Is Vestas in Trouble?

Vestas, the Danish producer of wind turbines which used to lord over the wind energy market has seen its fortunes crater with the advent of big Chinese wind turbine companies.

The story of Vestas has been going downhill for a long time now with repeated revenue warnings, job losses and management changes. However like other European companies which are on a downward roll like Q-Cells and Nokia, Vestas seems to be heading to an eventual acquisition or bankruptcy, as its business model is dead. With wind turbines becoming a commodity market dominated by Chinese players, there is no hope for this company. Like the once solar panel king First Solar, Vestas has been decimated by the rapid cost reductions by Chinese companies.

Vestas has reportedly been under pressure from its creditors to look out for buyers or restructure. Given the circumstances, the company should try and get a buyer early as its valuation keeps falling endlessly.

Read more about the pros and cons of wind power.

Earlier article on Vestas’s Problems in 2010.

Vestas, the world’s no.1 Wind Turbine Producer has been bleeding in 2010 as it faces a slowdown in its main markets of Europe and USA. Developed Wind Market have been hit hard in 2010 with low gas prices, decreasing electricity demand and difficult financing.

Gamesa and Vestas the dominant European Wind Turbine Makers have seen their stock prices take a massive fall. In comparative, the Chinese players like Sinovel, Ming Yang have emerged stronger taking advantage of the exponential growth of  their domestic Chinese market. Now the leading Wind players are changing their strategy to focus on emerging markets by building factories in those regions.

GE, Gamesa and Suzlon have in recent months increased their investments in China and are also looking to newer markets like the United Kingdom.Vestas has little chance but to follow them. Its margins and profits have been falling off a cliff as it has failed to adjust to low cost competition from Asia till now.

Vestas employs over 8000 people in Denmark which is its home base out of the 22000 employees worldwide. The company now plans to fire 3000 workers mostly from Denmark even as it hires workers in places like India and UK. Vestas has to cut a lot of flab as Chinese companies destroy higher priced competition in the Wind Energy Industry.

Like the Solar Industry, where European companies like Q-Cells and Solarworld are facing an existential crisis from low cost Chinese competition, Wind Energy now faces similar dynamics. Like Q-Cells and REC which relocated their manufacturing to Asia, Vestas has to do a similar act. Despite a record  order book of 6.5 GW in Q310, Vestas has to fire Danish workers who are more than 10x more expensive than similar Asian workers. In  a globalized world, companies do not have the luxury of employing expensive workers in developed countries if similar workers can be employed elsewhere. Note competition is increasing in Wind Energy with big players like Hyundai, Samsung, Northro and smaller players entering the industry.

 From ET

 The Sunday Times, which cited no sources for its information, said that Vestas’ banks had given it an “ultimatum,” and demanded that the company prepare a comprehensive financial restructuring plan.

The newspaper said that the demand from banks, including Royal Bank of Scotland and HSBC, was triggered by Vestas bolstering its cash position by drawing down a 300 million euro ($380.7 million) bank facility. On June 22, the company pulled the plug on plans to build a wind turbine factory at the port of Sheerness in southeast England after it secured no orders for the giant 7-megawatt turbines the plant was meant to manufacture.

Three days later it said it would close a Chinese plant, saying it saw low demand for the small turbines that the facility makes.

Is Vestas in Trouble? originally appeared in Green Chip Stocks. Green Chip Review is a free 2x-per-week newsletter, is the first advisory to focus exclusively on investments in alternative and renewable energies.

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