Vestas is a Danish company that manufactures wind turbines, and it used to be the global leader in its industry. Things look much different at the company now, after its CEO was sacked on Wednesday in the face of plummeting profits and market share. Share prices are down 85 percent from this time five years ago, and the ousted CEO was forced to issue profit warnings to investors four times over the last three years. The FT reports on what went wrong:
The seeds of Mr Engel’s downfall were sown as the global financial crisis started. Heading into 2008, Vestas had 15,305 workers. It ended 2010 with 23,252.Just as the entire western world went into recession and cash-strapped governments started to ease subsidies for renewable energy, Vestas pushed ahead with a big expansion. It opened its first US factory in 2008 and a year later announced plans to hire 5,000 new workers in China and the US. Shortly afterwards the first doubts surfaced about how long US subsidies for wind would last. […]The ill-timed expansion meant Vestas was suffering even more than its wind industry rivals, under pressure from cheap Chinese competition and dwindling subsidies. Two further profit warnings at the end of 2011 and start of 2012 shattered any remaining investor confidence in the Danish group and soon the chairman and finance director had paid with their jobs.
Poor strategy is only partly to blame, however. The larger, more insidious problem is wind’s inability to compete with fossil fuels. Wind, just like solar, is being propped up by government subsidies. Countries are beginning to walk back from these extensive green tax credits and feed-in tariffs, leaving companies like Vestas in the lurch.Reuters notes that as part of its effort to turn prospects around, Vestas has “halted a number of research and development projects.” That strikes as exactly the wrong move for a company trying to turn a profit in an industry that sells an inferior product. Renewable energy firms need panels and turbines with better efficiencies, and energy storage options to address problems of intermittency. You can fire as many chief officers as you’d like, but until the technology improves, the future won’t look any brighter than the fairly grim present.[Wind turbine image courtesy of Shutterstock]