, our financial viability, and the sustainability advantage of our modules and systems.

Global solar markets continue to expand and develop, in part aided by demand elasticity resulting from declining average selling prices, both at the module and system levels, which has promoted the widespread adoption of solar energy. As a result of such market opportunities, we recently announced plans to expand our manufacturing capacity by 6.6 GWDC by constructing our third U.S. manufacturing facility in Lake Township, Ohio and our first manufacturing facility in India. These new facilities are expected to commence operations in the first half of 2023 and the second half of 2023, respectively. Additionally, we are developing solar projects in Japan as we execute on our utility-scale project pipeline. See the table under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Systems Project Pipeline” for additional information about the projects we are developing. Although we expect a portion of our future consolidated net sales, operating income, and cash flows to be derived from such projects, we expect third-party module sales to continue to have a more significant impact on our operating results as we expand our manufacturing capacity and leverage the benefits of our module technology.

Competitive pricing for modules and systems, relative to the cost of traditional forms of energy generation, is expected to contribute to diversification in global electricity generation and further demand for solar energy. Over time, however, declining average selling prices may adversely affect our results of operations to the extent we have not already entered into contracts for future module or system sales. Our results of operations could also be adversely affected if competitors reduce pricing to levels below their costs, bid aggressively low prices for module sale agreements or PPAs, or are able to operate at minimal or negative operating margins for sustained periods of time. For certain of our competitors, including many in China, these practices may be enabled by their direct or indirect access to sovereign capital or other forms of state-owned support. In certain markets in California and elsewhere, an oversupply imbalance at the grid level may reduce short-to-medium term demand for new solar installations relative to prior years, lower PPA pricing, and lower margins on module and system sales to such

markets. However, we believe the effects of such imbalance can be mitigated by modern solar power plants and energy storage solutions that offer a flexible operating profile, thereby promoting greater grid stability and enabling a higher penetration of solar energy. We continue to address these uncertainties, in part, by executing on our module technology improvements, partnering with grid operators and utility companies, and implementing certain other cost reduction initiatives.

We face intense competition from manufacturers of crystalline silicon solar modules and developers of solar power projects. Solar module manufacturers compete with one another on price and on several module value attributes, including wattage (through a larger form factor or an improved conversion efficiency), energy yield, degradation, sustainability, and reliability, and developers of systems compete on various factors such as net present value, return on equity, and levelized cost of electricity (“LCOE”), meaning the net present value of a system’s total life cycle costs divided by the quantity of energy that is expected to be produced over the system’s operational life. Most crystalline silicon cell and wafer manufacturers have transitioned from lower efficiency Back Surface Field multi-crystalline cells (the legacy technology against which we have generally competed) to higher efficiency Passivated Emitter Rear Contact (“PERC”) mono-crystalline cells at competitive cost structures. Additionally, while conventional solar modules, including the solar modules we currently produce, are monofacial, meaning their ability to produce energy is a function of direct and diffuse irradiance on their front side, several manufacturers of mono-crystalline PERC modules offer bifacial modules that also capture diffuse irradiance on the back side of a module. Bifaciality compromises nameplate efficiency, but by converting both front and rear side irradiance, such technology may improve the overall energy production of a module relative to nameplate efficiency when applied in certain applications, which, after considering the incremental BoS and other costs, could potentially lower the overall LCOE of a system when compared to systems using conventional solar modules, including the modules we currently produce.

We believe we are among the lowest cost module manufacturers in the solar industry on a module cost per watt basis, based on publicly available information. This cost competitiveness allows us to compete favorably in markets where pricing for modules and systems is highly competitive. Our cost competitiveness is based in large part on our advanced thin-film semiconductor technology, module wattage (or conversion efficiency), proprietary manufacturing process (which enables us to produce a CdTe module in a matter of hours using a continuous and highly automated industrial manufacturing process, as opposed to a batch process), and our focus on operational excellence. In addition, our CdTe modules use approximately 1-2% of the amount of semiconductor material that is used to manufacture conventional crystalline silicon solar modules. The cost of polysilicon is a significant driver of the manufacturing cost of crystalline silicon solar modules, and the timing and rate of change in the cost of silicon feedstock and polysilicon could lead to changes in solar module pricing levels. In recent years, polysilicon consumption per cell has been reduced through various initiatives, such as the adoption of diamond wire saw technology, which have contributed to declines in our relative manufacturing cost competitiveness over conventional crystalline silicon module manufacturers.

In terms of performance, in many climates our CdTe solar modules provide certain energy production advantages relative to competing crystalline silicon solar modules. For example, our CdTe solar technology provides:

• a superior temperature coefficient, which results in stronger system performance in typical high insolation climates as the majority of a system’s generation, on average, occurs when module temperatures are well above 25°C (standard test conditions);

• a superior spectral response in humid environments where atmospheric moisture alters the solar spectrum relative to standard test conditions;

• a better partial shading response than competing crystalline silicon technologies, which may experience significantly lower energy generation than CdTe solar modules when partial shading occurs; and

• an immunity to cell cracking and its resulting power output loss, a common failure often observed in crystalline silicon modules caused by poor manufacturing, handling, weather, or other conditions.

In addition to these technological advantages, we also warrant that our PV solar modules will produce at least 98% of their labeled power output rating during the first year, with the warranty coverage reducing by a degradation factor of between 0.3% and 0.5%, depending on the module series, every year thereafter throughout the limited power output warranty period of up to 30 years. Based on the implementation of our Copper Replacement (“CuRe”) program, which replaces copper with certain other elements that are expected to enhance module performance, we expect the warranted degradation of our CdTe solar modules to decline to 0.2% per year in the near term. As a result of these and other factors, our PV solar modules can produce more annual energy in real world operating conditions than conventional modules with the same nameplate capacity.

