Vestas, the world’s biggest wind turbine manufacturer, is closing a factory in China with the loss of up to 350 jobs, it said on Monday, just three days after scrapping plans for a factory in Britain as demand slides.
Once a darling of investors, the renewable energy sector is struggling in the global economic slowdown as support for wind power and other renewable sources has been hit by government spending cuts and a downgrading of growth prospects.
Earlier this month, Vestas’ Chief Executive Ditlev Engel said the group had to get accustomed to no longer operating in a growth industry. He is under intense pressure to deliver a promised turnaround and restore investors’ confidence, which analysts say will take time.
The Danish company said on Monday that the closure of its Hohhot factory in China, which makes small kilowatt turbines, would result in 300-350 job cuts and generate annual savings of 10 million euros ($12.54 million).
That leaves it with about 2,600 employees in China, spread across two production bases in Tianjin and Xuzhou and two offices in Beijing and Shanghai.
The closure follows an announcement on Friday to drop plans to build a factory in Britain to make large turbines that would have created 2,000 direct and indirect jobs.
Vestas said it had not received a single order for the V164-7.0 megawatt turbine that was meant to be built at the UK site.
Its shares, which have collapsed from a historic high of about 700 Danish crowns ($120) in 2008 before the global financial crisis struck, were flat at 30.34 crowns at 1329 GMT. They flirted with a year low of 29.03 crowns following the announcement of the Chinese factory closure.
No quick fix
Vestas’ credibility has been hurt by two profit warnings in just three months - at the end of October and in early January - which led to a management overhaul, including the resignation of its chief financial officer and a change of chairman.
The difficulties stemming from cost overruns also led the company in January to announce 2,335 job cuts and to say it could be forced to cut a further 1,600 U.S. jobs if a tax credit is not renewed by the year end.
The company employed 22,576 people globally at the end of the first quarter.
“In order for one to start really believing in Vestas again, they have to prove that they can make money,” said Nykredit analyst Klaus Kehl.
“It is all very well that they are still the global leader within wind energy, but if that does not generate money, it does not matter,” Kehl said.
He said that neither this year nor next year look any easier for the group as revenue would continue to fall and saw no reason to start buying the stock.
Last month, Vestas reported a larger-than-expected loss for the first quarter due to delayed deliveries and rising costs, piling pressure on Engel and sending its shares sliding as much as 13 percent.
It stood by its 2012 guidance for a margin on earnings before interest and tax (EBIT) to be in a range of 0-4 percent but analysts said it now looked like the group was heading towards nil earnings this year.
The expiry of a US tax credit for renewable energy at the end of the year is another cloud looming over Vestas’ profitability.
Engel said earlier this month that the lapse of the US production tax credit (PTC) at the end of 2012 was likely to lead to an 80 percent drop in the American wind turbine market next year, which is in line with analysts’ views.
“There is an urgent need to reassess the end markets and financial returns so the company achieves its cost of capital across an economic cycle,” said Barclay’s analyst Rupesh Madlani.
“This is likely to take time to demonstrate,” he said, adding he believed the group would be able to achieve a turnaround. ($1 = 0.7977 euros) ($1 = 5.9302 Danish crowns)
