EUR 850.00 For Business Accounts Only

Morningstar | VWS Updated Forecasts and Estimates from 18 Jan 2019

As a market leader in wind turbine manufacturing, Vestas can benefit from strong growth in wind energy. Demand currently depends on regulation, financing (access and conditions), and power prices. In order to be less dependent on government incentives, Vestas focuses on reducing the levelised cost of energy, or LCOE, from wind--an appropriate strategy to make wind energy generation more economically viable in the future. The excellent growth prospects attracted other firms to enter the market, and General Electric has established a leading position in the United States, while Siemens (including Gamesa) and Tier 1 Chinese suppliers also have strong offerings.In order to cope with the challenging pricing environment, Vestas has prioritised operational excellence. As result of weak end-market demand, Vestas, along with a number of its competitors, reduced production facilities in 2011-12. The reduced overcapacity should lead to short-term price stabilisation, but we continue to expect high-single-digit price declines, owing to the competitive environment. Lower equipment prices and more output are needed to lower the LCOE by wind, especially as government subsidies, which helped boost investments in the space, decline. The five-year extension for the U.S. production tax credit, announced in December 2015, bodes well for continued high activity levels in the short run, although the PTC amount decreases after 2018.Vestas' strategy also entails capturing the full potential of its large installed base by providing maintenance parts and services that could increase customer loyalty. Increased contribution from the service division will reduce the cyclicality of the firm’s revenue.While generating power from wind has been cheaper on land than at sea because of lower maintenance costs and less-rugged equipment requirements, the cost gap has declined, presenting an opportunity and a challenge for Vestas. By forming a joint venture with Mitsubishi Heavy Industries, Vestas can attack the sea in a managed-risk manner. Product development will largely be done by MHI Vestas Offshore joint venture, with a strong focus on the development of 8-plus MW offshore turbines.