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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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.