Battling supply chain turmoil, Vestas hikes price of wind turbines

Continued supply chain instability and inflated raw material costs forced Vestas Wind Systems A/S to hike the price of its wind turbines in 2021, CEO Henrik Andersen told analysts Jan. 26.

The average selling price, or ASP, of Vestas' order intake during 2021 rose to €810,000/MW for onshore wind turbines, up from €740,000/MW in 2020.

The increase in ASP was even more pronounced for the company's fourth-quarter order intake, with onshore prices rising more than 21% year over year to €860,000/MW. Andersen previously said that the market environment had "turned worse" for wind-turbine makers toward the end of 2021.

"Beyond any doubt, we are increasing prices," the CEO said Jan. 26 as the Danish manufacturer released its preliminary earnings for 2021. The pricing symbolizes what is required to make its contracts profitable today, he said.

Vestas' priority remains on getting the right orders rather than focusing on market share, Andersen added. Vestas' order intake for the full year was 13.9 GW, down from 17.2 GW in 2020.

"If market share is a question about having an ASP that doesn't cover ... the direct cost of the project, then that doesn't make any sense of talking about market share," the CEO said. "We would rather have a limited or a lower activity than we would sit and execute on potentially onerous projects which we won't accept."

In a difficult operating landscape, Vestas recorded preliminary revenue of €15.59 billion in 2021, up from €14.82 billion in 2020. The total is a "record high" for the company, driven by increased service activity and offshore wind, and sits just within its guided range of €15.5 billion to €16.5 billion.

Looking ahead to 2022, the company expects revenue between €15.0 billion and €16.5 billion.

Benefits of hindsight

Supply chain issues have plagued Vestas and other wind-turbine makers since early 2021, with the cost of steel in particular — a key component of turbines — soaring to long-term highs during the year and logistics issues delaying projects.

These issues were so pervasive that the ASP of Vestas turbines across the whole of 2021 should have been even higher, Andersen said. The company's ASP for onshore turbines in the first three quarters of the year was on average about 7.5% lower than the fourth and even dropped slightly from the first to the second quarter.

"Had we known what we know in Q4, of course, the average ASP for the year should have been higher," Andersen said. "One of the challenges in the industry [is] that we ... cannot reprice back in time."

Executives at Siemens Gamesa Renewable Energy SA, the other major European wind-turbine maker, expect to see an increase in the company's own ASP when it reports annual results in February. The company has begun including clauses in new turbine contracts that protect it from any future price increases.

"If this situation comes up in the coming years, we will be more protected," Siemens Gamesa CFO Beatriz Puente said Jan. 20 on a call with analysts.

At Vestas, Andersen opted not to offer assumptions on how the company's ASP might develop during 2022, saying only that expectations at the beginning of 2021 on how the year might develop were different from reality.

"We have learned quite a lot in four quarters of [2021]," the CEO said. "So I won't embark into the journey of trying to give you any predictions of that, but we are happy with the ASP in [the fourth quarter] ... otherwise we wouldn't have taken the orders."