While our modules and systems are generally competitive in cost, reliability, and performance attributes, there can be no guarantee such competitiveness will continue to exist in the future to the same extent or at all. Any declines in the competitiveness of our products could result in further declines in the average selling prices of our modules and systems and additional margin compression. We continue to focus on enhancing the competitiveness of our solar modules and systems by accelerating progress along our module technology and cost reduction roadmaps.

Certain Trends and Uncertainties

We believe that our business, financial condition, and results of operations may be favorably or unfavorably impacted by the following trends and uncertainties. See Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 for discussions of other risks (the “Risk Factors”) that may affect us.

Our long-term strategic plans are focused on our goal to create long-term stockholder value through a balance of growth, profitability, and liquidity. In executing such plans, we are focusing on providing utility-scale PV solar energy solutions in key geographic markets that we believe have a compelling need for mass-scale PV solar electricity, including markets throughout the United States, Japan, Europe, India, and certain other strategic markets. Additionally, we continue to focus on opportunities in which our PV solar energy solutions compete directly with traditional forms of energy generation on an LCOE or similar basis, or complement such generation offerings. These opportunities include the retirement and replacement of aging fossil fuel-based generation resources with utility-scale PV solar energy solutions. For example, based on publicly available information, retirements of coal generation plants in the United States alone are expected to approximate 50 GWDC over the next ten years, representing a significant increase in the potential market for solar energy.

This focus on our core module and utility-scale offerings exists within a current market environment that includes rooftop and distributed generation solar, particularly in the United States. While it is unclear how rooftop and distributed generation solar might impact our core offerings over the next several years, we believe that utility-scale solar will continue to be a compelling offering for companies with technology and cost leadership and will continue to represent an increasing portion of the overall electricity generation mix. However, our module offerings in certain international markets may be driven, in part, by future demand for rooftop and distributed generation solar solutions.

Demand for our solar energy solutions depends, in part, on market factors outside our control, such as the availability of debt and/or equity financing (including, in the United States, tax equity financing), interest rate fluctuations, domestic or international trade policies, and government support programs. Adverse changes in these factors could increase the cost of utility-scale systems, which could reduce demand for our solar energy solutions.

Our ability to provide solar energy solutions on economically attractive terms is also affected by the availability and cost of logistics services associated with the procurement of raw materials used in our manufacturing process and the distribution of our modules. For example, the cost of ocean freight throughout many parts of the world has continued to increase due to the limited availability of shipping containers, increased port congestion resulting from labor shortages, an increase in cancellations of shipments by logistics providers, and elevated fuel costs. Such factors may disrupt our supply chain and adversely impact our manufacturing operations as several of our key raw materials and components are either single-sourced or sourced from a limited number of suppliers. In response to these disruptions, we have accommodated certain requests for delayed shipments in an effort to manage our shipping

routes and mitigate our exposure to uncontracted freight rates. Additionally, due to ongoing schedule reliability issues with many operating ships, we are adjusting our shipping plans to include additional lead time for module deliveries and utilizing our U.S. distribution network to better meet our customer commitments. While it is currently unclear how long these issues will persist, they may be further exacerbated by the disruption of major shipping routes or other economic disruptions caused by the COVID-19 pandemic.

In certain markets, demand for our utility-scale offerings may be affected by specific regulations or policies of governmental bodies or utility regulators. For example, in June 2020, the Japanese legislature enacted an amendment to the Electricity Business Law Enforcement Order for the Ministry of Economy, Trade and Industry of Japan which, among other things, is expected to invalidate the feed-in-tariff certificates for projects that fail to achieve construction plan acceptance, submit an interconnection application, and/or achieve commercial operation within a set period of time following dates specified in their respective certificates. The amendment, which becomes effective in April 2022, applies to all projects regardless of generation type and is intended to release grid capacity reserved for delayed projects to enable other newly developed projects to utilize such capacity at a lower cost of electricity to consumers. The deadline by which a project must achieve construction plan acceptance, submit an interconnection application, and/or achieve commercial operation varies by project, but is no earlier than March 2023. Any deadlines that precede the expected construction plan acceptance and/or commercial operation dates of our various projects in Japan could adversely affect the value of such projects and our ability to secure any related project financing.

Many governments have also proposed policies or support programs intended to encourage renewable energy investments. Such support programs may include additional incentives over several years for renewable energy projects, including PV solar power systems, or manufacturers of renewable energy products. For example, legislation was recently introduced in the U.S. Congress that is intended to increase domestic solar manufacturing and accelerate the transition to clean energy by providing tax credits for U.S. solar manufacturers and project developers. Among other things, such proposed legislation extends the investment tax credit up to 40% for 10 years for solar projects that satisfy certain domestic content, labor, and wage requirements; introduces certain refundable tax credits for solar module components manufactured in the U.S.; revives certain tax credits for capital investments in the manufacturing of solar module components; and expands the scope of production tax credits for energy storage projects. If such legislation is successfully signed into law, or other similar policies or support programs are enacted, it could positively impact our business, financial condition, and results of operations. While we compete in many markets that do not require solar-specific government subsidies or support programs, our net sales and profits remain subject to variability based on the availability and size of government subsidies and economic incentives.

We intend to focus our resources in those markets and energy applications in which solar power can be a least-cost, best-fit energy solution, particularly in regions with significant current or projected electricity demand, relatively high existing electricity prices, strong demand for renewable energy generation, and high solar resources, such as the United States, Japan, Europe, and India. As a result, we closely evaluate and monitor the appropriate level of resources required to support such markets and their associated sales opportunities. We have dedicated, and intend to continue to dedicate, significant capital and human resources to reduce the total installed cost of PV solar energy and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market.

