A review of the status of wind turbine manufacturers

Following the presentation of the first quarter results, we now have a clearer picture of what 2023 looks like for the main wind turbine manufacturers. And, spoiler alert, things are not looking good as the long-awaited recovery will not come before 2024, which means another very difficult year ahead for wind OEMs.

 

Regular readers of this blog know that we often review the situation of wind OEMs. We have tried to find reasons for optimism and less than a year ago we took a look at the financial results to see if we could find any future trends, so now is a good time to dive back into the financial reports of Vestas, Siemens Gamesa (now part of Siemens Energy), GE renewables and Nordex.

 

Guidelines 2023

Let’s start by taking a look at what the manufacturers themselves expect in 2023.

 

 

As we can see, we still see negative EBITs in 2023. GE does not even give figures for this year and only says it will be profitable in 2024. Vestas has the best outlook with a much better EBIT range than its competitors.

 

In terms of revenues, there are no major variations, although the outlook is somewhat better than in 2022, but far from the levels of growth needed to meet the renewable installation targets.

 

In short, while at the legislative level the wind targets are being increased, the main manufacturers do not expect much growth in 2023 and, above all, they will continue to lose money with each turbine installed… we continue with the great paradox of the wind sector.

 

Positive aspects 1Q23

Let’s start with the good news from the first quarter.

 

• Order intake

 

This is probably the best news this quarter. A 63% increase in order intake is a great sign, because presumably the contracts being signed now are at better prices and conditions (what Vestas calls “commercial discipline”), so they are more likely to be profitable (or at least not loss-making) when they are executed.

 

It is true that these figures may be influenced by the entry of large offshore orders such as the 1.4 GW East Anglia 3 order for Siemens Gamesa and even onshore orders such as the 1.3 GW order from Casa dos Ventos to Vestas. But we also see that GE continues its upward trend, undoubtedly benefiting from the IRA legislation in the USA.

 

• Revenue

 

Slight improvement in revenues compared to 1Q22 (+10%). This is in line with the 2023 guidance growth forecast and we will see if it continues to be confirmed in the coming quarters.

 

 

Neutral aspects 1Q23

 

• ASP

 

The major limitations of ASP (Average Selling Price) as an average price indicator, which we have already discussed in this post, make the significant drop in Vestas’ prices striking. But Vestas itself has clarified that prices have not fallen, but that the mix and scope is different and causes the ASP to fall.

 

We see that prices seem to be stabilising at the levels reached in mid-2022. This is not bad news but many of us expected the rise to be even higher.

 

• Profitability of O&M business

 

Services continue to be the source of profitability for the OEMs. It should be noted that from this quarter onwards, Siemens Gamesa reports as part of Siemens Energy, so there are data that are no longer published, such as the breakdown between turbines and services. But the rest of the OEMs show stable margin levels for their O&M business despite the reliability problems in the fleet.

 

Negative aspects 1Q23

 

• EBIT

 

 

As usual, profitability is the headache of the sector. We continue to see technical bankruptcy figures with losses in the millions that force shareholders to contribute capital for the business to continue. The case of GE is particularly striking as it is not even remembered when the last quarter with black numbers was. There will be few cases like this in the industry of any sector in which such a large business can be maintained for so long, losing so much money (and GE renewables’ results include the hydro business, which is profitable).

 

Vestas is the one that has published better figures, with black numbers, although they are a little bit softened thanks to the sale of its converter business to KK Wind. Something similar will happen in future quarters with SGRE’s results when the sale of Windar to Bridgepoint becomes effective. Clearly, selling assets is an emergency solution and is not sustainable as a tool to restore sustainability. Moreover, it detracts from the value of the companies as they divest themselves of valuable assets.

 

GE for its part is the one that has given the most clues as to how it intends to recover profitability and as can be seen in the chart that was published at its investor day, it is very much based on the IRA and its ability to give it profitable local demand:

 

But they also have plans to reduce complexity in both the product catalogue and commercial activity.

 

 

In short, focus on profitable and reliable products and markets and abandon the rest. This is easy to say but extremely complex to execute as these are recipes that have been presented by all OEMs without ever seeing tangible results.

 

Reliability is another headache for manufacturers. The pace of new product launches in recent years, coupled with the sizes and complexity that have been achieved, have created reliability problems in the fleet, especially in new models. Vestas continues to recognise problems and its LPF (lost production factor) indicator continues to rise.

 

 

Meanwhile, its CTO insists on the need to slow down the pace of development in order to be able to optimise current projects.

 

It is curious that Chinese manufacturers are accelerating in exactly the opposite direction: lower and lower prices, “crazy” new product launches and strategic expansion in markets that are difficult for them… and yet they are becoming more and more profitable. Sounds weird, so I think it deserves an in-depth analysis in a future post.