Siemens Gamesa Renewable Energy executives insisted that the company will not pass along rising increased costs from U.S. steel tariffs to wind turbine customers.
Speaking during the company's July 27 earnings call for its fiscal third quarter of 2018, CEO Markus Tacke said the Spanish wind turbine maker could see costs increase 2% and 4% in 2019, depending on the specific turbine product and its supply chain. But CFO Miguel Ángel López said that project developers should not worry.
"The likelihood that we see to really pass this on to customers is rather low," López told analysts. Changes in average selling prices for wind turbines could change Siemens Gamesa's plans, but "the expectation is that we will not be very successful in passing these cost increases on to customers in the U.S."
The manufacturer's average selling price for onshore turbines in the April through June period was €700,000, lower than the company average of €730,000 since Siemens AG' wind business merged with Gamesa Corporación Tecnológica SA in April 2017. López said the company expects to see a negative impact from pricing pressures but added that its plan to reduce costs by €2 billion, in light of declining turbine prices, should cushion the effect on its bottom line.
Alok Katre, an equity analyst for Société Générale Cross Asset Research, said in an email that he expects the U.S. market to make up 15% to 20% of Siemens Gamesa sales in 2019, so the impact from U.S. steel tariffs should be mild compared to more U.S.-focused competitors like Vestas Wind Systems A/S.
In March, President Donald Trump announced plans to impose duties of 25% on steel imports, fueling concerns across the energy industry about increased project costs. During a July 25 press conference with European Commission President Jean-Claude Juncker, Trump said the two trading partners would work on moving away from tariffs on European steel. But the U.S. has not reached a similar compromise with Canada and China on taxing their steel exports.
Steel tariffs could increase costs across the wind turbine supply chain, inevitably affecting projects.
"We want to compete," Tom Kiernan, president of the American Wind Energy Association, said during a May 8 press conference at the trade group's annual conference. "We want fair market conditions, and ... we do not support these potential new tariffs. We do think they are anti-competitive… supply chains are global. That's the reality of it."
Strong order book
Siemens Gamesa reported revenues of €2.14 billion during the third quarter of 2018, down 21% year-over-year. Net profit was €44 million.
Earnings before interest and taxes for the three-month period fell 26% year-over-year to €156 million, before factoring in restructuring costs. The decline was driven by lower turbine pricing and reduced order intake volume, executives said.
Customer orders rose during the quarter: The company reported €3.29 billion in order intake for its onshore, offshore and service segments, including €9 million in solar orders. Order backlog at the end of June reached an all-time high of €23.23 billion. In terms of capacity, the turbine maker had just over 3,000 MW in order intake in the third quarter, nearly quadruple the size of orders during the same period in 2017.
"It demonstrates the confidence of our customers that they have in us, our people and our technology," Tacke said.