Creating or maintaining a market position in certain strategically targeted markets and energy applications also requires us to adapt to new and changing market conditions, including changes in the market set of potential buyers of our modules and solar projects. Market environments with few potential project buyers and a higher cost of capital would generally exert downward pressure on the potential revenue from such offerings, whereas, conversely, market environments with many potential project buyers and a lower cost of capital would likely have a favorable impact on the potential revenue from such offerings. For example, the emergence of utility-owned generation has increased the number of potential project buyers as such utility customers benefit from a potentially low cost of capital available through rate-based utility investments. Given their long-term ownership profile, utility-owned generation customers typically seek to partner with diversified and stable companies that can provide a broad spectrum of utility-scale generation solutions, including reliable PV solar technology, thereby mitigating their long-term ownership risks.

We continue to invest significant financial resources in R&D initiatives, including in efforts to enhance module performance such as our CuRe program. However, our CuRe program has encountered challenges in achieving its full performance entitlement in high volume manufacturing conditions, which, together with travel restrictions, quarantine requirements, and government orders impacting our ability to upgrade tooling to support our CuRe program at our manufacturing facilities in Malaysia and Vietnam, has resulted in delays in implementing our CuRe program. As a result, we are revising our expected integration schedule from the end of 2021 to early 2022 for our lead line implementation. In connection with these challenges, we have amended or will endeavor to amend certain customer contracts for modules utilizing CuRe technology, including by substituting our other modules for the modules with CuRe technology that were expected to be delivered under the terms of the original customer contracts. In connection with these customer contract amendments, we may make certain price concessions. Based on the information available to us at this time, including our present assessment of the challenges with our CuRe program and the relative performance characteristics of the substitute modules we can provide to customers, we currently estimate that the price concessions that we potentially will make across the impacted customer contracts described above will not exceed approximately $100 million of 2022 revenue. See Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q for more information related to the delays to our CuRe program.

On occasion, we may temporarily own and operate certain systems with the intention to sell them at a later date. As of September 30, 2021 and December 31, 2020, the recoverability of our Luz del Norte PV solar power plant was based, in part, on the likelihood of our continued ownership and operation of the system. However, it is reasonably possible that our intent to hold the asset may change in the near term due to our evaluation of strategic sale opportunities for the system. The pursuit of such opportunities, which require coordination with the system’s lenders, may result in a determination that the carrying value of the system is not recoverable based on the probability-weighted undiscounted future cash flows, which in turn could result in a possible impairment of the system in future periods. Accordingly, any changes in our expected use of the asset or its disposition may result in impairment charges that could be material to our condensed consolidated financial statements and have a significant adverse impact on our results of operations.

We continually evaluate forecasted global demand, competition, and our addressable market and seek to effectively balance manufacturing capacity with market demand and the nature and extent of our competition. We continue to increase the nameplate production capacity of our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and improving manufacturing yield losses. Additionally, we recently announced plans to expand our manufacturing capacity by 6.6 GWDC by constructing our third U.S. manufacturing facility in Lake Township, Ohio and our first manufacturing facility in India. Such additional capacity, and any other potential investments to add or otherwise modify our existing manufacturing capacity in response to market demand and competition, may require significant internal and possibly external sources of capital, and may be subject to certain risks and uncertainties described in the Risk Factors.

In response to the COVID-19 pandemic, governmental authorities have recommended or ordered the limitation or cessation of certain business or commercial activities in jurisdictions in which we do business or have operations. While some of these orders permit the continuation of essential business operations, or permit the performance of minimum business activities, these orders are subject to continuous revision or may be revoked or superseded, or our understanding of the applicability of these orders and exemptions may change at any time. In addition, due to contraction of the virus, or concerns about becoming ill from the virus, we may experience reductions in the availability of our operational workforce, such as our manufacturing personnel. As a result, we may at any time be ordered by governmental authorities, or we may determine, based on our understanding of the recommendations or orders of governmental authorities or the availability of our personnel, that we have to curtail or cease business operations or activities altogether, including manufacturing, fulfillment, project development, construction, operating or maintenance operations, research and development activities, or the implementation of our technology roadmap (such as our CuRe program). At this time, such limitations have had a minimal effect on our manufacturing facilities, with the exception of the aforementioned delay in the implementation of our CuRe program, and we have implemented a wide range of safety measures intended to enable the continuity of our operations and inhibit the spread of COVID-19 at our manufacturing, administrative, and other sites and facilities, including those in the

United States, Malaysia, and Vietnam. While we continue to work with relevant government agencies in Malaysia and Vietnam to allow the essential travel of personnel that support the implementation of our technology roadmap, such implementation may be delayed, and in the case of our CuRe program has been delayed, due to travel restrictions, quarantine requirements, other government orders, or increases in COVID-19 infection rates.

Systems Project Pipeline

The following table summarizes, as of November 4, 2021, our approximately 386 MWAC advanced-stage project pipeline. The actual volume of modules installed in our projects will be greater than the project size in MWAC as module volumes required for a project are based upon MWDC, which will be greater than the MWAC size pursuant to a DC-AC ratio typically ranging from 1.1 to 1.6. Such ratio varies across different projects due to many factors, including PPA pricing and the location, design, and costs of the system. Projects are typically removed from our advanced-stage project pipeline tables below once we substantially complete construction of the project and after substantially all of the associated project revenue is recognized. A project, or a portion of a project, may also be removed from the tables below in the event the project is not able to be sold due to the changing economics of the project or other factors, or we decide to temporarily own and operate the project based on strategic opportunities or market factors.

