Vestas’ profits plunge as tariffs hit wind industry

Source: By Carlos Anchondo, E&E News reporter • Posted: Monday, August 19, 2019

Vestas Wind Systems A/S, one of the world’s largest renewable companies, said yesterday that tariffs and the ongoing trade war between the United States and China contributed to a sharp drop in its second-quarter profits.

The Danish wind turbine company — which constitutes almost 40% of the U.S. wind power market — reported a 6% decrease in total revenue compared with its second quarter in 2018.

In its earnings report, Vestas CEO Henrik Andersen emphasized the company’s highest-ever quarterly order intake — at 5.7 gigawatts in the second quarter — but also acknowledged the impact of trade barriers on the global wind supply chain.

“Prices remained stable in the quarter,” Andersen said, “but further increases in tariffs, raw material prices and transport costs continue to increase execution costs, causing our gross margin to decline compared to the same period last year.”

Revenue for the company was down to approximately $2.36 billion — or€2.12 billion — for the second quarter. Profits fell 51% in the quarter, from about $204 million to $90 million. Vestas constituted 38% of the U.S. wind power market in 2018, according to the Department of Energy.

As earnings and revenue decreased compared with 2018’s second quarter, the company narrowed its guidance for sales for the rest of the year. Vestas now expects revenue of $12.22 billion to $13.61 billion this year, compared with a previous forecast of $11.94 billion to $13.61 billion.

The earnings announcement came as wind costs are reaching record lows and companies aim to take advantage of the production tax credit before its phaseout. A DOE report this month found that low natural gas prices and the PTC phase-down could put a brake on growth in coming years (Energywire, Aug. 13). The wind industry has criticized tariffs on steel, aluminum and other products that could affect the supply chain.

“Like most industries, renewable energy has a global supply chain and a business model that relies on stable policies and predictable pricing,” said Gregory Wetstone, president and CEO of the American Council on Renewable Energy. “Those objectives are undermined by the uncertainty associated with tariffs and the volatility of the tariff talk today.”

In July, consultancy Wood Mackenzie said the U.S. wind sector was bracing for another round of import tariffs and that some planned wind farms could be canceled if proposed 10% tariffs went into effect (Energywire, Aug. 5). However, Vestas could be in a position to weather that as it manufactures towers in the United States.

The Danish manufacturer also said it expects to invest about $888 million this year, or €800 million, up from previous estimates. Those adjustments, the report noted, “are based on performance and improved visibility for the remainder of the year.”

At the end of June, Vestas’ order backlog was worth $17.66 billion, or €15.9 billion, and the company said it has service agreements with “expected contractual future revenue.”

“Thus, the value of the combined backlog of wind turbine orders and service agreements increased compared to the year-earlier period,” the report noted.

Andersen called this a demonstration of “our global leadership in a highly competitive market.”