Wind turbine maker Vestas battles against steep steel and other costs

A key supplier of blades to Vestas published a profit warning last month after higher inspection and repair costs after it found issues with one blade type at one of its factories.

Vestas Wind Systems has said it expects increased costs from a backlog of wind turbine orders to drag down full-year earnings as executives avoided giving details on how the quality issues plaguing the broader wind industry would affect the Danish company.

A key supplier of blades to Vestas published a profit warning last month after higher inspection and repair costs after it found issues with one blade type at one of its factories. Investors have been questioning whether there could be an impact on the Danish company as concerns grow about the fast ramp-up of the sector.

Vestas’ warranty costs were up 39% year-on-year, better than feared given the wider industry turmoil, Danske Bank credit analyst Jakob Magnussen wrote in a research note.

“We continue to work diligently with quality,” chief financial officer Hans Martin Smith said in an interview, declining to comment on its supply contracts with TPI Composites. 

“It’s a topic that has been on the agenda for quite a while and we are proactively working to address,” he said. 

Siemens Energy launched a strategic review of its wind power business as problems with its turbines are expected to cause a €4.5bn net loss in one of industrial Germany’s biggest debacles. The German manufacturer is getting to grips with quality flaws and unprofitable contracts weighing on its wind unit.

The Danish company still expects full-year earnings before interest and taxes to be in a range of -2% to 3%, it said in its second-quarter results. 

That would mark a vast improvement from the -8% for 2022 but costs for an existing backlog of wind turbine orders and service agreements swelled €3.7bn to €51.6bn from a year earlier.

Steep loses

Vestas, along with its competitors in the wind turbine industry, faced steep losses in recent years after costs of steel and other key materials soared and it grappled with delays due to supply chain disruptions. 

Now the company is focused on returning to profitability as it raises prices and works through a backlog of unprofitable contracts.

“Although supply chain disruptions are easing off, we expect disruptions to continue throughout the second half of the year,” chief executive Henrik Andersen said. 

“Vestas remains fully focused on becoming profitable,” Mr Andersen said.

An expanding order backlog, which increased 2% sequentially to €20bn, positions the company for “rapid growth” in 2024-26, according to Rob Barnett, an energy analyst at Bloomberg Intelligence. 

Vestas says it is in turnaround mode even after it swung back to a loss in the second quarter, after a surprisingly positive first three months. 

The company posted an earnings loss before interest, taxes and special items of €70m, in line with loss estimates of €69.7m.

That compares to a loss of €182m in the same period a year ago. 

Bloomberg