The following table includes projects with confirmed offtake agreements or projects under contracts with customers subject to certain closing conditions:

Project/Location						Project Size in MW****AC						Project under Sales Agreement						Primary Permits Obtained						PPA Contracted Partner						Expected or Actual Substantial Completion Year						% Complete as of September 30, 2021
Luz del Norte, Chile						141						No						Yes						(1)						2016						100%
Momura, Japan						53						No						Yes						(2)						2023						20%
Kyoto, Japan						38						No						Yes						Chubu Electric Power Company						2022						36%
Yatsubo, Japan						26						No						Yes						(2)						2023						49%
Ikeda, Japan						21						No						Yes						(2)						2023						41%
Japan (multiple locations)						107						No						Yes						(3)						2021/2023						38%
Total						386

——————————

(1)Approximately 70 MWAC of the plant’s capacity is contracted under various PPAs; remaining capacity to be sold on an open contract basis.

(2)Project has secured feed-in-tariff rights, and the related PPA will be executed at a later date.

(3)11 MWAC has been contracted with Tokyo Electric Power Company. The remaining 96 MWAC has secured feed-in-tariff rights, and the related PPAs for such projects will be executed at a later date.

Results of Operations

The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Net sales						100.0		%				100.0		%				100.0		%				100.0		%
Cost of sales						78.6		%				68.4		%				76.0		%				75.2		%
Gross profit						21.4		%				31.6		%				24.0		%				24.8		%
Selling, general and administrative						7.5		%				5.4		%				6.5		%				7.6		%
Research and development						4.4		%				2.5		%				3.4		%				3.4		%
Production start-up						0.5		%				1.4		%				0.8		%				1.1		%
Litigation loss						—		%				—		%				—		%				0.3		%
Gain on sales of businesses, net						(0.3)		%				—		%				7.3		%				—		%
Operating income						8.7		%				22.3		%				20.5		%				12.4		%
Foreign currency loss, net						(0.2)		%				(0.2)		%				(0.2)		%				(0.2)		%
Interest income						0.3		%				0.2		%				0.2		%				0.7		%
Interest expense, net						(0.5)		%				(1.2)		%				(0.5)		%				(1.0)		%
Other (expense) income, net						(0.4)		%				(0.3)		%				0.1		%				(0.4)		%
Income tax (expense) benefit						(0.1)		%				(4.1)		%				(3.4)		%				1.9		%
Net income						7.7		%				16.7		%				16.7		%				13.4		%

Segment Overview

We operate our business in two segments. Our modules segment involves the design, manufacture, and sale of CdTe solar modules to third parties, and our systems segment includes the development, construction contracting and management, operation, maintenance, and sale of PV solar power systems, including any modules installed in such systems and any revenue from energy generated by such systems.

Net sales

Modules Business

We generally price and sell our solar modules on a per watt basis. During the three and nine months ended September 30, 2021, we sold the majority of our solar modules to integrators and operators of systems in the United States, and substantially all of our modules business net sales were denominated in U.S. dollars. We recognize revenue for module sales at a point in time following the transfer of control of the modules to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts.

Systems Business

During the three and nine months ended September 30, 2021, the majority of our systems business net sales were in the United States and Chile and were denominated in U.S. dollars. We recognize revenue for the sale of a development project, which excludes EPC services, or for the sale of a completed system when we enter into the associated sales contract with the customer. For other sales of solar power systems and/or EPC services, we generally recognize revenue over time as our performance creates or enhances an energy generation asset controlled by the customer. Furthermore, the sale of a solar power system combined with EPC services represents a single performance obligation for the development and construction of a single generation asset. For such arrangements, we recognize revenue as work is performed using cost based input methods, which result in revenue being

recognized as work is performed based on the relationship between actual costs incurred compared to the total estimated costs for a given contract.

The following table shows net sales by reportable segment for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Modules						$	562,810					$	422,480					$	140,330					33		%				$	1,640,436					$	1,187,679					$	452,757					38		%
Systems						20,694						505,085						(484,391)						(96)		%				375,622						914,421						(538,799)						(59)		%
Net sales						$	583,504					$	927,565					$	(344,061)					(37)		%				$	2,016,058					$	2,102,100					$	(86,042)					(4)		%

Net sales from our modules segment increased $140.3 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to a 51% increase in the volume of watts sold, partially offset by a 12% decrease in the average selling price per watt. Net sales from our systems segment decreased $484.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to the sales of the Ishikawa, Miyagi, Anamizu, Tungabhadra, and Anantapur projects in the prior period.

Net sales from our modules segment increased $452.8 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to a 54% increase in the volume of watts sold, partially offset by a 10% decrease in the average selling price per watt. Net sales from our systems segment decreased $538.8 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to the sales of the Ishikawa, American Kings, Miyagi, Anamizu, Tungabhadra, and Anantapur projects in the prior period and the completion of substantially all construction activities at the GA Solar 4 project in 2020, partially offset by the sales of the Sun Streams 2, Sun Streams 4, and Sun Streams 5 projects in the current period and the settlement of an outstanding indemnification arrangement associated with the sale of one of our projects. Under the terms of the indemnification arrangement, we received $65.1 million for our portion of the settlement payment, which we recorded as revenue during the nine months ended September 30, 2021. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for discussion of our indemnification arrangements.

