Vestas shares dive 20% on concerns over US subsidy cuts

Wind industry has been unsettled by US government proposals on tax reform

The world’s largest wind turbine manufacturer Vestas warned that competition was hurting margins.  Photograph: Bloomberg via Getty Images

The world’s largest wind turbine manufacturer Vestas warned that competition was hurting margins. Photograph: Bloomberg via Getty Images

 

Shares in Vestas plunged 20 per cent after the world’s largest wind turbine manufacturer lowered its profit guidance on the prospect of cuts in US subsidies.

The wind industry has been unsettled by parts of the US House of Representatives’ proposal on tax reform that could make renewable energy projects significantly more expensive.

Marika Fredriksson, Vestas’ chief financial officer, said uncertainty over the future of the so-called production tax credit (PTC) led the Danish group to trim its guidance for the year. Its underlying operating profit margin this year should be 12-13 per cent, down from a range of 12-14 per cent.

“We don’t know what the [US] senate will decide. What is clear is that if it is approved in its current shape and form it will have an impact on the PTC... and that is reflected in the guidance,” she added.

Investors, already rattled by the outlook in the United States with shares down 10 per cent this month before the guidance change, sent Vestas down 20.2 per cent, the biggest fall in its shares since 2012, when there were fears over its financial collapse.

Crisis

Vestas has recovered strongly from a previous crisis in 2010-13 that also involved worries about the continuation of US government support for the wind industry. Its share price has risen more than 20-fold since the end of 2012.

As a sign of the uncertainty, the Danish group changed its guidance for free cash flow for 2017 from at least €700 million to a range of €450 million to €900 million due to a lack of visibility on US orders in the crucial fourth quarter for turbine manufacturers.

Ms Fredriksson argued that activity level was still high and that wind turbine makers could now compete in most of the world without subsidies.

The Danish group is facing increased competition from Chinese competitors as well as General Electric and Siemens Gamesa. Vestas warned that competition was hurting margins.

– Copyright The Financial Times Limited 2017