Vestas is about to fail yet again

Vestas wind turbine, Dithmarschen.

Windmill

The CEO Ditlev Engel of Vestas has yet again failed to meet the targets he and his management team have set for the company. While Vestas made the target of securing orders for over 7000 MW it failed to control costs in other parts of the company.

The Wind turbine manufacturer has once again disappointed investors with a noticeable downward adjustment because of delays and excessive extra costs compared to planned.

The revision of expected earnings of 255 million. euro to around zero enforces the sentiment among Vestas investors and analysts that there are management issues at Veatsas. Ditlev Engel acknowledges flatly that it is not good enough. “It is the second time within a short time that the introduction of new technology creates problems. It is obviously not good enough,” he says to epn a Danish business newspaper.

Basically this means that the Vestas stock is about to take another big hit within the next few days. In the past 52 weeks the stick has lost 60% of its value moving from a high of 232 down to 69 kr per share. And with the latest proclamation there is no reason to think that it will not fall even further.

According to Vestas are the problems associated with new technology for their V112-3.0 MW mill. and higher than expected costs of production. This should be seen in light that just a few months ago the company fired 3000 employees in Denmark.

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Denmark to be fossil free by 2050 – a comparative advantage

«Deep Sea Delta», boreplattform, her i Nordsjøen

Oil platform

Most of the developed countries have agreed to reduce its dependence on fossil fuels. By the Kyoto accord the number greenhouse gasses have to be reduced 5,2% by next year and the EU have set ambitious target of 30% reduction by 2020. But now Denmark is setting even higher goals as the ambition is to be independent of all fossil fuels by 2050 that is Denmark will be self sufficient on coal, oil and gas. With these initiatives the CO2 reduction will for Denmark alone be around 35% to 40% in the ear 2020 e.g. 5% higher than the EU target.

While most of us will agree that this could very well be too ambitions a target to go for but none the less it is what the government is aiming for. So will this not make Denmark less competitive in the future you might ask? Well according to the Danish minister, Martin Lidegaard, for energy it is what is going to make the country the even more competitive.

According to the International agency energy the price of fossil fuels will go up by one third towards 2035. This means that crude oil will be traded from somewhere between 140 and 160 USD on an average day of trading. Even though one cannot make a direct link between the price of crude and the price one have to pay at the gas station there is no doubt that the increase is going to be significant. Together with the other types of fossil fuels that we need it all amounts up quite a big expense that ordinary people have to pay, money mind you that could go to other purposes.

It is this comparative advantage the government will take advantage of and being first mover can prove to have its advantages. In the governments plan Denmark will be the birthplace of green and sustainable energy innovation. A whole industry will flourish and companies and universities will work together in order to crate and share knowledge that will make it possible to achieve the targets. Energy consumption will be taxed (even harder) so to give incentive to consumers and companies so that they reduce their use of energy even more than they do now.

The ambition is that Denmark should be dependent on “green” electricity. This will be done through a capacity increase of a 1200MW windmill farm on the ocean and by building 1800MW of windmills on land. A rough calculation based on some of the biggest windmills we have today will mean that around 600 mills have to be built. There will also be a massive increase in biomass fuels in order to substitute fuel like coal.

I would like to think that Denmark can gain a comparative advantage by becoming a greener nation than the rest of the industrialised world, but there are some things that have to be realised if this dream is to become true. First fuel prices have to go up significantly as it is predicted and secondly no one else is setting even more ambitious goals that could mean that we get outcompeted even bore we start.

As the situation is right now there seem to be no consensus by the biggest energy consumers in the world to reduce its consumption. As long as they keep on being divided there is a good chance that the plan might work and that Denmark will remain one of the top nations in the world. Just imaging the difference it will mean if the US remains on its current energy course and the price of oil reaches 200 or 250 USD what will it mean to society and not least what will it mean to Denmark that will not have to worry. Well it is food for thought.

The Ups and Downs in the ”Green” industry

Yet again Vestas have promised more than they can deliver and the market has promptly punished the company with a massive fall in shareprice. It would seem that the management of Vestas with Ditlev Engel in front can’t get it right or as a minimum they are just too optimistic for their own good.

But why is it so hard to predict how Vestas performs even for the management of the company? One guess could be that the market for wind turbines is extremely versatile. From 2006 to 2008 there seemed to be a fairly stable period with a slow but steady increase in order intake then in 2009 the market seemed to bottom out as the talks about CO2 quotas went on and then in 2010 Vestas got a few but very big orders.

One of the reasons why Vestas is so vulnerary is that they in contrast to other plays like GE and Siemens only have one product line. Other companies have a diverse portfolio that they are able to market so if they lose something on one product line they can make up some of the looses in another. This is also apparent in their stock have experienced a close to steady positive development for the past year.

I would not write of Vestas for now but they do need to get their communication to the market under control or at least be more open about their prospects. Investors get jumpy when they are confronted with information that they did not expect, both in a positive and negative sense. In a very volatile market as the wind energy market is, there is no substitute for timely valid and real hard facts instead of dreams and hopes for the future. If the CEO is to remain at Vestas he needs to provide the market with more than his dreams.