Cost of sales

Modules Business

Our modules business cost of sales includes the cost of raw materials and components for manufacturing solar modules, such as glass, transparent conductive coatings, CdTe and other thin film semiconductors, laminate materials, connector assemblies, edge seal materials, and frames. In addition, our cost of sales includes direct labor for the manufacturing of solar modules and manufacturing overhead, such as engineering, equipment maintenance, quality and production control, and information technology. Our cost of sales also includes depreciation of manufacturing plant and equipment, facility-related expenses, environmental health and safety costs, and costs associated with shipping, warranties, and solar module collection and recycling (excluding accretion).

Systems Business

Our systems business cost of sales includes project-related costs, such as development costs (legal, consulting, transmission upgrade, interconnection, permitting, and other similar costs), EPC costs (consisting primarily of solar modules, inverters, electrical and mounting hardware, project management and engineering, and construction labor), and site specific costs.

The following table shows cost of sales by reportable segment for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Modules						$	444,550					$	297,658					$	146,892					49		%				$	1,312,389					$	907,564					$	404,825					45		%
Systems						14,374						336,892						(322,518)						(96)		%				220,204						673,723						(453,519)						(67)		%
Total cost of sales						$	458,924					$	634,550					$	(175,626)					(28)		%				$	1,532,593					$	1,581,287					$	(48,694)					(3)		%
% of net sales						78.6		%				68.4		%																76.0		%				75.2		%

Our cost of sales decreased $175.6 million, or 28%, and increased 10.2 percentage points as a percent of net sales for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The decrease in cost of sales was driven by a $322.5 million decrease in our systems segment cost of sales primarily due to the lower volume of projects sold during the period. Such decrease in our systems segment cost of sales was partially offset by a $146.9 million increase in our modules segment cost of sales primarily as a result of the following:

• higher costs of $155.9 million from an increase in the volume of modules sold;

• higher logistics costs of $30.3 million;

• a reduction to our product warranty liability of $19.7 million in 2020 due to lower-than-expected settlements for our older series of module technology and revisions to projected settlements, resulting in a lower projected return rate;

• a reduction to our module collection and recycling liability of $18.9 million in 2020 due to changes to the estimated timing of cash flows associated with capital, labor, and maintenance costs and updates to certain valuation assumptions; and

• an increase to our module collection and recycling liability of $10.8 million in 2021 due to lower estimated by-product credits for certain semiconductor materials recovered during the recycling process and updates to certain valuation assumptions; partially offset by

• continued module cost reductions, which decreased cost of sales by $46.0 million;

• a reduction to our product warranty liability of $33.1 million in 2021 due to lower-than-expected claims for our older series of module technology as well as the evolving claims profile of our newest series of module technology, resulting in reductions to our projected module return rates; and

• an impairment loss of $17.4 million in 2020 for certain module manufacturing equipment, including framing and assembly tools, which were no longer compatible with our long-term module technology roadmap.

Our cost of sales decreased $48.7 million, or 3%, and increased 0.8 percentage points as a percent of net sales for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease in cost of sales was driven by a $453.5 million decrease in our systems segment cost of sales primarily due to the lower volume of projects sold and under construction during the period. Such decrease in our systems segment cost of sales was partially offset by a $404.8 million increase in our modules segment cost of sales primarily as a result of the following:

• higher costs of $466.5 million from an increase in the volume of modules sold;

• higher logistics costs of $47.6 million;

• the reduction to our product warranty liability of $19.7 million in 2020 described above;

• the reduction to our module collection and recycling liability of $18.9 million in 2020 described above; and

• the increase to our module collection and recycling liability of $10.8 million in 2021 described above; partially offset by

• continued module cost reductions, which decreased cost of sales by $123.5 million;

• the reduction to our product warranty liability of $33.1 million in 2021 described above; and

• the impairment loss of $17.4 million in 2020 described above.

Gross profit

Gross profit may be affected by numerous factors, including the selling prices of our modules and systems, our manufacturing costs, project development costs, BoS costs, the capacity utilization and downtime of our manufacturing facilities, and foreign exchange rates. Gross profit may also be affected by the mix of net sales from our modules and systems businesses.

The following table shows gross profit for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Gross profit						$	124,580					$	293,015					$	(168,435)					(57)		%				$	483,465					$	520,813					$	(37,348)					(7)		%
% of net sales						21.4		%				31.6		%																24.0		%				24.8		%

Gross profit decreased 10.2 percentage points to 21.4% during the three months ended September 30, 2021 from 31.6% during the three months ended September 30, 2020 primarily due to the volume of higher gross profit projects sold during the prior period, a decrease in the average selling price per watt of our modules, an increase in logistics costs, and the increase to our module collection and recycling liability in the current period compared to a reduction in the prior period described above, partially offset by the higher benefit from reductions to our product warranty liability described above and continued module cost reductions.

Gross profit decreased 0.8 percentage points to 24.0% during the nine months ended September 30, 2021 from 24.8% during the nine months ended September 30, 2020 primarily due to a decrease in the average selling price per watt of our modules, the volume of higher gross profit projects sold during the prior period, and an increase in logistics costs, partially offset by continued module cost reductions and the indemnification matter described above.

Selling, general and administrative

Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, and other business development and selling expenses.

The following table shows selling, general and administrative expense for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Selling, general and administrative						$	43,476					$	49,861					$	(6,385)					(13)		%				$	131,909					$	160,218					$	(28,309)					(18)		%
% of net sales						7.5		%				5.4		%																6.5		%				7.6		%

Selling, general and administrative expense for the three months ended September 30, 2021 decreased compared to the three months ended September 30, 2020 primarily due to a decrease in employee compensation expense driven by reductions in headcount and lower professional fees, partially offset by higher charges for impairments of certain project assets.

