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September 10, 2010Vestas the largest Wind Turbine Company in the World has been facing one setback after another.The Danish Company which used to be a Green Investor Darling till a couple of years can’t seem to find a buyer these days.Stiff competition from China,Slowdown in Wind Energy Farms in the West and now Wind Blade Problems have formed a perfect storm for this company.The company has given 2 quarters of dismal results lowering its revenue forecast almost 15% to 6 billion Euros from 7 Billion Euros in its last quarter.The First Quarter was one of the worst in recent history as Vestas continues to bleed red ink.Strong orders and new Turbines were the only bright spots in an otherwise dismal numbers.
However the promise of New Turbines has also taken a big hit with a 6-7 metre part of blade from its new 3 MW V112 Wind Turbine falling off in Denmark.Vestas recently recieved a new large order for its V112 Turbines of Macarthus Wind Farm in Australia.This faulty Turbine has put a question mark of that order.Note Suzlon which was once riding high on the success of Global Wind Energy had Cracking Blades bring it down.Now Vestas also faces investor doubts about the earnings power and sustainability of the company.Here are the 3 most pressing problems for Vestas
1) Competition – In a once cozy oligopoly of Wind Turbine Manufacturers,the Chinese and South Koreans have gatecrashed.South Korean Shipbuilders like Daewoo,Samsung and Hyundai are making huge investments.Sinovel and Goldwind are already amongst the top 10 Wind Turbine makers entering the market just 5-6 years ago
2) Product Quality – Vestas manages to get a premium for its high product quality,reliability.That took a big hit with a Blade Part Falling off.Its already low margins cannot afford a bruising price war with the low cost Chinese
3) Falling Margins and Revenues – The Global Wind Energy Market has taken a bigger toll of Vestas and Gamesa than others.The fastest growing markets in China and other places have local players dominating contracts.Gamesa and Vestas Stock Prices have taken a 50% fall in 2010.Vestas fell by 25% when it reported 2Q Results and is currently trading below 52 week lows
Summary
Vestas is trading at historical lows with these repeated bad news taking huge chunks from the stock.However like Suzlon,Vestas is more like a Falling Knife than a Fallen Angel.Despite a major new order of 400 MW,Vestas stock has fallen even more.Like Nokia in Mobiles and Sunpower in Solar Energy,the industry has totally changed for these industry leaders.The structural issues with the major incumbent Wind Turbine Makers are too dire for short term order wins to help them
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