Selling, general and administrative expense for the nine months ended September 30, 2021 decreased compared to the nine months ended September 30, 2020 primarily due to a decrease in employee compensation expense driven by reductions in headcount, lower professional fees, and lower expected credit losses for our accounts receivable.

Research and development

Research and development expense consists primarily of salaries and other personnel-related costs; the cost of products, materials, and outside services used in our R&D activities; and depreciation and amortization expense associated with R&D specific facilities and equipment. We maintain a number of programs and activities to improve our technology and processes in order to enhance the performance and reduce the costs of our solar modules.

The following table shows research and development expense for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Research and development						$	25,426					$	22,972					$	2,454					11		%				$	69,234					$	71,068					$	(1,834)					(3)		%
% of net sales						4.4		%				2.5		%																3.4		%				3.4		%

Research and development expense for the three months ended September 30, 2021 increased compared to the three months ended September 30, 2020 primarily due to increased material and module testing costs, partially offset by lower employee compensation expense resulting from reductions in R&D headcount.

Research and development expense for the nine months ended September 30, 2021 decreased compared to the nine months ended September 30, 2020 primarily due to lower employee compensation expense resulting from reductions in R&D headcount, lower share-based compensation expense driven by the forfeiture of unvested shares by our former Chief Technology Officer, who retired effective March 15, 2021, and lower impairment charges for certain equipment, partially offset by increased material and module testing costs.

Production start-up

Production start-up expense consists of costs associated with operating a production line before it is qualified for commercial production, including the cost of raw materials for solar modules run through the production line during the qualification phase, employee compensation for individuals supporting production start-up activities, and applicable facility related costs. Production start-up expense also includes costs related to the selection of a new site and implementation costs for manufacturing process improvements to the extent we cannot capitalize these expenditures.

The following table shows production start-up expense for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Production start-up						$	2,945					$	13,019					$	(10,074)					(77)		%				$	16,014					$	23,812					$	(7,798)					(33)		%
% of net sales						0.5		%				1.4		%																0.8		%				1.1		%

During the three months ended September 30, 2021, we incurred production start-up expense primarily for certain manufacturing upgrades at our facilities in Kulim, Malaysia. During the nine months ended September 30, 2021, we incurred production start-up expense primarily for the transition to Series 6 module manufacturing at our second facility in Kulim, Malaysia, which commenced commercial production in early 2021. During the three and nine months ended September 30, 2020, we incurred production start-up expense for the transition to Series 6 module manufacturing at our second facility in Kulim, Malaysia and the capacity expansion of our manufacturing facility in Perrysburg, Ohio.

Litigation loss

The following table shows litigation loss for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Litigation loss						$	—					$	—					$	—					—		%				$	—					$	6,000					$	(6,000)					(100)		%
% of net sales						—		%				—		%																—		%				0.3		%

In July 2020, we executed a definitive agreement to settle the claims in the Opt-Out Action filed in 2015 in the Arizona District Court by putative stockholders that opted out of a separate class action lawsuit. Pursuant to the settlement, we agreed to pay a total of $19 million in exchange for mutual releases and a dismissal with prejudice of the Opt-Out Action. The agreement contains no admission of liability, wrongdoing, or responsibility by any of the defendants. On July 30, 2020, First Solar funded the settlement, and on July 31, 2020, the parties filed a joint stipulation of dismissal. On September 10, 2020, the Arizona District Court entered an order dismissing the case with prejudice. As of December 31, 2019, we accrued $13 million of estimated losses for this action. As a result of the settlement, we accrued an incremental $6 million litigation loss during the nine months ended September 30, 2020.

Gain on sales of businesses, net

The following table shows gain on sales of businesses, net for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Gain on sales of businesses, net						$	(1,866)					$	—					$	(1,866)					(100)		%				$	147,284					$	—					$	147,284					100		%
% of net sales						(0.3)		%				—		%																7.3		%				—		%

In August 2020, we entered into an agreement with a subsidiary of Clairvest for the sale of our North American O&M operations. On March 31, 2021, we completed the transaction. Following certain customary post-closing adjustments, we received total consideration of $149.1 million. As a result of this transaction, we recognized a gain of $115.8 million, net of transaction costs and post-closing adjustments, during the nine months ended September 30, 2021.

In January 2021, we entered into an agreement with Leeward for the sale of our U.S. project development business. On March 31, 2021, we completed the transaction for an aggregate purchase price of $284.0 million. Such purchase price included $151.4 million for the sale of the U.S. project development business and $132.6 million for the sale of 392 MWDC of solar modules, which is presented in “Net sales” on our condensed consolidated statements of operations for the nine months ended September 30, 2021. As a result of this transaction, we recognized a gain of $31.5 million, net of transaction costs and post-closing adjustments, during the nine months ended September 30, 2021.

See Note 2. “Sales of Businesses” to our condensed consolidated financial statements for further information related to these transactions.

Foreign currency loss, net

Foreign currency loss, net consists of the net effect of gains and losses resulting from holding assets and liabilities and conducting transactions denominated in currencies other than our subsidiaries’ functional currencies.

The following table shows foreign currency loss, net for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Foreign currency loss, net						$	(1,018)					$	(1,852)					$	834					(45)		%				$	(4,613)					$	(3,549)					$	(1,064)					30		%

Foreign currency loss, net for the three and nine months ended September 30, 2021 was consistent with the three and nine months ended September 30, 2020.

Interest income

Interest income is earned on our cash, cash equivalents, marketable securities, restricted cash, and restricted marketable securities. Interest income also includes interest earned from notes receivable and late customer payments.

The following table shows interest income for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Interest income						$	1,752					$	2,109					$	(357)					(17)		%				$	3,996					$	15,113					$	(11,117)					(74)		%

Interest income for the three months ended September 30, 2021 was consistent with the three months ended September 30, 2020. Interest income for the nine months ended September 30, 2021 decreased compared to the nine months ended September 30, 2020 primarily due to lower interest rates on marketable securities and cash and cash equivalents and lower average balances associated with marketable securities.

Interest expense, net

Interest expense, net is primarily comprised of interest incurred on long-term debt, settlements of interest rate swap contracts, and changes in the fair value of interest rate swap contracts that do not qualify for hedge accounting in accordance with ASC 815. We may capitalize interest expense to our project assets or property, plant and equipment when such costs qualify for interest capitalization, which reduces the amount of net interest expense reported in any given period.

The following table shows interest expense, net for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Interest expense, net						$	(2,958)					$	(10,975)					$	8,017					(73)		%				$	(10,577)					$	(21,018)					$	10,441					(50)		%

Interest expense, net for the three and nine months ended September 30, 2021 decreased compared to the three and nine months ended September 30, 2020 primarily due to unfavorable changes in the fair value of interest rate swap contracts in the prior period, which did not qualify for hedge accounting, lower amortization of debt discounts and issuance costs in the current period primarily driven by the repayment of the Ishikawa credit agreement in the prior period, and lower interest expense associated with project debt.

Other (expense) income, net

Other (expense) income, net is primarily comprised of miscellaneous items and realized gains and losses on the sale of marketable securities and restricted marketable securities.

The following table shows other (expense) income, net for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Other (expense) income, net						$	(2,603)					$	(3,236)					$	633					20		%				$	2,598					$	(8,653)					$	11,251					130		%

Other expense, net for the three months ended September 30, 2021 was consistent with the three months ended September 30, 2020. Other income, net for the nine months ended September 30, 2021 increased compared to the nine months ended September 30, 2020, primarily due to expected credit losses associated with certain notes receivable in the prior period, partially offset by lower realized gains from sales of restricted marketable securities in the current period when compared to the prior period.

Income tax (expense) benefit

Income tax expense or benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions in which we operate, principally Japan, Malaysia, and Vietnam. Significant judgments and estimates are required to determine our consolidated income tax expense. The statutory federal corporate income tax rate in the United States is 21%, and the tax rates in Japan, Malaysia, and Vietnam are 30.6%, 24%, and 20%, respectively. In Malaysia, we have been granted a long-term tax holiday, scheduled to expire in 2027, pursuant to which substantially all of our income earned in Malaysia is exempt from income tax, conditional upon our continued compliance with certain employment and investment thresholds. In Vietnam, we have been granted a tax incentive, scheduled to expire at the end of 2025, pursuant to which income earned in Vietnam is subject to reduced annual tax rates.

The following table shows income tax (expense) benefit for the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,																								Nine Months Ended September 30,
(Dollars in thousands)						2021						2020						Three Month Change												2021						2020						Nine Month Change
Income tax (expense) benefit						$	(837)					$	(38,107)					$	37,270					(98)		%				$	(67,673)					$	40,894					$	(108,567)					265		%
Effective tax rate						1.8		%				19.7		%																16.7		%				(16.9)		%

Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. The rate is also affected by discrete items that may occur in any given period, but are not consistent from period to period. Income tax expense decreased by $37.3 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to lower pretax income in the current period. Income tax expense increased by $108.6 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to a discrete tax benefit in the prior year from the effect of tax law changes associated with the CARES Act and higher pretax income in the current period.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements in conformity with U.S. GAAP, we make estimates and assumptions that affect the amounts of reported assets, liabilities, revenues, and expenses, as well as the disclosure of contingent liabilities. Some of our accounting policies require the application of significant judgment in the selection of the appropriate assumptions for making these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We base our judgments and estimates on our historical experience, our forecasts, and other available information as appropriate. We believe the judgments and estimates involved in over time revenue recognition, accrued solar module collection and recycling, product warranties, accounting for income taxes, and long-lived asset impairments have the greatest potential impact on our condensed consolidated financial statements. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected. For a description of the accounting policies that require the most significant judgment and estimates in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to our accounting policies during the nine months ended September 30, 2021.

Recent Accounting Pronouncements

None.

Liquidity and Capital Resources

As of September 30, 2021, we believe that our cash, cash equivalents, marketable securities, cash flows from operating activities, contracts with customers for the future sale of solar modules, and advanced-stage project pipeline will be sufficient to meet our working capital, capital expenditure, and systems project investment needs for at least the next 12 months. As needed, we also believe we will have adequate access to the capital markets. We monitor our working capital to ensure we have adequate liquidity, both domestically and internationally.

We intend to maintain appropriate debt levels based upon cash flow expectations, our overall cost of capital, and expected cash requirements for operations, such as construction activities and purchases of manufacturing equipment for our recently announced manufacturing facility in India and systems project development activities in certain international regions. However, our ability to raise capital on terms commercially acceptable to us could be constrained if there is insufficient lender or investor interest due to company-specific, industry-wide, or broader market concerns. Any incremental debt financings could result in increased debt service expenses and/or restrictive covenants, which could limit our ability to pursue our strategic plans.

As of September 30, 2021, we had $1.9 billion in cash, cash equivalents, and marketable securities compared to $1.7 billion as of December 31, 2020. The increase in cash, cash equivalents, and marketable securities was primarily driven by cash receipts from module sales to customers; cash proceeds from the sale of our North American O&M operations and U.S. project development business; and cash proceeds from the sale and construction of systems projects; partially offset by purchases of property, plant and equipment; and other operating expenditures. As of September 30, 2021, $0.7 billion of our cash, cash equivalents, and marketable securities was held by our foreign subsidiaries and was primarily based in U.S. dollar, Japanese yen, and Indian rupee denominated holdings.

We utilize a variety of tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. If certain international funds were needed for our operations in the United States, we may be required to accrue and pay certain U.S. and foreign taxes to repatriate such funds. We maintain the intent and ability to permanently reinvest our accumulated earnings outside the United States, with the exception of our subsidiaries in Canada and Germany. In addition, changes to foreign government banking

regulations may restrict our ability to move funds among various jurisdictions under certain circumstances, which could negatively impact our access to capital, resulting in an adverse effect on our liquidity and capital resources.

We continually evaluate forecasted global demand and seek to balance our manufacturing capacity with such demand. We recently announced our plans to invest approximately $1.3 billion to expand our solar manufacturing capacity by 6.6 GWDC by constructing our third U.S. manufacturing facility in Lake Township, Ohio and our first manufacturing facility in India. These new facilities are expected to commence operations in the first half of 2023 and the second half of 2023, respectively. In addition, we continue to increase the nameplate production capacity of our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and improving manufacturing yield losses. During 2021, we expect to spend $675 million to $725 million for capital expenditures, including the new facilities mentioned above and upgrades to machinery and equipment that we believe will further increase our module wattage and expand capacity and throughput at our manufacturing facilities.

We also expect to commit significant working capital to purchase various raw materials used in our module manufacturing process. Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing costs. Accordingly, we may enter into long-term supply agreements to mitigate potential risks related to the procurement of key raw materials and components, and such agreements may be noncancelable or cancelable with a significant penalty. For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules. Our remaining purchases under these supply agreements are expected to be approximately $1.7 billion of substrate glass and approximately $380 million of cover glass. We have the right to terminate these agreements upon payment of specified termination penalties (which, in aggregate, are up to $338 million as of September 30, 2021 and decline over the remaining supply periods).

Our systems business is expected to continue to have significant liquidity requirements in the future. From time to time, we enter into commercial commitments in the form of letters of credit, bank guarantees, and surety bonds to provide financial and performance assurance to third parties, the majority of which support our systems projects. The net amount of our project assets and related portions of deferred revenue and long-term debt, which approximates our net capital investment in the development and construction of systems projects, was $221.7 million as of September 30, 2021. Solar power project development cycles, which span the time between the identification of a site location and the commercial operation of a system, vary substantially and can take many years to mature. As a result of these long project cycles and strategic decisions to finance the development of certain projects using our working capital, we may need to make significant up-front investments of resources in advance of the receipt of any cash from the sale of such projects. Delays in construction or in completing the sale of our systems projects that we are self-financing may also impact our liquidity. In certain circumstances, we may need to finance construction costs exclusively using working capital, if project financing becomes unavailable due to market-wide, regional, or other concerns.

From time to time, we may develop projects in certain markets around the world where we may hold all or a significant portion of the equity in a project for several years. Given the duration of these investments and the currency risk relative to the U.S. dollar in some of these markets, we continue to explore local financing alternatives. Should these financing alternatives be unavailable or too cost prohibitive, we could be exposed to significant currency risk and our liquidity could be adversely impacted.

Additionally, we may elect to retain an ownership interest in certain systems projects after they become operational if we determine it would be of economic and strategic benefit to do so. If, for example, we cannot sell a system at economics that are attractive to us or potential customers are unwilling to assume the risks and rewards typical of system ownership, we may instead elect to temporarily own and operate such system until we can sell it on more economically attractive terms. The decision to retain ownership of a system impacts our liquidity depending upon the size and cost of the project. As of September 30, 2021, we had $230.4 million of net PV solar power systems

placed in service in international markets. We have elected, and may in the future elect, to enter into temporary or long-term project financing to reduce the impact on our liquidity and working capital with regard to such systems.

Cash Flows

The following table summarizes key cash flow activity for the nine months ended September 30, 2021 and 2020 (in thousands):

						Nine Months Ended September 30,
						2021						2020
Net cash provided by (used in) operating activities						$	203,092					$	(149,198)
Net cash (used in) provided by investing activities						(83,289)						116,322
Net cash used in financing activities						(9,210)						(98,196)
Effect of exchange rate changes on cash, cash equivalents and restricted cash						1,687						1,251
Net increase (decrease) in cash, cash equivalents and restricted cash						$	112,280					$	(129,821)

Operating Activities

The increase in net cash provided by operating activities was primarily driven by higher cash receipts from module sales and the $350 million settlement payment in 2020 associated with our prior class action lawsuit, partially offset by lower cash proceeds from sales of systems projects in the current period.

Investing Activities

The increase in net cash used in investing activities was primarily due to higher purchases of restricted marketable securities and lower proceeds from sales and maturities of marketable securities, partially offset by proceeds from the sale of our North American O&M operations and U.S. project development business.

Financing Activities

The decrease in net cash used in financing activities was primarily due to the repayment of the Ishikawa credit agreement in the prior period, partially offset by higher proceeds from borrowings under project specific debt financings in the prior period for the construction of certain projects in Japan.

Contractual Obligations

Our contractual obligations have not materially changed since December 31, 2020 with the exception of borrowings under project specific debt financings and other changes in the ordinary course of business. See Note 9. “Debt” to our condensed consolidated financial statements for more information related to the changes in our long-term debt. See also our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information regarding our contractual obligations.

Off-Balance Sheet Arrangements

As of September 30, 2021, we had no off-balance sheet debt or similar obligations, other than financial assurance related instruments, which are not classified as debt. We do not guarantee any third-party debt. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for further information about our financial assurance related instruments.